<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
------------------------------------------------
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-9640
--------------------------------------------------------
MERCHANTS GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1280763
- ---------------------------------------- -------------------
(State or otherjurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Main Street, Buffalo, New York 14202
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(716) 849-3333
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 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.
x Yes No
--- ---
As of May 1, 1995, 3,158,188 shares of Common Stock, $.01 par value per
share, were outstanding.
This document contains 18 pages.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
MERCHANTS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<CAPTION>
December 31, March 31,
Assets 1994 1995
------ ------------ ---------
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity at amortized cost
(fair value $31,863 in 1994 and
$32,579 in 1995) $ 33,933 $ 33,983
Available for sale at fair value
(amortized cost $135,034 in 1994
and $137,255 in 1995) 127,972 132,698
Other long-term investments at
fair value (amortized cost
$5,557 in 1994 and $5,247 in 1995) 4,387 4,377
Short-term investments 4,455 1,830
------------ ---------
Total investments 170,747 172,888
Cash 18 8
Interest due and accrued 1,965 1,470
Premiums receivable, net of allow-
ance for doubtful accounts of
$368 in 1994 and $391 in 1995 18,051 19,319
Deferred policy acquisition costs 11,587 11,565
Ceded reinsurance balances receivable 7,632 7,198
Prepaid reinsurance premiums 2,370 2,498
Deferred federal income tax benefit 7,738 7,045
Other assets 2,299 1,745
------------ ---------
Total assets $222,407 $223,736
============ =========
</TABLE>
See Notes to the Consolidated Financial Statements.
2
<PAGE> 3
MERCHANTS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ---------
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Reserve for losses and loss
adjustment expenses $104,015 $102,633
Unearned premiums 45,449 45,513
Other liabilities 5,267 5,353
Payable to affiliate 397 463
------------- ----------
Total liabilities 155,128 153,962
------------- ----------
Stockholders' equity:
Common stock, 3,158,188 shares
issued and outstanding at
December 31, 1994 and March 31, 1995 32 32
Additional paid in capital 34,678 34,678
Unrealized investment losses,
net of tax (6,878) (5,336)
Accumulated earnings 39,447 40,400
------------- ----------
Total stockholders' equity 67,279 69,774
------------- ----------
Commitments and contingent liabilities - -
Total liabilities and stock-
holders' equity $222,407 $223,736
============= ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
3
<PAGE> 4
MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1994 1995
------- --------
<S> <C> <C>
Revenues:
Net premiums earned $22,562 $22,710
Net investment income 2,550 2,523
Realized investment losses (3) -
Other revenues 82 273
------- --------
Total revenues 25,191 25,506
------- --------
Expenses:
Net losses and loss adjustment
expenses 17,467 15,842
Amortization of deferred policy
acquisition costs 6,066 6,279
Other underwriting expenses 1,941 1,860
------- -------
Total expenses 25,474 23,981
------- --------
Income (loss) before income taxes (283) 1,525
Provision (benefit) for income taxes (308) 414
------- --------
Net income $ 25 $ 1,111
======= ========
Primary and fully diluted earnings
per share $ .01 $ .35
======= ========
Weighted average shares outstanding:
Primary and fully diluted 3,178 3,176
</TABLE>
See Notes to the Consolidated Financial Statements.
4
<PAGE> 5
MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1994 1995
------- -------
<S> <C> <C>
Common stock, beginning and end $ 32 $ 32
------- --------
Additional paid in capital:
Beginning of period 34,659 34,678
Exercise of common stock options 9 -
-------- --------
End of period 34,668 34,678
-------- --------
Unrealized investment gains (losses),
net of tax:
Beginning of period 1,445 (6,878)
Change during the period (3,625) 1,542
--------- --------
End of period (2,180) (5,336)
--------- --------
Accumulated earnings:
Beginning of period 38,947 39,447
Net income 25 1,111
Cash dividend on common stock (157) (158)
--------- --------
End of period 38,815 40,400
--------- --------
Total stockholders' equity $71,335 $69,774
========= ========
</TABLE>
See Notes to the Consolidated Financial Statements.
5
<PAGE> 6
MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Cash flows from operations:
Collection of premiums $22,168 $20,921
Payment of losses and loss
adjustment expenses (14,568) (16,268)
Payment of other underwriting
expenses (8,283) (7,961)
Investment income received 2,784 3,097
Investment expenses paid (40) (38)
Income taxes paid (261) -
Other cash receipts 82 273
-------- ---------
Net cash provided by operations 1,882 24
-------- ---------
Cash flows from investing activities:
Proceeds from fixed maturities
sold or matured 2,474 1,773
Purchase of fixed maturities (11,814) (4,254)
Net decrease in other
long-term investments 20 10
Net (increase) decrease in
short-term investments (1,098) 2,625
Purchase of equipment, net (83) (30)
-------- ---------
Net cash provided by (used in)
investing activities (10,501) 124
-------- ---------
Cash flows from financing activities:
Funds borrowed under repurchase
agreement 8,775 -
Exercise of common stock options 9 -
Cash dividend on common stock (157) (158)
-------- ---------
Net cash provided by (used in)
financing activities 8,627 (158)
-------- ---------
Increase (decrease) in cash
and cash equivalents 8 (10)
Cash:
Beginning of period 4 18
-------- ---------
End of period $ 12 $ 8
======== =========
</TABLE>
See Notes to the Consolidated Financial Statements.
6
<PAGE> 7
MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1994 1995
------- --------
<S> <C> <C>
Net income $ 25 $ 1,111
Adjustments:
Depreciation and amortization (62) 87
Realized investment losses 3 -
(Increase) decrease in assets:
Interest due and accrued 295 495
Premiums receivable (35) (1,268)
Deferred policy acquisition costs 338 22
Ceded reinsurance balances receivable (1,177) 434
Prepaid reinsurance premiums (18) (128)
Deferred federal income tax benefit (186) (100)
Other assets (563) 537
Increase (decrease) in liabilities:
Reserve for losses and loss
adjustment expenses 3,555 (1,382)
Unearned premiums (1,245) 64
Other liabilities (403) 86
Payable to affiliate 1,418 66
Federal income taxes payable (63) -
------- --------
Net cash provided by operations $ 1,882 $ 24
======= ========
</TABLE>
See Notes to the Consolidated Financial Statements.
7
<PAGE> 8
MERCHANTS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated balance sheet as of March 31, 1995 and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows for the three months ended March 31, 1994 and 1995 are unaudited.
In the opinion of management, the interim financial statements reflect all
adjustments necessary for a fair presentation of financial position and results
of operations. Such adjustments consist only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements include the accounts of Merchants Group,
Inc. (the "Company"), its wholly-owned subsidiary, Merchants Insurance Company
of New Hampshire, Inc. ("MNH"), and M.F.C. of New York, Inc., an inactive
premium finance company which is a wholly-owned subsidiary of MNH.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") which differ in some respects
from those followed in reports to insurance regulatory authorities. All
significant intercompany balances and transactions have been eliminated.
2. Related Party Transactions
--------------------------
The Company and MNH do not have any paid employees. Under a management
agreement, Merchants Mutual Insurance Company ("Mutual") which owns 8.1% of the
Company's common stock at March 31, 1995, provides the Company and MNH with the
facilities, management and personnel required to manage their day-to-day
business. All underwriting, administrative, claims and investment expenses
incurred on behalf of Mutual and MNH are shared on an allocated cost basis,
determined as follows: for underwriting and administrative expenses, the
respective share of total direct premiums written for Mutual and MNH serves as
the basis of allocation; for claims expenses, the average number of outstanding
claims is used; investment expenses are shared based on each company's share of
total invested assets.
8
<PAGE> 9
The Company has been advised by Mutual that the New York Insurance Department
("Department") has completed its statutorily required examination of Mutual for
the five years ended December 31, 1992, and has concluded that Mutual's minimum
required statutory surplus to policyholders was impaired in the amount of
$1,234,578 as of December 31, 1992. However, the Department's report
acknowledges that Mutual's sale of shares of the Company's common stock in 1993
eliminated that technical impairment.
3. Earnings Per Share
------------------
Primary and fully diluted earnings per share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
during each period, increased by the assumed exercise of 72,434 and 66,073
shares of common stock options in 1995 and 1994, respectively, which would have
resulted in 17,406 and 21,161 additional shares outstanding, respectively,
assuming the proceeds to the Company from exercise were used to purchase shares
of the Company's common stock, at its average market value per share during the
quarter.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations for the Three Months Ended March 31, 1995 As Compared to
- ------------------------------------------------------------------------------
the Three Months Ended March 31, 1994
- -------------------------------------
Total revenues increased by 1% from $25,191,000 for the three months ended
March 31, 1994 to $25,506,000 for the three months ended March 31, 1995. Net
premiums earned increased $148,000, or 1%, and other revenues increased
$191,000 or 233% due to an unanticipated increase in income from state
administered reinsurance facilities. Net investment income decreased $27,000,
or 1%.
Net premiums written increased by 6% from $21,299,000 for the three months
ended March 31, 1994 to $22,647,000 for the three months ended March 31, 1995
primarily as a result of a 5% increase in direct premiums written.
Voluntary commercial lines direct premiums written increased by 8% from
$12,453,000 in the three months ended March 31, 1994 to $13,418,000 in the
three months ended March 31, 1995. Workers' compensation direct premiums
written increased 17%, businessowners products increased 8% and commercial auto
direct written premiums increased 7% in the three months ended March 31, 1995
compared to the three months ended March 31, 1994. Year-to-date commercial
retention rates for the period ended March 31, 1995 improved by 4.5 percentage
points compared to the year earlier period. Commercial new business units
(policies which were written by the company for the first time) for the three
months ended March 31, 1995 increased by 16% compared to the three months ended
March 31, 1994. Voluntary commercial lines policies in force at March 31, 1995
increased by 2% compared to March 31, 1994.
Voluntary personal lines direct premiums written increased by 4% from
$7,388,000 in the three months ended March 31, 1994 to $7,688,000 in the three
months ended March 31, 1995, primarily due to homeowner policies direct
premiums written, which increased 16% from the year earlier period. This
increase in homeowners business resulted primarily from a 1% increase in
homeowner policies in force and an 8% increase in average homeowner premium per
policy as compared to the year earlier period.
Involuntary direct premiums written, primarily involuntary personal automobile
insurance, which comprised 8% and 6% of all direct premiums written during the
three months ended March 31, 1994 and 1995 respectively, decreased by 14% from
$1,664,000 in the three months ended March 31, 1994 to $1,431,000 in the three
months ended March 31, 1995. This decrease resulted from a reduction in the
Company's voluntary personal auto market share in prior years, which in turn
reduced involuntary personal auto assignments.
10
<PAGE> 11
Net investment income decreased by 1% from $2,550,000 for the three months
ended March 31, 1994 to $2,523,000 for the three months ended March 31, 1995.
On a taxable equivalent basis, net investment income decreased by 5%. During
the three months ended March 31, 1994, the Company enhanced investment income
by executing certain positive carry trades. These trades involved borrowing
funds on a short-term basis and investing the proceeds long-term at higher
interest rates. These trades increased investment income during the three
months ended March 31, 1994 by approximately $56,000. Similar trades were not
available during the three months ended March 31, 1995. Further, the Company
periodically re-evaluates expected future cash flows pertaining to its
collateralized mortgage obligation ("CMO") investments and records any
resulting adjustments to investment income. In response to the increase in
market interest rates experienced during 1994 which resulted in faster
prepayments than prevously anticipated, the Company re-evaluated the expected
future cash flows associated with its CMO investments during the first quarter
of 1995. This re-evaluation of expected future cash flows resulted in a
decrease in investment income during the three months ended March 31, 1995 of
approximately $55,000.
There were no material gains or losses realized from the sale of investments in
the three months ended March 31, 1994 or in the three months ended March 31,
1995.
Loss and loss adjustment expenses ("LAE") decreased by 9% from $17,467,000 in
the three months ended March 31, 1994, to $15,842,000 in the three months ended
March 31, 1995. The loss and LAE ratio decreased from 77.4% in the three
months ended March 31, 1994 to 69.8% in the three months ended March 31, 1995.
Losses and LAE in the three months ended March 31, 1994 included $2,100,000 of
losses related to unusually severe winter weather that affected the
northeastern United States during that period. These weather related losses
increased the loss and LAE ratio in the three months ended March 31, 1994 by
9.3 percentage points. If the effect of these storms were excluded from losses
and LAE, the loss and LAE ratio would have increased 1.7 percentage points from
the three months ended March 31, 1994 to the three months ended March 31, 1995.
The ratio of amortized policy acquisition costs and other underwriting expenses
to net premiums earned increased from 35.5% for the three months ended March
31, 1994 to 35.8% for the three months ended March 31, 1995. Commissions,
premium taxes and other state assessments that vary directly with the Company's
premium volume represented 22.4% of net premiums earned in the three months
ended March 31, 1995 compared to 23.3% of net premiums earned in the three
months ended March 31, 1994.
11
<PAGE> 12
The Company's effective federal income tax rate on operating income for the
three months ended March 31, 1995 was 27.1%. Tax-exempt bond income reduced the
Company's effective tax rate by 15 percentage points for the three months ended
March 31, 1995.
Liquidity and Capital Resources
- -------------------------------
In developing its investment strategy, the Company determines a level of cash
and short-term investments which, when combined with expected cash flow, is
estimated to be adequate to meet expected cash obligations. Historically, the
excess of premiums collected over payments on claims, combined with cash flow
from investments, has provided the Company with short-term funds in excess of
normal operating demands for cash.
Net cash provided by operations decreased by $1,858,000 from a $1,882,000 in
the three months ended March 31, 1994 to $24,000 in the three months ended
March 31, 1995. This decrease was due to a $1,700,000 increase in the payment
of losses and LAE, and a $1,247,000 reduction in cash from the collection of
premiums. These decreases were somewhat offset by a $261,000 decrease in
income taxes paid and a $313,000 increase in investment income received. Paid
losses related to direct premiums written increased $967,000, paid losses
assumed from state administered reinsurance facilities increased $392,000 and
ceded paid losses decreased $341,000, compared to the three months ended March
31, 1994.
Net cash used in investing activities decreased $10,625,000 from a $10,501,000
use of cash in the three months ended March 31, 1994 to a $124,000 source of
cash in the three months ended March 31, 1995. This decrease in net cash used
in investing activities resulted primarily from a $7,560,000 decrease in cash
used to purchase fixed maturities.
Net cash provided by financing activities decreased $8,785,000 from an
$8,627,000 source of cash in the three months ended March 31, 1994 to a
$158,000 use of cash in the three months ended March 31, 1995. This decrease
was primarily due to an $8,775,000 decline in funds borrowed under repurchase
agreements.
The Company has several objectives with respect to its investment portfolio,
which include maximizing total return while protecting policyholders' surplus,
maintaining flexibility and liquidity, and maintaining a reasonable duration
match between assets and liabilities. Like other property and casualty
insurers, the Company relies on premiums as a major source of cash, and
therefore liquidity. Cash flows from the Company's investment portfolio, either
in the form of interest or principal payments, are an additional source of
liquidity. Because the duration of the Company's
12
<PAGE> 13
investment portfolio and liabilities are relatively matched, substantial
increases or decreases in market interest rates are not expected to have a
material effect on the Company's liquidity, or its results of operations.
The Company generally designates newly acquired fixed maturity investments as
available for sale and carries these investments at fair value. The Company's
investment in Signet Group Plc. ("Signet") cumulative auction rate preference
shares included in other long-term investments is carried at fair value. At
December 31, 1994, the Company had recorded $10,421,000 of unrealized losses
associated with its fixed maturity investments. During the three months ended
March 31, 1995, the Company recorded a $300,000 unrealized gain related to its
Signet investment. Further, as a result of the stabilization of interest rates
during the period and the $300,000 unrealized gain recorded related to Signet,
the Company recorded $1,542,000 of unrealized gains net of tax, during the
three months ended March 31, 1995.
At March 31, 1995, the Company's bond portfolio represented 96.4% of invested
assets. Management believes that this level of bond holdings will not
adversely affect the Company's liquidity because it expects that cash receipts
from net premiums written and investment income will be sufficient to enable
the Company to satisfy its cash obligations in 1995. Furthermore, a
substantial portion of the Company's bond portfolio is invested in
mortgage-backed and other asset-backed securities, which, in addition to
interest income, provide monthly paydowns of bond principal.
At March 31, 1995, $74,230,000 or 42.9% of the Company's investment portfolio
was invested in mortgage-backed and other asset backed securities, primarily
planned amortization class ("PAC") and sequential pay CMO's. A PAC-CMO has an
amortization schedule that is protected against prepayment risk under a wide
range of interest rate scenarios and is therefore less susceptible to
prepayment risk than other mortgage backed securities. The Company has not
invested in the more volatile types of CMO products such as interest only,
principal only or inverse floating rate securities. All of the Company's CMO
investments have an active secondary market and their effect on the Company's
liquidity does not differ from that of other fixed maturity investments. The
Company does not own any other derivative financial instruments such as futures
or options.
At March 31, 1995, $1,558,000, or .9%, of the Company's investment portfolio
was invested in non-investment grade securities.
13
<PAGE> 14
As a holding company, the Company is dependent on cash dividends from MNH to
meet its obligations and pay any cash dividends. MNH is subject to New
Hampshire insurance laws which place certain restrictions on its ability to pay
dividends without the prior approval of state regulatory authorities. These
restrictions limit dividends to those that, when added to all other dividends
paid within the preceding twelve months, would not exceed 10% of the insurer's
statutory policyholders' surplus as of the preceding December 31. The maximum
amount of dividends that MNH could pay during any twelve month period ending in
1995 without the prior approval of the New Hampshire Insurance Commissioner is
$5,168,000. MNH did not pay any dividends to the Company during the three
months ended March 31, 1995.
Under a management agreement, Mutual provides employees, services and
facilities for MNH to carry on its insurance business on a cost reimbursed
basis. The balance in the payable to affiliate account represents the amount
owed to Mutual by the Company for the difference between premiums collected and
payments made for losses, employees, services and facilities by Mutual on
behalf of MNH.
During 1990 MNH paid Mutual approximately $6,000,000 for losses related to the
1987 through 1990 policy years on involuntary automobile insurance policies
issued by Mutual under automobile insurance plans ("AIP"). In connection with
the New York Insurance Department's statutory examination of Mutual, in
December 1993 the New York Insurance Department stated that MNH should pay
Mutual approximately $800,000 to compensate Mutual for the time value of these
funds. It is the Company's position that Mutual and MNH properly addressed
this matter in 1990 and settled any remaining claim for payment as part of the
1994 settlement of AIP losses previously reported, and no additional payments
are due.
On November 1, 1994, Mutual filed an application with the New York Insurance
Department to convert from a mutual to a stock corporation under the New York
law that permits a mutual insurance company to demutualize. In such a
demutualization a mutual insurance company's policyholders and surplus note
holders are entitled to receive their equitable share of that company's
appraised fair market value in cash or securities or a combination thereof.
Mutual's application is currently pending with the Department, and must
ultimately be approved by the Department and Mutual's policyholders after the
Department has determined Mutual's fair market value based upon an independent
appraisal. The Company has advised Mutual and the New York Insurance
Department of its interest in sponsoring Mutual's demutualization, and Mutual
has granted the Company a right of first refusal in that regard. The Company
would consider acquiring Mutual if it determines that the appraised value is
acceptable and it has sufficient capital to fund the acquisition. In the event
the Company is
14
<PAGE> 15
not able to acquire Mutual at a price, on terms or in a time frame acceptable
to the Company, the Company may elect to develop its own management structure
and might, therefore, terminate the management agreement with Mutual, subject
to its required five year notice provision, or request that Mutual and the New
York Insurance Department agree to amend the management agreement. Such an
amendment might include, but not be limited to, a shortening of the termination
period.
MNH, like many other property-casualty insurance companies, is subject to
environmental damage claims asserted by or against its insureds. Management of
the Company is of the opinion that based on various court decisions throughout
the country, such claims should not be recoverable under the terms of MNH's
insurance policies because of either specific or general coverage exclusions
contained in the policies. However, there is no assurance that the courts will
agree with MNH's position in every case, nor can there be assurance that
material claims will not be asserted under policies which a court will find do
not explicitly or implicitly exclude claims for environmental damages.
Management, however, is not aware of any pending claim or group of claims which
would result in a liability that would have a material adverse effect on the
financial condition of the Company or MNH.
Industry and regulatory guidelines suggest that the ratio of a
property-casualty insurer's annual net premiums written to its statutory
surplus should not exceed 3 to 1. The Company has consistently followed a
business strategy that would allow it to meet this 3 to 1 regulatory guideline.
For the first three months of 1995 MNH's ratio of net premiums written to
statutory surplus, annualized for a full year, was 1.6 to 1.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(11) Statement re computation of per share earnings
(filed herewith).
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
period for which this report is filed.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCHANTS GROUP, INC.
(Registrant)
Date: May 11, 1995 By: /s/ Robert M. Zak
------------------
Robert M. Zak
Senior Vice President,
Secretary and Treasurer (duly
authorized officer
of the registrant and chief accounting
officer)
17
<PAGE> 1
Exhibit II
MERCHANTS GROUP, INC.
Computation of Income Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
---------------
1994 1995
------- --------
<S> <C> <C>
Net income for computing earnings
per common share - without dilution
and fully diluted $ 25 $ 1,111
======= ========
Weighted average number of common
shares outstanding - without
dilution 3,157 3,158
Addition from assumed exercise as of
the beginning of the period, of
common stock options outstanding
as of the end of the period, reduced
by the number of shares assumed to
have been repurchased by the company
with the proceeds from exercise, at
the average market value per share
during the period 21 18
------- --------
Weighted average number of common
shares and common share equivalents
outstanding, primary and fully diluted 3,178 3,176
======= ========
Primary and fully diluted earnings
per share $ .01 $ .35
======= ========
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 8,000
<SECURITIES> 172,888,000
<RECEIVABLES> 19,319,000
<ALLOWANCES> 391,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 223,736,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 32,000
0
0
<OTHER-SE> 69,742,000
<TOTAL-LIABILITY-AND-EQUITY> 223,736,000
<SALES> 22,710,000
<TOTAL-REVENUES> 25,506,000
<CGS> 15,842,000
<TOTAL-COSTS> 6,279,000
<OTHER-EXPENSES> 1,860,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,525,000
<INCOME-TAX> 414,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111,000
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
