<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
-------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 1-9640
-------------
MERCHANTS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
16-1280763
(I.R.S. Employer Identification No.)
250 MAIN STREET, BUFFALO, NEW YORK
(Address of principal executive offices)
14202
(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 1, 1997:
3,000,102 SHARES OF COMMON STOCK.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERCHANTS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1996 1997
------ ---- ----
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity at amortized cost (fair value
$19,921 in 1996 and $19,408 in 1997) $ 19,549 $ 19,568
Available for sale at fair value (amortized cost
$163,500 in 1996 and $163,516 in 1997) 163,567 160,522
Other long-term investments at fair value 10,233 11,957
Short-term investments 8,248 14,760
-------- --------
Total investments 201,597 206,807
Cash 11 8
Interest due and accrued 1,793 1,575
Premiums receivable, net of allowance for doubtful
accounts of $571 in 1996 and $546 in 1997 20,501 19,359
Deferred policy acquisition costs 12,396 11,871
Ceded reinsurance balances receivable 7,835 7,854
Prepaid reinsurance premiums 2,932 2,782
Receivable from affiliate 327 1,146
Federal income tax receivable 1,266 1,103
Deferred federal income tax benefit 6,645 7,380
Other assets 6,820 6,917
-------- --------
Total assets $262,123 $266,802
======== ========
</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,
1996 1997
--------- ---------
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Reserve for losses and loss adjustment expenses $ 133,479 $ 134,880
Unearned premiums 49,710 47,578
Payable for securities -- 8,820
Other liabilities 13,905 12,646
--------- ---------
Total liabilities 197,094 203,924
--------- ---------
Stockholders' equity:
Common stock, 10,000,000 shares authorized, 3,220,352
shares issued at December 31, 1996 and 3,226,102
shares issued at March 31, 1997 32 32
Additional paid in capital 35,372 35,455
Treasury stock, 160,700 shares at December 31, 1996
and 226,000 shares at March 31, 1997 (2,983) (4,177)
Unrealized investment losses, net of tax (603) (1,977)
Accumulated earnings 33,211 33,545
--------- ---------
Total stockholders' equity 65,029 62,878
--------- ---------
Commitments and contingent liabilities -- --
Total liabilities and stockholders' equity $ 262,123 $ 266,802
========= =========
</TABLE>
See Notes to the Consolidated Financial Statements
3
<PAGE> 4
MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1997
-------- -------
<S> <C> <C>
Revenues:
Net premiums earned $ 23,441 $23,000
Net investment income 2,800 3,029
Net realized investment gains 7 107
Other revenues 126 61
-------- -------
Total revenues 26,374 26,197
-------- -------
Expenses:
Net losses and loss adjustment expenses 18,817 17,896
Amortization of deferred policy acquisition costs 6,212 6,095
Other underwriting expenses 1,673 1,589
-------- -------
Total expenses 26,702 25,580
-------- -------
Income (loss) before income taxes (328) 617
Provision (benefit) for income taxes (67) 136
-------- -------
Net income (loss) $ (261) $ 481
======== =======
Primary and fully diluted earnings (loss) per share $ (.08) $ .16
======== =======
Weighted average shares outstanding:
Primary and fully diluted 3,222 3,035
</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,
1996 1997
-----------------------
<S> <C> <C>
Common stock, beginning and end $ 32 $ 32
-------- --------
Additional paid in capital:
Beginning of period 35,302 35,372
Exercise of common stock options 9 83
-------- --------
End of period 35,311 35,455
-------- --------
Treasury stock:
Beginning of period -- (2,983)
Purchase of treasury shares -- (1,194)
-------- --------
End of period -- (4,177)
-------- --------
Unrealized investment losses, net of tax:
Beginning of period (357) (603)
Depreciation (733) (1,374)
-------- --------
End of period (1,090) (1,977)
-------- --------
Accumulated earnings:
Beginning of period 34,993 33,211
Net income (loss) (261) 481
Cash dividends (161) (147)
-------- --------
End of period 34,571 33,545
-------- --------
Total stockholders' equity $ 68,824 $ 62,878
======== ========
</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,
1996 1997
-------------------
<S> <C> <C>
Cash flows from operations:
Collection of premiums $ 23,190 $ 22,570
Payment of losses and loss adjustment expenses (15,614) (16,905)
Payment of other underwriting expenses (10,180) (8,530)
Investment income received 2,780 3,294
Investment expenses paid (36) (72)
Income taxes recovered 509 --
Other cash receipts 126 61
-------- --------
Net cash provided by operations 775 418
-------- --------
Cash flows from investing activities:
Proceeds from fixed maturities sold or matured 8,541 20,157
Purchase of fixed maturities (3,891) (19,083)
Net increase in other long-term investments (2,142) (1,719)
Net increase in short-term investments (4,815) (6,512)
Purchase of equipment, net (35) (5)
-------- --------
Net cash used in investing activities (2,342) (7,162)
-------- --------
Cash flows from financing activities:
Settlement of affiliate balances 1,684 (819)
Exercise of common stock options 9 84
Cash borrowed to purchase securities -- 8,820
Purchase of treasury stock -- (1,194)
Cash dividends and other, net (161) (150)
-------- --------
Net cash provided by financing activities 1,532 6,741
-------- --------
Decrease in cash and cash equivalents (35) (3)
Cash:
Beginning of period 39 11
-------- --------
End of period $ 4 $ 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,
1996 1997
------------------
<S> <C> <C>
Net income (loss) $ (261) $ 481
Adjustments:
Depreciation and amortization (12) 31
Realized investment gains (7) (107)
(Increase) decrease in assets:
Interest due and accrued 3 218
Premiums receivable 1,346 1,142
Deferred policy acquisition costs 526 525
Ceded reinsurance balances receivable 82 (19)
Prepaid reinsurance premiums 94 150
Federal income tax receivable 659 163
Deferred federal income tax benefit (217) (28)
Other assets (14) (148)
Increase (decrease) in liabilities:
Reserve for losses and loss adjustment expenses 3,490 1,401
Unearned premiums (2,079) (2,132)
Other liabilities (2,835) (1,259)
------- -------
Net cash provided by operations $ 775 $ 418
======= =======
</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, 1997 and the related consolidated
statements of operations, of changes in stockholders' equity and of cash flows
for the three months ended March 31, 1996 and 1997 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
accompanying consolidated financial statements should be read in conjunction
with the following notes and the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
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. Certain
1996 amounts have been reclassified to conform with 1997 presentation.
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 8.5% of the
Company's common stock at March 31, 1997, 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
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 34,250 and 25,915
shares of common stock options in 1997 and 1996, respectively, which would have
resulted in 7,303 and 7,770 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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share". This
statement prescribes standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 simplifies current standards for computing EPS and makes
such presentation consistent with international EPS standards.
The Company is required to adopt the requirements of SFAS No. 128 at the end of
1997. Earlier adoption is not permitted. The Company does not expect SFAS No.
128 to have a material impact on EPS.
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, 1997 As Compared to
- ------------------------------------------------------------------------------
the Three Months Ended March 31, 1996
- -------------------------------------
Total revenues for the three months ended March 31, 1997 were $26,197,000, down
1% from $26,374,000 for the three months ended March 31, 1996.
Net premiums earned for the three months ended March 31, 1997 were $23,000,000,
a decrease of $441,000 or 2% from $23,441,000 for the three months ended March
31, 1996. The decrease in net premiums earned primarily resulted from a 2%
decrease in net premiums written. Direct premiums written for the three months
ended March 31, 1997 were $22,542,000, a decrease of 2% from $23,043,000 for the
three months ended March 31, 1996.
Voluntary personal lines direct premiums written for the three months ended
March 31, 1997 were $9,139,000, an increase of 11% from $8,246,000 for the three
months ended March 31, 1996, primarily due to private passenger automobile
("PPA") direct premiums written, which increased 12% from the year earlier
period. This increase in PPA business resulted from a 6% increase in policies in
force and a 6% increase in average premium per policy. Voluntary personal lines
direct premiums written represented 44% and 39% of total voluntary direct
premiums written for the three months ended March 31, 1997 and 1996,
respectively.
Voluntary commercial lines direct premiums written for the three months ended
March 31, 1997 were $11,672,000, a decrease of 10% from $12,908,000 for the
three months ended March 31, 1996. This decrease resulted primarily from a 9%
decrease in commercial lines policies in force. Policies in force at March 31,
1997 declined as compared to March 31, 1996 in each of the Company's commercial
lines of business.
In 1997 the Company continued the program initiated in 1995 to increase its
mandatory deductibles and its minimum premium levels on certain of its
commercial lines of business, primarily its businessowners and multi-peril
lines. In conjunction with these actions, the Company discounted its premium
rates 15% for its workers' compensation line of business. These discounted rates
combined with other refinements were designed to attract the entire insurance
business of preferred risk commercial accounts and to eliminate certain small
premium policies which were generally unprofitable. These actions contributed to
the decrease in commercial lines policies in force.
Involuntary direct premiums written, primarily PPA insurance, which comprised 8%
of all direct premiums written during the three months ended March 31, 1997 and
1996, decreased by 8% to $1,731,000 in the three months ended March 31, 1997
from $1,889,000 for the three months ended March 31, 1996.
Net investment income was $3,029,000 for the three months ended March 31, 1997,
an increase of 8% from $2,800,000 for the three months ended March 31, 1996, due
to a 7% increase in invested assets.
10
<PAGE> 11
Net realized gains on the sale of investments were $107,000 for the three months
ended March 31, 1997, an increase of $100,000 from $7,000 for the three months
ended March 31, 1996.
Losses and loss adjustment expenses ("LAE") were $17,896,000 for the three
months ended March 31, 1997, a decrease of $921,000 or 5% from $18,817,000 for
the three months ended March 31, 1996. The loss and LAE ratio decreased to 77.8%
for the three months ended March 31, 1997 from 80.3% for the three months ended
March 31, 1996. Losses and LAE in the three months ended March 31, 1996 included
$2,200,000 of losses related to unusually severe winter weather that affected
the northeastern United States during that period. These higher than normal
weather related losses increased the loss and LAE ratio in the three months
ended March 31, 1996 by 9.4 percentage points.
The ratio of amortized policy acquisition costs and other underwriting expenses
to net premiums earned decreased to 33.4% for the three months ended March 31,
1997 from 33.6% for the three months ended March 31, 1996. Commissions, premium
taxes and other state assessments that vary directly with the Company's premium
volume represented 21.0% of net premiums earned in the three months ended March
31, 1997 compared to 19.8% of net premiums earned in the three months ended
March 31, 1996.
The Company's effective federal income tax rate for the three months ended March
31, 1997 was 22.0%. This rate was calculated based upon the Company's estimate
of its effective federal income tax rate for all of 1997. Non-taxable investment
income, primarily tax-exempt bond income reduced the Company's effective tax
rate by 12 percentage points. During the three months ended March 31, 1996, the
Company recorded an income tax benefit which resulted from its pre-tax loss.
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 $357,000 from $775,000 in the three
months ended March 31, 1996 to $418,000 in the three months ended March 31,
1997. This decrease was primarily due to a $1,291,000 increase in the payment of
losses and LAE, a $509,000 decrease in income taxes recovered, partially offset
by a $1,650,000 decrease in other underwriting expenses paid.
Net cash used in investing activities increased $4,820,000 from $2,342,000 in
the three months ended March 31, 1996 to $7,162,000 in the three months ended
March 31, 1997. This increase in net cash used in investing activities resulted
primarily from a $3,576,000 decrease in net cash provided by investments in
fixed maturities and a $1,697,000 increase in net cash used to acquire
short-term investments.
11
<PAGE> 12
Net cash provided by financing activities increased $5,209,000 from $1,532,000
in the three months ended March 31, 1996 to $6,741,000 in the three months ended
March 31, 1997, due to a $8,820,000 increase in cash borrowed to purchase
securities, partially offset by a $1,194,000 increase in cash used to purchase
common stock for treasury and a $2,503,000 increase in the amount owed to
Mutual.
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 investment portfolio and liabilities are
closely managed, 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. Unrealized gains
and losses related to these investments are recorded as a component of
stockholders' equity. During the three months ended March 31, 1997 the Company
recorded a $1,374,000 increase in unrealized losses, net of tax. At March 31,
1997, the Company had recorded $1,977,000 of unrealized losses, net of tax,
associated with its fixed maturity investments.
At March 31, 1997, the Company's portfolio of fixed maturities represented 87.1%
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 1997. Furthermore, a
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, 1997, $112,766,000 or 54.5% of the Company's investment portfolio
was invested in mortgage-backed and other asset backed securities. The Company
invests in a variety of collateralized mortgage obligation ("CMO") products but
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.
At March 31, 1997, $2,339,000, or 1.1%, of the Company's investment portfolio
was invested in non-investment grade securities.
12
<PAGE> 13
On March 10, 1997 the Company announced that its Board of Directors authorized
the repurchase of up to 100,000 additional shares of the Company's common stock.
During the three months ended March 31, 1997, the Company repurchased 65,300
shares of its common stock. The Company is holding 226,000 shares of its common
stock in treasury at March 31, 1997.
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 1997
without the prior approval of the New Hampshire Insurance Commissioner is
$4,391,000. MNH paid $500,000 in dividends to the Company during the three
months ended March 31, 1997.
Under a management agreement, Mutual provides employees, services and facilities
for MNH to conduct its insurance business on a cost reimbursed basis. The
balance in the receivable from affiliate account represents the amount owed by
Mutual to the Company for the difference between premiums collected and payments
made for losses, employees, services and facilities by Mutual on behalf of MNH.
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. MNH has consistently followed a business strategy that would allow it to
meet this 3 to 1 regulatory guideline. For the first three months of 1997 MNH's
ratio of net premiums written to statutory surplus, annualized for a full year,
was 1.8 to 1.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Channing T. Lushbough vs. Merchants Group, Inc., et al.
- -------------------------------------------------------
On March 31, 1997, the New York State Supreme Court in New York City dismissed a
shareholder derivative lawsuit brought against the Company, MNH, Mutual and
certain directors of the Company and Mutual. The court held that the complaint
failed to state a cause of action against any of the defendants. The lawsuit was
originally filed in 1993 as a purported class action and was amended in 1995 to
a derivative action after the court held that the plaintiff's claims were
derivative in nature. The plaintiff alleged that the defendants breached their
fiduciary obligations to the then minority shareholders of the Company and
defrauded the minority shareholders by causing MNH to purchase from the Federal
Deposit Insurance Corporation (the "FDIC") a surplus note issued by Mutual and
simultaneously reducing the principal amount plus accrued return on such surplus
note to $1,350,000, which is the amount MNH paid to the FDIC for the note, and
by approving the public sale of the Company's common stock in July 1993 at what
the plaintiff alleged was an inadequate price. After the lawsuit was amended to
a derivative action, the Company's Board of Directors appointed a special
committee composed of disinterested directors to review the merits of the case.
That committee determined that the Company's Board had acted reasonably in
approving the note restructuring and the public offering, and decided that the
plaintiff's lawsuit should be dismissed. The court held that the case should be
dismissed because the determination of the special committee to discontinue the
lawsuit was valid and appropriate under Delaware law.
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 (filed herewith).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period
for which this report is filed.
14
<PAGE> 15
* * * * * *
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Quarterly Report
on Form 10-Q constitute forward-looking statements and are discussed, made or
incorporated by reference, as the case may be, pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those included in or
contemplated by the statements. These assumptions, risks and uncertainties
include, but are not limited to, those associated with factors affecting the
property-casualty insurance industry generally, including price competition,
size and frequency of claims, increasing crime rates, escalating damage awards,
natural disasters, fluctuations in interest rates and general business
conditions; the Company's dependence on investment income; the geographic
concentration of the Company's business in the Northeastern United States and in
particular in New York, New Hampshire, New Jersey, Rhode Island, Pennsylvania
and Massachusetts; the adequacy of the Company's loss reserves; government
regulation of the insurance industry; exposure to environmental claims;
dependence of the Company on its relationship with Mutual; and the other risks
and uncertainties discussed or indicated in all documents filed by the Company
with the Commission. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
15
<PAGE> 16
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 13, 1997 By:/s/ Kenneth J. Wilson
---------------------
Kenneth J. Wilson
Chief Financial Officer and
Treasurer (duly authorized
officer of the registrant and
chief accounting officer)
16
<PAGE> 1
EXHIBIT 11
MERCHANTS GROUP, INC.
Computation of Income Per Share
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1997
-----------------
<S> <C> <C>
Net income (loss) for computing earnings per common
share - without dilution and fully diluted $ (261) $ 481
======= ======
Weighted average number of common shares
outstanding - without dilution 3,214 3,027
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 8 8
------- ------
Weighted average number of common shares and
common share equivalents outstanding, primary
and fully diluted 3,222 3,035
======= ======
Primary and fully diluted earnings (loss) per share $ (.08) $ .16
======= ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 7
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 160,522,000
<DEBT-CARRYING-VALUE> 19,568,000
<DEBT-MARKET-VALUE> 19,408,000
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 206,807,000
<CASH> 8,000
<RECOVER-REINSURE> 7,854,000
<DEFERRED-ACQUISITION> 11,871,000
<TOTAL-ASSETS> 266,802,000
<POLICY-LOSSES> 134,880,000
<UNEARNED-PREMIUMS> 47,578,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 32,000
0
0
<OTHER-SE> 62,846,000
<TOTAL-LIABILITY-AND-EQUITY> 266,802,000
23,000,000
<INVESTMENT-INCOME> 3,029,000
<INVESTMENT-GAINS> 107,000
<OTHER-INCOME> 61,000
<BENEFITS> 17,896,000
<UNDERWRITING-AMORTIZATION> 6,095,000
<UNDERWRITING-OTHER> 1,589,000
<INCOME-PRETAX> 617,000
<INCOME-TAX> 136,000
<INCOME-CONTINUING> 481,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
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