UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
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 0-16267
WALSHIRE ASSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2023240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
3350 Whiteford Road, P. O. Box 3849, York, PA 17402-0138
(Address of principal executive offices) (Zip code)
(717)757-0000
(Registrant s telephone number, including area code)
(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
Indicate the number of shares outstanding of each of the issuer s classes of
common stock, as of the latest practical date.
Class: Outstanding at October 31, 1996:
Common stock - $.01 Par Value 4,226,739 shares
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995. . . . . . . . . . . 2
Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995
(unaudited). . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Income for the nine months
months ended September 30, 1996 and 1995 (unaudited) . 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 (unaudited) . 6
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 8
Part II OTHER INFORMATION . . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 10
Item 4. Submission of Matters to Vote of Security Holders. . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands,
except per share data)
September 30, December 31,
Assets 1996 1995
(Unaudited)
Investments:
Held to maturity:
Fixed maturities (fair value $17,036 and
$15,712) . . . . . . . . . . . . . . . . $ 16,999 $ 15,217
Available for sale:
Fixed maturities (cost $32,067 and
$27,007) . . . . . . . . . . . . . . . . 31,927 27,215
Equity securities (cost $9,607 and
$8,189). . . . . . . . . . . . . . . . . 9,846 8,720
Short-term investments . . . . . . . . . . . . 7,934 5,191
Other investments. . . . . . . . . . . . . . . 2,084 1,867
Total investments . . . . . . . . . . . . . 68,790 58,210
Cash. . . . . . . . . . . . . . . . . . . . . . . 415 99
Accrued investment income receivable. . . . . . . 916 864
Amounts receivable from reinsurers. . . . . . . . 2,317 3,315
Amounts receivable from reinsured company . . . . 632 595
Agents balances (net of allowance for doubtful
accounts of $120 and $100) . . . . . . . . . . 7,704 5,501
Installment premiums receivable . . . . . . . . . 6,876 5,965
Agents balances and installment premiums
receivable from related parties. . . . . . . . 3,496 3,694
Premium finance receivables (net of unearned
finance charges and allowance for credit
losses of $124 and $135) . . . . . . . . . . . 5,372 6,534
Reinsurance receivable. . . . . . . . . . . . . . 19,623 8,615
Deferred acquisition costs. . . . . . . . . . . . 4,943 4,831
Property and equipment, (net of accumulated
depreciation of $1,688 and $1,284) . . . . . . 4,129 3,270
Other assets. . . . . . . . . . . . . . . . . . . 1,121 134
Total assets. . . . . . . . . . . . . . . . $126,334 $101,627
See accompanying notes to consolidated financial statements.
2
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(In thousands,
except per share data)
September 30, December 31,
Liabilities and Shareholders Equity 1996 1995
(Unaudited)
Liabilities:
Unpaid claims and claim settlement expenses. $ 33,741 $ 20,153
Unearned premiums. . . . . . . . . . . . . . 31,769 27,555
Short-term notes payable . . . . . . . . . . 6,323 2,250
Long-term notes payable. . . . . . . . . . . 1,206 1,481
Deposits by insureds . . . . . . . . . . . . 1,891 1,488
Commissions payable to agents. . . . . . . . 1,374 1,049
Commissions payable to related parties . . . 341 473
Other liabilities. . . . . . . . . . . . . . _ 1,574 1,164
Total liabilities . . . . . . . . . . . . 78,219 55,613
Shareholders equity:
Preferred stock, par value $.01 per share;
2,000 shares authorized; 142 shares
issued; 129 and 138 shares outstanding. . 1 1
Common stock, par value $.01 per share;
10,000 shares authorized; 4,215 and
4,064 shares issued and outstanding . . . 42 41
Additional paid-in capital . . . . . . . . . 32,806 31,918
Unrealized gain on investments available
for sale (net of deferred taxes of $34
and $181) . . . . . . . . . . . . . . . . 65 558
Retained earnings. . . . . . . . . . . . . . 15,201 13,496
Shareholders equity. . . . . . . . . . . 48,115 46,014
Total liabilities and shareholders equity . $126,334 $101,627
See accompanying notes to consolidated financial statements.
3
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands,
except per share data)
Three Months Ended
September 30,_____
1996 1995
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $14,622 $ 11,452
Premiums ceded. . . . . . . . . . . . . . . . . . ( 2,956) ( 2,669)
Net premiums earned . . . . . . . . . . . . . . . 11,666 8,783
Net investment income . . . . . . . . . . . . . . 821 705
Net realized gains on investments . . . . . . . . 272 108
Other . . . . . . . . . . . . . . . . . . . . . . 166 183
Total revenues . . . . . . . . . . . . . . . . 12,925 9,779
Expenses:
Claims and claim settlement expenses. . . . . . . 9,509 5,054
Reinsurance recoveries. . . . . . . . . . . . . . ( 1,773) ( 129)
Net claims and claim settlement expenses. . . . . 7,736 4,925
Amortization of deferred acquisition costs. . . . 1,909 891
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 2,055 1,953
Interest. . . . . . . . . . . . . . . . . . . . . 118 65
Total expenses . . . . . . . . . . . . . . . . 11,818 7,834
Income before income taxes . . . . . . . . . . . . . 1,107 1,945
Provision for income taxes . . . . . . . . . . . . . 172 411
Net income . . . . . . . . . . . . . . . . . . . . . 935 1,534
Less dividends on convertible preferred stock. . . . 104 115
Net income available for common stock. . . . . . . . $ 831 $ 1,419
Net income per common share and common equivalent
share:
Primary:
Net income . . . . . . . . . . . . . . . . . . $ .19 $ .33
Weighted average shares outstanding. . . . . . 4,343 4,261
Fully diluted:
Net income . . . . . . . . . . . . . . . . . . $ .19 $ .32
Weighted average shares outstanding. . . . . . 4,886 4,846
See accompanying notes to consolidated financial statements.
4
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands,
except per share data)
Nine Months Ended
September 30, _
1996 1995
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $42,799 $ 33,348
Premiums ceded. . . . . . . . . . . . . . . . . . ( 9,015) ( 7,523)
Net premiums earned . . . . . . . . . . . . . . . 33,784 25,825
Net investment income . . . . . . . . . . . . . . 2,294 2,040
Net realized gains on investments . . . . . . . . 1,041 247
Other . . . . . . . . . . . . . . . . . . . . . . 528 531
Total revenues . . . . . . . . . . . . . . . . 37,647 28,643
Expenses:
Claims and claim settlement expenses. . . . . . . 26,276 16,040
Reinsurance recoveries. . . . . . . . . . . . . . ( 3,462) ( 1,359)
Net claims and claim settlement expenses. . . . . 22,814 14,681
Amortization of deferred acquisition costs. . . . 5,295 3,399
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 5,743 5,115
Dividends to policyholders. . . . . . . . . . . . 117 -
Interest. . . . . . . . . . . . . . . . . . . . . 291 212
Total expenses . . . . . . . . . . . . . . . . 34,260 23,407
Income before income taxes . . . . . . . . . . . . . 3,387 5,236
Provision for income taxes . . . . . . . . . . . . . 554 1,100
Net income . . . . . . . . . . . . . . . . . . . . . 2,833 4,136
Less dividends on convertible preferred stock. . . . 320 345
Net income available for common stock. . . . . . . . $ 2,513 $ 3,791
Net income per common share and common equivalent
share:
Primary:
Net income . . . . . . . . . . . . . . . . . . $ .58 $ .90
Weighted average shares outstanding. . . . . . 4,344 4,208
Fully diluted:
Net income . . . . . . . . . . . . . . . . . . $ .58 $ .86
Weighted average shares outstanding. . . . . . 4,896 4,825
See accompanying notes to consolidated financial statements.
5
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
except per share data)
Nine Months Ended
September 30, ____
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 2,833 $ 4,136
Adjustments to reconcile net income to net
cash provided by operating activities
Net realized gains on investments. . . . . . . ( 1,041) ( 247)
Decrease (increase) in assets:
Accrued investment income receivable. . . . . ( 52) -
Amounts receivable from reinsurers. . . . . . 998 ( 962)
Amounts receivable from reinsured company . . ( 37) ( 143)
Agents balances and installment premiums
receivable . . . . . . . . . . . . . . . . . ( 2,203) ( 846)
Agents balances and installment premiums
receivable from related parties. . . . . . . ( 713) ( 971)
Premium finance receivables . . . . . . . . . 1,162 ( 930)
Reinsurance receivables . . . . . . . . . . . (11,008) ( 439)
Deferred acquisition costs. . . . . . . . . . ( 112) ( 404)
Other, net. . . . . . . . . . . . . . . . . . ( 554) 669
(Decrease) increase in liabilities:
Unpaid claims, claim settlement expenses and
claim drafts outstanding . . . . . . . . . . 13,588 3,756
Unearned premiums . . . . . . . . . . . . . . 4,214 2,207
Deposits by insureds. . . . . . . . . . . . . 403 505
Other, net. . . . . . . . . . . . . . . . . . 603 460
Net cash provided by operating activities. . . . . 8,081 6,791
Cash flows from investing activities:
Purchase of investments:
Held to maturity . . . . . . . . . . . . . . . . ( 3,713) (2,410)
Available for sale . . . . . . . . . . . . . . . (12,755) (5,440)
Sale of investments:
Available for sale . . . . . . . . . . . . . . . 4,703 3,929
Maturity of investments. . . . . . . . . . . . . . 4,267 785
Net (purchase) sale of short term and other
investments. . . . . . . . . . . . . . . . . . . ( 2,939) 1,042
Purchase of property and equipment . . . . . . . . ( 1,301) (1,176)
Sale of property and equipment . . . . . . . . . . 9 136
Other, net . . . . . . . . . . . . . . . . . . . . 403 ( 436)
Net cash used in investing activities. . . . . . (11,326) (3,570)
Cash flows from financing activities:
Cash dividends paid. . . . . . . . . . . . . . . . ( 1,128) (1,060)
Issuance of common stock . . . . . . . . . . . . . 890 307
Proceeds from notes payable . . . . . . . . . . . 4,159 750
Payment of notes payable . . . . . . . . . . . . . ( 360) (3,275)
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . 3,561 (3,278)
Net increase (decrease) in cash. . . . . . . . . . . 316 ( 57)
Cash at beginning of the period. . . . . . . . . . . 99 184
Cash at end of the period. . . . . . . . . . . . . . $ 415 $ 127
Se e accompanying notes to consolidated financial statements.
6
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated balance sheet as of September 30, 1996, the consolidated
statements of income for the three and nine months ended September 30, 1996 and
1995, and the consolidated statements of cash flows for the nine months then
ended have been prepared by Walshire Assurance Company ( the Company ) without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at September 30, 1996 and for all periods
presented, have been made.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these unaudited consolidated financial
statements be read in conjunction with the financial statements and notes
thereto
included in the Company s 1995 Annual Report. The results of operations for the
period ended September 30, 1996 are not necessarily indicative of the results of
operations for the full year.
3.Net income per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of shares of
common stock and common stock equivalents outstanding. The number of common
shares was increased by the number of shares issuable on the exercise of options
when the market price of the common stock exceeds the exercise price of the
options. This increase in the number of common shares was reduced by the number
of common shares that are assumed to have been purchased with the proceeds from
the exercise of the options; these purchases were assumed to have been made at
the average price of the common stock during that part of the year when the
market price of the common stock exceeded the exercise price of the options.
Fully diluted net income per share was determined on the assumption that
the convertible preferred stock was converted and the outstanding stock options
were exercised on January 1, 1996 and 1995. As to the preferred stock, net
income was adjusted for dividends declared. As to the options, outstanding
shares were increased as described above except that purchases of common stock
are assumed to have been made at the higher of the period-end price or the
average price of the common stock during that part of the year when the market
price of the common stock exceeded the exercise price of the options.
4. On September 30, 1996, the Company acquired Yorktowne Mutual Insurance
Company and changed its name to Yorktowne Insurance Company ("Yorktowne").
Yorktowne is a multi-line writer operating solely in Pennsylvania; direct
premiums written in 1995 were $6.7 million. This transaction, accounted for by
the purchase method of accounting, should not materially affect Walshire's
financial results for 1996.
5. Forward Looking Statements. The information contained in this Quarterly
Report contains forward looking statements (as such term is defined in the
Securities Exchange Act of 1934 and the regulations thereunder), including
without limitation, statements as to the allowances for doubtful accounts and
credit losses, liabilities for unpaid claims and claim settlement expenses, the
classification of the Company's investment portfolio and other statements as to
management's beliefs, expectations or opinions. Such forward looking statements
are subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the forward
looking statements. Certain of these risks, uncertainties and
7
other factors are discussed in this Quarterly Report or in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, a copy of which may be
obtained from the Company upon request and without charge (except for the
exhibits thereto).
6. Investment Considerations. In analyzing whether to make, or to continue,
an investment in the Company, investors should consider, among other factors,
certain investment considerations more particularly described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Revenues for the three month period ended September 30, 1996 increased $3.1
million, or 32.2%, from revenues for the three month period ended September 30,
1995. This increase was primarily the result of increases in net premiums
earned. Direct premiums written increased $2.6 million, or 25.0%, in the three
month period ended September 30, 1996 when compared to the same period in 1995.
The following table sets forth the direct premiums written by the Company for
the three month periods ended September 30, 1996 and 1995 by line of business.
(In thousands)
Three months ended September 30,
1996 1995 %Change
Auto liability $ 5,092 $ 4,532 12.4%
Auto physical damage 4,980 4,458 11.7%
Workers compensation 1,955 768 154.6%
Inland marine 752 545 38.0%
Other 437 269 62.5%
Total $13,216 $10,572 25.0%
Expenses for the three month period ended September 30, 1996 increased $4.0
million, or 50.9%, over expenses for the three month period ended September 30,
1995. The increase was primarily the result of increases in net claims and
claim
settlement expenses and amortization of deferred acquisition costs. The
increase
in net claims and claim settlement expenses was the result of an increase in
earned premiums, as well as an increase in the statutory loss ratio from 57.7%
in 1995 to 67.7% in 1996. The increase in the loss ratio was due primarily to
increases in the loss ratio of the Company's auto liability and auto physical
damage products. These increases were a result of increased loss severity during
the third quarter of 1996 when compared to the same period in 1995. The
increase
in the amortization of deferred acquisition costs was primarily the result of
the
increase in net premiums earned and a decrease in ceding commission income. The
statutory combined ratio for the three month period ended September 30, 1996 was
99.4%, an increase from 87.3% for the three month period ended September 30,
1995. The decrease in the effective tax rate from 21% in 1995 to 16% in 1996 is
primarily the result of a greater portion of net income being attributable to
tax exempt interest.
Revenues for the nine month period ended September 30, 1996 increased $9.0
million, or 31.4%, from revenues for the nine month period ended September 30,
1995. This increase was primarily the result of increases in net premiums
earned
and net realized gains on investments. Direct premiums written increased $7.6
million, or 21.4%, in the nine month period ended September 30, 1996 when
compared to the same period in 1995. The following table sets forth the direct
premiums written by the Company for the nine month periods ended September 30,
1996 and 1995 by line of business.
8
(In thousands)
Nine months ended September 30,
1996 1995 %Change
Auto liability $18,211 $15,927 14.3%
Auto physical damage 16,390 13,540 21.0%
Workers compensation 5,066 3,316 52.8%
Inland marine 2,491 1,912 30.3%
Other 802 684 17.3%
Total $42,960 $35,379 21.4%
Expenses for the nine month period ended September 30, 1996 increased $10.9
million, or 46.4%, over expenses for the nine month period ended September 30,
1995. The increase was primarily the result of increases in net claims and
claim
settlement expenses, amortization of deferred acquisition costs and
underwriting,
general and administrative expenses. Increases in net claims and claim
settlement expenses were the result of increases in earned premiums, and an
increase in the statutory loss ratio from 59.3% in 1995 to 68.9% in 1996. First
quarter 1996 claims were negatively impacted by the most severe winter weather
conditions in recent history. Claims in the second and third quarters of 1996
were higher due to an increase in the auto physical damage and auto liability
loss ratios. These increases were a result of increased loss severity when
compared to the same periods in 1995. The increase in the amortization of
deferred acquisition costs was primarily the result of the increase in net
premiums earned. Increases in underwriting, general and administrative expenses
were primarily the result of increases in premiums written. The statutory
combined ratio for the nine month period ended September 30, 1996 was 98.4%, an
increase from 87.1% for the nine month period ended September 30, 1995. The
decrease in the effective tax rate from 21% in 1995 to 16% in 1996 is a result
of a greater portion of net income being attributable to tax exempt interest.
Liquidity and Capital Resources
Historically, the Company has generated funds sufficient to support its
operations and has maintained a high degree of liquidity in its investment
portfolio. The primary sources of funds to meet the demands of claim
settlements
and operating expenses are premiums, ceding commissions, investment income and
existing lines of credit. The Company s funds generally are invested in
securities with maturities intended to provide adequate funds to pay claims and
expenses without the forced sale of investments. The Company believes that its
current cash and short term investments, together with funds generated from
operations, will be sufficient to meet its operating and capital requirements
for the foreseeable future.
9
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibit 27.1 Financial data schedule
Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALSHIRE ASSURANCE COMPANY
(Registrant)
DATE: November 14, 1996 /s/ Kenneth R. Taylor
Kenneth R. Taylor
President and Chief
Executive Officer
DATE: November 14, 1996 /s/ Gary J. Orndorff
Gary J. Orndorff
Vice President/Treasurer
and Chief Financial Officer
11
<PAGE>
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<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 31,927
<DEBT-CARRYING-VALUE> 16,999
<DEBT-MARKET-VALUE> 17,036
<EQUITIES> 9,846
<MORTGAGE> 110
<REAL-ESTATE> 0
<TOTAL-INVEST> 68,790
<CASH> 415
<RECOVER-REINSURE> 2,949
<DEFERRED-ACQUISITION> 4,943
<TOTAL-ASSETS> 126,334
<POLICY-LOSSES> 33,741
<UNEARNED-PREMIUMS> 31,769
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,891
<NOTES-PAYABLE> 7,529
<COMMON> 42
0
1
<OTHER-SE> 48,072
<TOTAL-LIABILITY-AND-EQUITY> 126,334
42,799
<INVESTMENT-INCOME> 2,294
<INVESTMENT-GAINS> 1,041
<OTHER-INCOME> 528
<BENEFITS> 22,814
<UNDERWRITING-AMORTIZATION> 5,295
<UNDERWRITING-OTHER> 5,743
<INCOME-PRETAX> 3,387
<INCOME-TAX> 554
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,833
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<RESERVE-OPEN> 14,207
<PROVISION-CURRENT> 23,273
<PROVISION-PRIOR> 1,217
<PAYMENTS-CURRENT> 12,522
<PAYMENTS-PRIOR> 7,206
<RESERVE-CLOSE> 33,481
<CUMULATIVE-DEFICIENCY> 0
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