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: March 31, 1997
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 May 13,1997:
Common stock - $.01 Par Value 4,672,145 shares
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996. . . . . . . . . . 2
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 (unaudited) . . 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 (unaudited) . . 5
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 7
Part II OTHER INFORMATION . . . . . . . . . . . . . . . . . 8
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 8
Item 2. Changes in Securities . . . . . . . . . . . . . . . 8
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders. 8
Item 5. Other Information . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands,
except per share data)
March 31, December 31,
Assets 1997 1996
(Unaudited)
Investments:
Held to maturity:
Fixed maturities (fair value $19,521 and
$18,158) . . . . . . . . . . . . . . . . $ 19,500 $ 17,923
Available for sale:
Fixed maturities (cost $34,427 and
$37,512) . . . . . . . . . . . . . . . . 33,780 37,356
Equity securities (cost $9,350 and
$8,711). . . . . . . . . . . . . . . . . 9,283 8,930
Short-term investments . . . . . . . . . . . . 8,985 4,758
Other investments. . . . . . . . . . . . . . . 2,049 2,051
Total investments . . . . . . . . . . . . . 73,597 71,018
Cash. . . . . . . . . . . . . . . . . . . . . . . 232 637
Accrued investment income receivable. . . . . . . 905 847
Amounts receivable from reinsurers. . . . . . . . 2,050 1,837
Amounts receivable from reinsured company . . . . 578 563
Agents balances (net of allowance for doubtful
accounts of $120). . . . . . . . . . . . . . . 7,518 8,501
Installment premiums receivable . . . . . . . . . 9,439 8,514
Agents balances and installment premiums
receivable from related parties. . . . . . . . 2,613 3,073
Premium finance receivables (net of unearned
finance charges and allowance for credit
losses of $111 and $109) . . . . . . . . . . . 5,071 4,836
Reinsurance receivable. . . . . . . . . . . . . . 20,394 19,699
Deferred acquisition costs. . . . . . . . . . . . 5,449 5,193
Property and equipment (net of accumulated
depreciation of $1,834 and $1,725) . . . . . . 4,489 4,526
Other assets. . . . . . . . . . . . . . . . . . . 2,140 1,692
Total assets. . . . . . . . . . . . . . . . $134,475 $130,936
See accompanying notes to consolidated financial statements.
2
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(In thousands,
except per share data)
March 31, December 31,
Liabilities and Shareholders Equity 1997 1996
(Unaudited)
Liabilities:
Unpaid claims and claim settlement expenses. $ 40,250 $ 36,551
Unearned premiums. . . . . . . . . . . . . . 33,193 33,250
Short-term notes payable . . . . . . . . . . 8,136 7,293
Long-term notes payable. . . . . . . . . . . 948 1,076
Deposits by insureds . . . . . . . . . . . . 2,273 2,380
Commissions payable to agents. . . . . . . . 1,614 1,681
Commissions payable to related parties . . . 255 401
Other liabilities. . . . . . . . . . . . . . _ 1,159 1,470
Total liabilities . . . . . . . . . . . . 87,828 84,102
Shareholders equity:
Preferred stock, par value $.01 per share;
2,000 shares authorized; 128 shares
issued and outstanding. . . . . . . . . . 1 1
Common stock, par value $.01 per share;
10,000 shares authorized; 4,663 and
4,651 shares issued and outstanding . . . 47 47
Additional paid-in capital . . . . . . . . . 38,727 38,648
Unrealized gains (losses) on investments
available for sale (net of deferred taxes
of $(230) and $21). . . . . . . . . . . . ( 484) 42
Retained earnings. . . . . . . . . . . . . . 8,356 8,096
Shareholders equity. . . . . . . . . . . 46,647 46,834
Total liabilities and shareholders equity . $134,475 $130,936
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
March 31,_____
1997 1996
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $15,646 $ 13,791
Premiums ceded. . . . . . . . . . . . . . . . . . ( 3,499) ( 3,055)
Net premiums earned . . . . . . . . . . . . . . . 12,147 10,736
Net investment income . . . . . . . . . . . . . . 982 731
Net realized gains on investments . . . . . . . . 636 67
Other . . . . . . . . . . . . . . . . . . . . . . 163 175
Total revenues . . . . . . . . . . . . . . . . 13,928 11,709
Expenses:
Claims and claim settlement expenses. . . . . . . 10,813 8,387
Reinsurance recoveries. . . . . . . . . . . . . . ( 1,720) ( 737)
Net claims and claim settlement expenses. . . . . 9,093 7,650
Amortization of deferred acquisition costs. . . . 1,600 1,662
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 2,236 1,813
Interest. . . . . . . . . . . . . . . . . . . . . 190 82
Total expenses . . . . . . . . . . . . . . . . 13,119 11,207
Income before income taxes . . . . . . . . . . . . . 809 502
Provision for income taxes . . . . . . . . . . . . . 142 5
Net income . . . . . . . . . . . . . . . . . . . . . 667 497
Less dividends on convertible preferred stock. . . . 104 108
Net income available for common stock. . . . . . . . $ 563 $ 389
Net income per common share and common equivalent
share:
Primary:
Net income . . . . . . . . . . . . . . . . . . $ .12 $ .08
Weighted average shares outstanding. . . . . . 4,839 4,761
See accompanying notes to consolidated financial statements.
4
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31, _______
1997 1996
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 667 $ 497
Adjustments to reconcile net income to net
cash provided by operating activities
Net realized gains on investments. . . . . . . ( 636) ( 67)
Decrease (increase) in assets:
Accrued investment income receivable. . . . . ( 58) -
Amounts receivable from reinsurers. . . . . . ( 213) 318
Amounts receivable from reinsured company . . ( 15) ( 68)
Agents balances and installment premiums
receivable . . . . . . . . . . . . . . . . . 58 (1,440)
Agents balances and installment premiums
receivable from related parties. . . . . . . 460 113
Premium finance receivables . . . . . . . . . ( 235) ( 116)
Reinsurance receivables . . . . . . . . . . . ( 695) (1,419)
Deferred acquisition costs. . . . . . . . . . ( 256) ( 138)
Other, net. . . . . . . . . . . . . . . . . . ( 278) ( 607)
(Decrease) increase in liabilities:
Unpaid claims and claim settlement expenses . 3,699 3,309
Unearned premiums . . . . . . . . . . . . . . ( 57) 837
Deposits by insureds. . . . . . . . . . . . . ( 107) 559
Other, net. . . . . . . . . . . . . . . . . . ( 530) ( 654)
Net cash provided by operating activities. . . . . 1,804 1,124
Cash flows from investing activities:
Purchase of investments:
Held to maturity . . . . . . . . . . . . . . . . (2,334) (1,377)
Available for sale . . . . . . . . . . . . . . . (3,773) (4,575)
Sale of investments:
Available for sale . . . . . . . . . . . . . . . 6,766 810
Maturity of investments. . . . . . . . . . . . . . 805 1,253
Net sale (purchase) of short term and other
investments . . . . . . . . . . . . . . . . . . . (4,212) 3,049
Purchase of property and equipment . . . . . . . . ( 147) ( 86)
Sale of property and equipment . . . . . . . . . . 13 -
Other, net . . . . . . . . . . . . . . . . . . . . 288 97
Net cash used in investing activities. . . . . . (2,594) ( 829)
Cash flows from financing activities:
Cash dividends paid. . . . . . . . . . . . . . . . ( 407) ( 372)
Issuance of common stock . . . . . . . . . . . . . 78 153
Proceeds from notes payable . . . . . . . . . . . 844 226
Payment of notes payable . . . . . . . . . . . . . ( 130) ( 120)
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . 385 ( 113)
Net increase (decrease) in cash. . . . . . . . . . . ( 405) 182
Cash at beginning of the period. . . . . . . . . . . 637 99
Cash at end of the period. . . . . . . . . . . . . . $ 232 $ 281
Se e accompanying notes to consolidated financial statements.
5
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated balance sheet as of March 31, 1997, the consolidated
statements of income for the three months ended March 31, 1997 and 1996 and the
consolidated statements of cash flows for the three 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 March 31, 1997 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 1996 Annual Report. The results of operations for the
period ended March 31, 1997 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.
FASB Statement No. 128, Earnings Per Share (Statement 128) supersedes APB
Opinion No. 15, Earnings Per Share, and specifies the computation, presentation,
and disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential common stock. Statement 128 was issued
to simplify the computation of EPS and to make the U.S. standard more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee (IASC). It also requires dual presentation of
Basic EPS and Diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the Basic EPS computation to the numerator and denominator of
the Diluted EPS computation.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS, like
Fully Diluted EPS, reflects the potential dilution that could occur if
securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. For many entities Basic EPS will be higher than Primary
EPS and Diluted EPS will be approximately the same as Fully Diluted EPS.
Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Management does not expect that
the adoption of Statement 128 will have a material impact on its earnings per
share.
6
4. 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, reserves 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 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, 1996, a copy of which may be obtained from the
Company upon request and without charge (except for the exhibits thereto).
5. 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, 1996.
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Revenues for the three month period ended March 31, 1997 increased $2.2
million,
or 19.0%, from revenues for the three month period ended March 31, 1996. This
increase was primarily the result of an increase in net premiums earned and net
realized gains on investments. Direct premiums written increased 13.4% in the
three month period ended March 31, 1997 when compared to the same period in
1996. The following table sets forth the direct premiums written by the Company
for the three month periods ended March 31, 1997 and 1996 by line of business.
(In thousands)
Three months ended March 31,
1997 1996 %Change
Auto liability $ 7,626 $ 6,165 23.7 %
Auto physical damage 4,898 5,532 ( 11.5)%
Workers compensation 1,178 1,788 ( 34.2)%
Inland marine 1,024 856 19.6 %
Homeowners 590 - N/M
Other 1,064 98 984.0 %
Total $16,380 $14,439 13.4 %
Expenses for the three month period ended March 31, 1997 increased $1.9 million,
or 17.1%, over expenses for the three month period ended March 31, 1996. The
increase was the result of increases in net claims and claim settlement
expenses,
and underwriting, general and administrative expenses. Increases in net claims
and claim settlement expenses were the result of increases in earned premiums,
as well as an increase in the statutory loss ratio from 72.6% in 1996 to 76.4%
in 1997. Increases in underwriting, general and administrative expenses were
primarily the result of increases in premiums written. The statutory combined
ratio for the three month period ended March 31, 1997 was 107.8%, an increase
from 101.9% for the three month period ended March 31, 1996.
7
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.
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 Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
8
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: May 14, 1997 /s/ Kenneth R. Taylor
Kenneth R. Taylor
President and Chief
Executive Officer
DATE: May 14, 1997 /s/ Gary J. Orndorff
Gary J. Orndorff
Vice President/Treasurer
and Chief Financial Officer
9
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<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 33,780
<DEBT-CARRYING-VALUE> 19,500
<DEBT-MARKET-VALUE> 19,521
<EQUITIES> 9,283
<MORTGAGE> 105
<REAL-ESTATE> 0
<TOTAL-INVEST> 73,597
<CASH> 232
<RECOVER-REINSURE> 2,628
<DEFERRED-ACQUISITION> 5,449
<TOTAL-ASSETS> 134,475
<POLICY-LOSSES> 40,250
<UNEARNED-PREMIUMS> 33,193
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,273
<NOTES-PAYABLE> 9,084
<COMMON> 47
0
1
<OTHER-SE> 46,599
<TOTAL-LIABILITY-AND-EQUITY> 134,475
12,147
<INVESTMENT-INCOME> 982
<INVESTMENT-GAINS> 636
<OTHER-INCOME> 163
<BENEFITS> 9,093
<UNDERWRITING-AMORTIZATION> 1,600
<UNDERWRITING-OTHER> 2,236
<INCOME-PRETAX> 809
<INCOME-TAX> 142
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<RESERVE-OPEN> 22,342
<PROVISION-CURRENT> 8,612
<PROVISION-PRIOR> 318
<PAYMENTS-CURRENT> 2,311
<PAYMENTS-PRIOR> 4,770
<RESERVE-CLOSE> 40,250
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