SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 0-22316
---------------------
Penn-America Group, Inc.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2731409
- ------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 South York Road, Hatboro, Pennsylvania 19040
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(Address of principal executive offices, including zip code)
(215) 443-3600
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(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 such other 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 __ .
At November 8, 1996 4,445,754 shares of the registrant's common stock, $.01 par
value, were outstanding.
Page 1
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Index
Page Number
Part I - Financial Information
Consolidated Unaudited Balance Sheets - September 30, 1996 and
December 31, 1995 3
Consolidated Unaudited Statements of Earnings - For the three
and nine month periods ended September 30, 1996 and 1995 4
Consolidated Unaudited Statement of Stockholders' Equity -
For the nine months ended September 30, 1996 5
Consolidated Unaudited Statements of Cash Flows -
For the nine months ended September 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Part II - Other Information 10
Page 2
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for sale, at fair value (amortized cost 1996 $46,672; 1995 $42,948) $ 45,349 $ 43,281
Held to maturity, at amortized cost (fair value 1996 $42,771; 1995 $34,812) 43,226 34,276
Equity securities, at fair value (cost 1996 $10,103; 1995 $8,726) 12,078 10,667
Short-term investments, at cost, which approximates fair value 1,000 7,000
--------- ---------
Total Investments 101,653 95,224
Cash and cash equivalents 8,055 5,204
Receivables:
Accrued investment income 1,602 1,385
Premiums receivable 9,721 8,981
Reinsurance recoverable 14,246 13,952
Note receivable, affiliate 400 400
--------- ---------
Total receivables 25,969 24,718
Prepaid reinsurance premiums 2,605 2,438
Deferred policy acquisition costs 6,804 5,716
Capital leases 1,733 1,786
Deferred income tax 2,665 1,947
Income tax recoverable 383 529
Other assets 569 201
--------- ---------
Total assets $ 150,436 $ 137,763
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 66,451 $ 60,139
Unearned premiums 29,537 26,245
Accounts payable and accrued expenses 1,375 1,842
Capitalized lease obligations 1,818 1,890
Notes payable:
Affiliate -- 150
Bank 10,000 10,000
Other liabilities 1,523 1,247
--------- ---------
Total liabilities 110,704 101,513
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,000,000 shares;
none issued -- --
Common stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 1996; 4,445,754 and 1995; 4,430,000 shares 44 44
Additional paid-in capital 21,822 21,608
Unrealized investment gains, net of tax 430 1,501
Retained earnings 17,550 13,251
--------- ---------
39,846 36,404
Unearned compensation from restricted stock awards (114) (154)
--------- ---------
Total stockholders' equity 39,732 36,250
--------- ---------
Total liabilities and stockholders' equity $ 150,436 $ 137,763
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 3
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(unaudited)
For the three and nine month periods ended September 30, 1996 and 1995
(in thousands, except share and per share data)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $ 17,836 $ 14,710 $ 49,944 $ 42,197
Net investment income 1,694 1,277 4,942 3,659
Net realized investment gains 227 724 330 857
---------- ---------- ---------- ----------
Total revenues 19,757 16,711 55,216 46,713
---------- ---------- ---------- ----------
Losses and expenses:
Losses and loss adjustment expenses 11,222 9,130 31,326 26,179
Amortization of deferred policy acquisition costs 4,574 3,524 12,785 10,502
Other underwriting expenses 1,017 1,306 3,267 3,542
Interest expense 227 37 665 109
---------- ---------- ---------- ----------
Total losses and expenses 17,040 13,997 48,043 40,332
---------- ---------- ---------- ----------
Earnings before income tax 2,717 2,714 7,173 6,381
Income tax 887 846 2,341 2,050
---------- ---------- ---------- ----------
Net earnings $ 1,830 $ 1,868 $ 4,832 $ 4,331
========== ========== ========== ==========
Weighted average number of shares outstanding 4,445,754 4,430,000 4,440,359 4,430,000
========== ========== ========== ==========
Net earnings per share $ 0.41 $ .42 $ 1.09 $ .98
========== ========== ========== ==========
Cash dividend per share $ 0.04 $ .03 $ 0.12 $ .06
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 4
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(unaudited)
For the nine months ended September 30, 1996
(dollars in thousands)
<TABLE>
Unrealized
Additional Investment Restricted
Common Stock Paid-In Gains Retained Stock
Shares Amount Capital (Losses) Earnings Awards Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,430,000 $44 $21,608 $1,501 $13,251 $(154) $36,250
Net earnings 4,832 4,832
Issuance of common stock 15,754 214 214
Amortization of unearned compensation
from restricted stock awards 40 40
Unrealized investment gains from fixed
maturities available for sale and
equities, net of tax (1,071) (1,071)
Cash dividends paid (533) (533)
--------- --- ------- ------ ------- ----- -------
Balance at September 30, 1996 4,445,754 $44 $21,822 $430 $17,550 $(114) $39,732
========= === ======= ====== ======= ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 5
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(unaudited)
For the nine months ended September 30, 1996 and 1995
(in thousands)
<TABLE>
Nine months ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 4,832 $ 4,331
Adjustments to reconcile net earnings to net cash provided by
operating activities
Amortization of net premium on fixed maturities 88 186
Amortization of capital leases and leasehold improvements 109 26
Amortization of restricted stock awards 40 40
Net realized investment gains (330) (857)
Deferred income tax benefit (166) (474)
Net increase in premiums and notes receivable,
prepaid reinsurance premiums and unearned premiums 2,384 178
Net increase in unpaid loss and loss adjustment expenses
and reinsurance recoverable 6,018 7,094
(Increase) decrease in:
Accrued investment income (217) (102)
Deferred policy acquisition costs (1,088) (562)
Income tax recoverable 147 (210)
Other assets (410) 2
Increase (decrease) in:
Accounts payable and accrued expenses (468) (381)
Other liabilities 276 207
------- -------
Net cash provided by operating activities 11,215 9,478
------- -------
Cash flows from investing activities
Purchases of equity securities (5,732) (1,392)
Purchases of fixed maturities available for sale (15,050) (10,134)
Purchases of fixed maturities held to maturity (17,070) (15,092)
Proceeds from sales of equity securities 4,840 3,739
Proceeds from sales and maturities of fixed maturities available for sale 11,181 11,290
Proceeds from maturities and calls of fixed maturities held to maturity 8,008 1,200
Decrease in short-term investments 6,000 3,000
----- -----
Net cash used by investing activities (7,823) (7,389)
------- -------
Cash flows from financing activities
Issuance of common stock 214 --
Principal payments on capital lease obligations (72) (23)
Dividends paid (533) (266)
Note payable affiliate (150) (150)
------- -------
Net cash used by financing activities (541) (439)
------- -------
Increase in cash and cash equivalents 2,851 1,650
Cash and cash equivalents, beginning of period 5,204 1,813
------- -------
Cash and cash equivalents, end of period $ 8,055 $ 3,463
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income tax $ 2,360 $ 2,734
Interest 640 70
</TABLE>
See accompanying notes to unaudited financial statements.
Page 6
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Organization and Basis of Presentation
Penn-America Group, Inc. (the "Company") is an insurance holding company. Penn
Independent Corporation currently owns approximately 61.4% of the outstanding
common stock of the Company.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the financial statements and notes for the year ended December
31, 1995. In the opinion of management, the financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of financial position, results of operations,
and cash flows for the interim periods. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
entire year.
Note 2 - Reinsurance
Premiums earned are net of amounts ceded to insurers of $5.0 and $4.1 million
for the nine month periods ended September 30, 1996 and 1995, and $1.7 and $1.5
million for the three months ended September 30, 1996 and 1995. Losses and loss
adjustment expenses are net of amounts ceded to insurers of $5.6 and $6.1
million for the nine months ended September 30, 1996 and 1995, and $930 thousand
and 2.2 million for the three months ended September 30, 1996 and 1995.
Page 7
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Gross written premiums increased 18.7% and 19.1% to $21.0 and $58.2 million for
the three and nine month periods ended September 30, 1996, as compared to $17.7
and $48.9 million for the same periods in 1995. The increase in gross written
premiums was primarily attributable to increased volume in addition to some rate
increases which occur automatically because some risks are exposure rated. The
increase in volume came primarily from a 15.0% and 17.9% increase in commercial
multi-peril gross written premiums to $8.3 and $23.0 million for the three and
nine month periods ended September 30, 1996, as compared to gross written
premiums of $7.2 and $19.5 million for the same periods in 1995. In addition,
personal automobile written premium volume increased 104.4% and 62.7% to $5.7
and $15.6 million for the three and nine month periods ended September 30, 1996,
as compared to gross written premiums of $2.8 and $9.6 million for the same
periods in 1995. As of September 30, 1996, the Company writes personal
automobile coverage in the following states; California, Washington, Nevada,
Kentucky and South Dakota.
Net written premiums increased 20.5% and 17.8% to $19.2 and $53.1 million for
the three and nine month periods ended September 30, 1996 respectively, as
compared to $15.9 and $45.1 million for the same periods in 1995. Net earned
premiums increased 21.3% and 18.4% to $17.8 and $49.9 million for the three and
nine month periods ended September 30, 1996, as compared to $14.7 and $42.2
million for the same periods in 1995, which growth can be attributed to the
overall growth in net written premium.
Net investment income increased 32.6% and 35.1% to $1.7 and $4.9 million for the
three and nine month periods ended September 30, 1996, as compared to $1.3
million and $3.7 million for the same periods in 1995. The investment portfolio
increased 24.4% to $101.7 million at September 30, 1996, as compared to $81.8
million at September 30, 1995. The increase in the investment portfolio was
funded principally from increased premium volume, cash flow from operations, and
net funds of $9 million from a loan entered into in December of 1995.
The Company realized net investment gains after taxes of $150 and $218 thousand
for the three and nine month periods ended September 30, 1996, as compared to an
after-tax gain of $478 thousand and $566 thousand on security transactions for
the same periods in 1995.
Losses and loss adjustment expenses increased 22.9% and 19.7% to $11.2 and $31.3
million for the three and nine month periods ended September 30, 1996, as
compared to $9.1 and $26.2 million for the same periods in 1995. The Company's
statutory combined ratio was 94.5 % for the third quarter ended September 30,
1996, compared to a 91.6% combined ratio for the same quarter of 1995. The
statutory combined ratio for the first nine months of 1996 was 94.3% compared to
92.6% for 1995. The increase in the statutory combined ratio for the first nine
months of 1996 was principally due to an increase in the commission component.
Commission expense ratio for the first nine months of 1996 was 22.7% as compared
to 21.1% for the same period of 1995. The increase in commission expense is due
to the higher commission rate on the auto line which as of September 30, 1996
accounts for 28% of gross written premiums as compared to 16% of gross written
premiums in 1995.
Page 8
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Amortization of deferred policy acquisition costs increased 29.8% and 21.7% to
$4.6 and $12.8 million for the three and nine month periods ended September 30,
1996, as compared to $3.5 and $10.5 million for the same period in 1995. This
increase was attributable to the increased growth in earned premiums as well as
the increase personal auto commission rate which is a component of acquisition
costs.
Other underwriting expense decreased 22.1% and 7.8% to $1.0 and $3.3 million for
the three and nine month periods ended September 30, 1996, as compared to $1.3
and $3.5 million for the same periods in 1995 principally due to a $150 thousand
reinsurance recovery previously written off and an increase in the allowance for
doubtful accounts in 1995 that was not necessary in the same period of 1996.
Interest expense was $227 and $665 thousand for the three and nine month periods
ended September 30, 1996, as compared to $37 and $109 thousand for the same
periods in 1995. The increases were primarily attributable to the additional
interest on the loan and the recapitalization of the lease on the office
building.
For the three month period, net earnings decreased 2.0% to $1.83 million, as
compared to $1.87 million for 1995. For the nine month period, net earnings
increased 11.6% to $4.8 million, as compared to $4.3 million for the same period
in 1995. The decrease in net earnings for the three month period ended September
30, 1996 was attributable to a decrease in realized investment gains from $724
thousand in 1995 to $227 thousand in 1996. Overall, net operating earnings for
the three month period increased 20.9% to $1.7 million, as compared to $1.4
million for the same period in 1995.
Liquidity and Capital Resources
Net cash provided by operating activities was $11.2 million for the nine months
ended September 30, 1996, as compared to $9.5 million for the same period in
1995. This increase in cash provided by operations primarily reflects the
increase in net premiums written and investment income during the period.
Net cash used by investing activities was $7.8 million for the nine months ended
September 30, 1996, as compared to $7.4 million for the nine months ended
September 30, 1995. This increase was primarily due to the investment of cash
provided by operating activities for the nine month period ended September 30,
1996.
Net cash used by financing activities was $541 thousand for the nine months
ended September 30, 1996, as compared to $439 thousand for the same period in
1995.
During the first nine months of 1996, the Company's fixed income portfolio was
affected by a rise in interest rates resulting in a $1.1 million unrealized
after tax investment loss on this portfolio.
Page 9
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote by Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
Page 10
<PAGE>
SIGNATURE
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.
Penn-America Group, Inc.
Date: November 8, 1996 By: /s/ Jon S. Saltzman
---------------------- ------------------------
Jon S. Saltzman
President and
Chief Executive Officer
By: /s/ Rosemary R. Ferrero
------------------------
Rosemary R. Ferrero
Principal Finance and
Accounting Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statement of Earnings at September 30, 1996
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 45,349
<DEBT-CARRYING-VALUE> 43,226
<DEBT-MARKET-VALUE> 0
<EQUITIES> 12,078
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 101,653
<CASH> 8,055
<RECOVER-REINSURE> 14,246
<DEFERRED-ACQUISITION> 6,804
<TOTAL-ASSETS> 150,436
<POLICY-LOSSES> 66,451
<UNEARNED-PREMIUMS> 29,537
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 10,000
0
0
<COMMON> 44
<OTHER-SE> 39,732
<TOTAL-LIABILITY-AND-EQUITY> 150,436
49,944
<INVESTMENT-INCOME> 4,942
<INVESTMENT-GAINS> 330
<OTHER-INCOME> 0
<BENEFITS> 31,326
<UNDERWRITING-AMORTIZATION> 12,785
<UNDERWRITING-OTHER> 3,267
<INCOME-PRETAX> 7,173
<INCOME-TAX> 2,341
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,832
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
