<PAGE> 1
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 JUNE 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
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 443-3600
----------------------------------------------------
(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 August 9, 1996 4,445,754 shares of the registrant's common stock, $.01 par
value, were outstanding.
Page 1
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PENN-AMERICA GROUP, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Unaudited Balance Sheets - June 30, 1996 and
December 31, 1995 3
Consolidated Unaudited Statements of Earnings - For the three
and six month periods ended June 30, 1996 and 1995 4
Consolidated Unaudited Statement of Stockholders' Equity -
For the six months ended June 30, 1996 5
Consolidated Unaudited Statements of Cash Flows -
For the six months ended June 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
</TABLE>
Page 2
<PAGE> 3
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for sale, at fair value (amortized cost 1996 $43,686; 1995 $42,948) $ 42,196 $ 43,281
Held to maturity, at amortized cost (fair value 1996 $46,696; 1995 $34,812) 47,266 34,276
Equity securities, at fair value (cost 1996 $9,329; 1995 $8,726) 11,270 10,667
Short-term investments, at cost, which approximates fair value 0 7,000
--------- ---------
Total Investments 100,732 95,224
Cash and cash equivalents 2,284 5,204
Receivables:
Accrued investment income 1,710 1,385
Premiums receivable 9,294 8,981
Reinsurance recoverable 14,748 13,952
Note receivable, affiliate 400 400
--------- ---------
Total receivables 26,152 24,718
Prepaid reinsurance premiums 2,530 2,438
Deferred policy acquisition costs 6,277 5,716
Capital leases 1,750 1,786
Deferred income tax 2,736 1,947
Income tax recoverable 468 529
Other assets 570 201
--------- ---------
Total assets $ 143,499 $ 137,763
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 63,605 $ 60,139
Unearned premiums 28,073 26,245
Accounts payable and accrued expenses 742 1,842
Capitalized lease obligations 1,842 1,890
Notes payable:
Affiliate 50 150
Bank 10,000 10,000
Other liabilities 1,253 1,247
--------- ---------
Total liabilities 105,565 101,513
--------- ---------
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 298 1,501
Retained earnings 15,897 13,251
--------- ---------
38,061 36,404
Unearned compensation from restricted stock awards (127) (154)
--------- ---------
Total stockholders' equity 37,934 36,250
--------- ---------
Total liabilities and stockholders' equity $ 143,499 $ 137,763
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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<PAGE> 4
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $ 16,485 $ 13,855 $ 32,108 $ 27,487
Net investment income 1,650 1,206 3,248 2,382
Net realized investment gains 79 120 102 133
-------- -------- -------- --------
Total revenues 18,214 15,181 35,458 30,002
-------- -------- -------- --------
Losses and expenses:
Losses and loss adjustment expenses 10,253 8,583 20,105 17,049
Amortization of deferred policy acquisition costs 4,223 3,452 8,211 6,978
Other underwriting expenses 1,189 1,149 2,250 2,236
Interest expense 221 44 438 72
-------- -------- -------- --------
Total losses and expenses 15,886 13,228 31,004 26,335
-------- -------- -------- --------
Earnings before income tax 2,328 1,953 4,454 3,667
Income tax 756 646 1,453 1,204
-------- -------- -------- --------
Net earnings $ 1,572 $ 1,307 $ 3,001 $ 2,463
======== ======== ======== ========
Weighted average number of shares outstanding 4,442,109 4,430,000 4,437,661 4,430,000
========= ========= ========= =========
Net earnings per share $ .35 $ .30 $ .68 $ .56
===== ===== ===== =====
Cash dividend per share $ .04 $ .03 $ .08 $ .03
===== ===== ===== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
UNEARNED
UNREALIZED COMPENSATION
INVESTMENT FROM
COMMON STOCK ADDITIONAL GAINS RESTRICTED
----------------- PAID-IN (LOSSES), RETAINED STOCK
SHARES AMOUNT CAPITAL NET 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 3,001 $3,001
Issuance of common stock 15,754 214 $214
Amortization of unearned compensation
from restricted stock awards 27 $27
Unrealized investment losses from fixed
maturities available for sale and
equities, net of tax (1,203) $(1,203)
Cash dividends paid (355) $(355)
--------- --- ------- ------ ------- ----- -------
Balance at June 30, 1996 4,445,754 $44 $21,822 $298 $15,897 $(127) $37,934
========= === ======= ====== ======= ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net earnings $ 3,001 $ 2,463
Adjustments to reconcile net earnings to net cash provided by
operating activities
Amortization of net premium on fixed maturities 56 112
Amortization of capital leases 69 15
Amortization of restricted stock awards 27 27
Net realized investment losses (gains) (102) (133)
Deferred income tax (169) (307)
Net increase (decrease) in premiums and notes receivable,
prepaid reinsurance premiums and unearned premiums 1,423 (2)
Net increase in unpaid loss and loss adjustment expense
and reinsurance recoverable 2,670 3,852
(Increase) decrease in:
Accrued investment income (325) (93)
Deferred policy acquisition costs (561) (342)
Income tax recoverable 61 (340)
Other assets (390) 52
Increase (decrease) in:
Accounts payable and accrued expenses (1,101) (949)
Other liabilities 6 34
------- -------
Net cash provided by operating activities 4,665 4,389
------- -------
Cash flows from investing activities
Purchases of equity securities (3,049) (543)
Purchases of fixed maturities available for sale (12,049) (2,086)
Purchases of fixed maturities held to maturity (16,071) (10,068)
Proceeds from sales of equity securities 2,684 450
Proceeds from sales and maturities of fixed maturities available for sale 11,181 5,697
Proceeds from maturities and calls of fixed maturities held to maturity 3,008 200
Decrease in short-term investments 7,000 3,000
------- -------
Net cash used by investing activities (7,296) (3,350)
------- -------
Cash flows from financing activities
Issuance of common stock 214 --
Principal payments on capital lease obligations (48) (15)
Dividends paid (355) (133)
Note payable affiliate (100) (100)
------- -------
Net cash used by financing activities (289) (248)
------- -------
Increase (decrease) in cash and cash equivalents (2,920) 791
Cash and cash equivalents, beginning of period 5,204 1,813
------- -------
Cash and cash equivalents, end of period $ 2,284 $ 2,604
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income tax 1,560 1,850
Interest 412 72
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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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 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 $3.3 and $2.6 million
for the six month periods ended June 30, 1996 and 1995, and $1.7 and $1.4
million for the three months ended June 30, 1996 and 1995. Losses and loss
adjustment expenses are net of amounts ceded to insurers of $4.7 and $3.9
million for the six months ended June 30, 1996 and 1995, and $2.2 and $1.4
million for the three months ended June 30, 1996 and 1995.
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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 22.0% and 19.3% to $19.2 and $37.2 million for
the three and six month periods ended June 30, 1996, as compared to $15.7 and
$31.2 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 risk are exposure rated.
The increase in volume came primarily from a 21.9% and 19.5% increase in
commercial multi-peril gross written premiums to $7.7 and $14.7 million for the
three and six month periods ended June 30, 1996, as compared to gross written
premiums of $6.3 and $12.3 million for the same periods in 1995. In addition,
personal automobile written premiums increased 61.3% and 45.5% to $5.1 and $9.9
million for the three and six month periods ended June 30, 1996, as compared to
$3.2 and $6.8 million for the same periods in 1995. Overall gross written
premiums increased in most lines of business. On May 1, 1996, the Company
began to write minimum limits personal automobile coverage in the states of
Kentucky and Nevada.
Net written premiums increased 21.9% and 16.3% to $17.5 and $33.8 million for
the three and six month periods ended June 30, 1996, as compared to $14.3 and
$29.1 million for the same periods in 1995. Net earned premium increased 19.0%
and 16.8% to $16.5 and $32.1 million for the three and six month periods ended
June 30, 1996, as compared to $13.9 and $27.5 million for the same periods in
1995, which growth can be attributed to the sustained growth in net written
premium.
Net investment income increased 36.9% and 36.4% to $1.7 and $3.2 million for
the three and six month periods ended June 30, 1996, as compared to $1.2
million and $2.4 million for the same periods in 1995. The investment
portfolio increased 30.3% to $101 million at June 30, 1996, as compared to $77
million at June 30, 1995. The increase in the investment portfolio was funded
principally from increased cash flow from operations and $9 million, the net
funds from a loan entered into in December of 1995 as well as an increase in
the fixed income portfolio yield from 6.76% at June 30, 1995 to 6.85% at June
30, 1996.
Losses and loss adjustment expenses increased 19.5% and 17.9% to $10.3 and
$20.1 million for the three and six month periods ended June 30, 1996, as
compared to $8.5 and $17.0 million for the same periods in 1995. The Company's
statutory combined ratio was 94.1% for the second quarter ended June 30, 1996,
compared to a 93.6% combined ratio for the same quarter of 1995. The statutory
combined ratio for the first half of 1996 was 94.1%, compared to 93.2% for the
first six months of 1995. The increase in the combined ratio for the six month
period reflected the higher commission rate paid on the personal auto line as
reflected in the expense ratio component, and a 0.6% increase in the loss ratio
component.
Amortization of deferred policy acquisition costs increased 22.3% and 17.7% to
$4.2 and $8.2 million for the three and six month periods ended June 30, 1996,
as compared to $3.5 and $7.0 million for the same periods 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.
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PENN-AMERICA GROUP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
Interest expense was $221 and $438 thousand for the three and six month periods
ended June 30, 1996, as compared to $44 and $72 thousand for the same periods
in 1995. These increases were primarily attributable to the additional
interest on the loan and the recapitalization of the lease on the office
building.
Net earnings increased 20.3% and 21.9% to $1.6 and $3.0 million for the three
and six month periods ended June 30, 1996, as compared to $1.3 million and $2.5
million for the same periods in 1995. This increase was attributable to
increased earned premiums, increased investment income and other underwriting
expenses which increased at a lesser rate than revenues.
Liquidity and Capital Resources
Net cash provided by operating activities was $4.7 million for the six months
ended June 30, 1996, as compared to $4.4 million for the same period in 1995.
This increase in cash provided by operations primarily reflects the increase in
written premiums and investment income.
Net cash used by investing activities was $7.3 million for the six months ended
June 30, 1996, as compared to $3.4 million for the six months ended June 30,
1995.
Net cash used by financing activities was $289 thousand for the six months
ended June 30, 1996, as compared to $248 thousand for the same period in 1995.
During the first six months of 1996, the Company's fixed income portfolio was
affected by a rise in interest rates resulting in a $1.2 million unrealized
investment loss after taxes on this portfolio.
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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 - See Attached
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
Page 10
<PAGE> 11
PART II, ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Shareholders of Penn-America Group, Inc. was held on
May 8, 1996 (the "Annual Meeting" or "Meeting"), with the following results:
The total number of shares represented at the Annual Meeting in person or by
proxy was 4,296,543 of the 4,434,819 shares of common stock outstanding and
entitled to vote at the meeting.
On the proposal to elect Irvin Saltzman, Jon S. Saltzman, James E. Heerin, Jr.,
Robert A. Lear, Jami Saltzman-Levy, M. Moshe Porat, Lawrence J. Schoenberg,
David P. Cohen and Charles Ellman as Directors to serve until the 1997 Annual
Meeting and until their successors are duly elected and qualified, the nominees
for Director received the number of votes set forth opposite their respective
names.
NUMBER OF VOTES
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Irvin Saltzman 4,267,143 29,400
Jon S. Saltzman 4,267,143 29,400
James E. Heerin, Jr. 4,267,143 29,400
Robert A. Lear 4,267,143 29,400
Jami Saltzman-Levy 4,267,143 29,400
M. Moshe Porat 4,267,143 29,400
Lawrence J. Schoenberg 4,267,143 29,400
David P. Cohen 4,267,143 29,400
Charles Ellman 4,267,143 29,400
</TABLE>
There were no broker non-votes recorded. On the basis of the above vote, Irvin
Saltzman, Jon S. Saltzman, James E. Heerin, Jr., Robert A. Lear, Jami
Saltzman-Levy, M. Moshe Porat, Lawrence J. Schoenberg, David P. Cohen and
Charles Ellman were elected as Directors to serve until the 1997 Annual Meeting
and until their respective successors are duly elected and qualified.
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<PAGE> 12
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: August 9, 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 12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS AT JUNE 30, 1996
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 42,196
<DEBT-CARRYING-VALUE> 47,266
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,270
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 100,732
<CASH> 2,284
<RECOVER-REINSURE> 14,748
<DEFERRED-ACQUISITION> 6,277
<TOTAL-ASSETS> 143,499
<POLICY-LOSSES> 63,605
<UNEARNED-PREMIUMS> 28,073
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 10,050
0
0
<COMMON> 44
<OTHER-SE> 37,934
<TOTAL-LIABILITY-AND-EQUITY> 143,499
16,485
<INVESTMENT-INCOME> 1,650
<INVESTMENT-GAINS> 79
<OTHER-INCOME> 0
<BENEFITS> 10,253
<UNDERWRITING-AMORTIZATION> 4,223
<UNDERWRITING-OTHER> 1,189
<INCOME-PRETAX> 2,328
<INCOME-TAX> 756
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,572
<EPS-PRIMARY> .35
<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>
