<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 MARCH 31, 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)
<TABLE>
<S> <C>
PENNSYLVANIA 23-2731409
- - ---------------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 May 10, 1996 4,445,754 shares of the registrant's common stock, $.01 par
value, were outstanding.
PAGE 1
<PAGE> 2
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Unaudited Balance Sheets - March 31, 1996 and
December 31, 1995 3
Consolidated Unaudited Statements of Earnings - For the three
months ended March 31, 1996 and 1995 4
Consolidated Unaudited Statement of Stockholders' Equity -
For the three months ended March 31, 1996 5
Consolidated Unaudited Statements of Cash Flows -
For the three months ended March 31, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION 9
</TABLE>
PAGE 2
<PAGE> 3
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for sale, at fair value (amortized cost 1996, $43,677; 1995, $42,948) $ 42,741 $ 43,281
Held to maturity, at amortized cost (fair value 1996, $43,107; 1995, $34,812) 43,296 34,276
Equity securities, at fair value (cost 1996, $9,530; 1995, $8,726) 11,517 10,667
Short term investments, at cost, which approximates fair value 1,500 7,000
------------ ------------
Total Investments 99,054 95,224
Cash and cash equivalents 4,014 5,204
Receivables:
Accrued investment income 1,474 1,385
Premiums receivable, net 9,290 8,981
Reinsurance recoverable 14,319 13,952
Note receivable, affiliate 400 400
------------ ------------
Total receivables 25,483 24,718
Prepaid reinsurance premiums 2,506 2,438
Deferred policy acquisition costs 5,954 5,716
Capital leases 1,768 1,786
Deferred income tax 2,457 1,947
Income tax recoverable --- 529
Other assets 385 201
------------ ------------
Total assets $ 141,621 $ 137,763
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 62,418 $ 60,139
Unearned premiums 27,076 26,245
Accounts payable and accrued expenses 1,436 1,842
Capitalized lease obligations 1,866 1,890
Income tax payable 500 ---
Notes payable:
Affiliate 100 150
Bank 10,000 10,000
Other liabilities 1,451 1,247
------------ ------------
Total liabilities 104,847 101,513
------------ ------------
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, 4,434,819 shares and 1995, 4,430,000
shares 44 44
Additional paid-in capital 21,674 21,608
Unrealized investment gains, net of tax 694 1,501
Retained earnings 14,503 13,251
------------ ------------
36,915 36,404
Unearned compensation from restricted stock awards (141) (154)
------------ ------------
Total stockholders' equity 36,774 36,250
------------ ------------
Total liabilities and stockholders' equity $ 141,621 $ 137,763
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
PAGE 3
<PAGE> 4
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Revenues:
Premiums earned $ 15,623 $ 13,632
Net investment income 1,598 1,176
Net realized investment gains 23 13
------------- --------------
Total revenues 17,244 14,821
------------- --------------
Losses and expenses:
Losses and loss adjustment expenses 9,852 8,466
Amortization of deferred policy
acquisition costs 3,988 3,526
Other underwriting expenses 1,061 1,087
Interest expense 217 29
------------- --------------
Total losses and expenses 15,118 13,108
------------- --------------
Earnings before income tax 2,126 1,713
Income tax 697 557
------------- --------------
Net earnings $ 1,429 $ 1,156
============= ==============
Weighted average number of shares outstanding 4,433,212 4,430,000
============= ==============
Net earnings per share $ .32 $ .26
============= ==============
Cash dividends per share $ .04 ---
============= ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
PAGE 4
<PAGE> 5
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
UNEARNED
COMPENSATION
UNREALIZED FROM
COMMON STOCK ADDITIONAL INVESTMENT RESTRICTED
------------ PAID-IN GAINS RETAINED STOCK
SHARES AMOUNT CAPITAL (LOSSES), 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 1,429 1,429
Issuance of common stock 4,819 66 66
Amortization of unearned
compensation from restricted
stock awards 13 13
Unrealized investment (losses)
from fixed maturities
available for sale and
equities, net of tax (807) (807)
Cash dividends paid (177) (177)
---------------------------------------------------------------------------------------------------
Balance at March 31, 1996 4,434,819 $44 $21,674 $694 $14,503 $(141) $36,774
==================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 5
<PAGE> 6
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities $1,429 $1,156
Net earnings
Adjustments to reconcile net earnings to net cash provided by
operating activities
Amortization expense 71 78
Net realized investment gains (23) (13)
Deferred income tax (93) (157)
Net decrease (increase) in premiums and notes receivable,
prepaid reinsurance premiums and unearned premiums 454 (652)
Net increase in unpaid loss and loss adjustment expense
and reinsurance recoverable 1,912 2,344
Decrease (increase) in:
Accrued investment income (89) 68
Deferred policy acquisition costs (238) (207)
Income tax recoverable 529 714
Other assets (183) 17
Increase (decrease) in:
Accounts payable and accrued expenses (406) (798)
Income tax payable 500 ---
Other liabilities 204 99
------------ -----------
Net cash provided by operating activities 4,067 2,649
------------ -----------
Cash flows from investing activities
Purchases of equity securities (1,926) ---
Purchases of fixed maturities available for sale (11,033) (1,018)
Purchases of fixed maturities held to maturity (11,064) (4,014)
Proceeds from sales of equity securities 1,266 ---
Proceeds from sales and maturities of fixed maturities available for sale 10,181 1,487
Proceeds from maturities of fixed maturities held to maturity 2,004 ---
Change in short term investments 5,500 1,000
------------ -----------
Net cash used by investing activities (5,072) (2,545)
------------ -----------
Cash flows from financing activities
Issuance of common stock 66 ---
Principal payment on note payable, affiliate (50) (50)
Dividends paid (177) ---
Principal payments on capital lease obligations (24) (7)
------------ -----------
Net cash used by financing activities (185) (57)
------------ -----------
Increase (decrease) in cash and cash equivalents (1,190) 47
Cash and cash equivalents, beginning of period 5,204 1,813
------------ -----------
Cash and cash equivalents, end of period $ 4,014 $ 1,860
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income tax (refund) (240) ---
Interest 189 29
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 6
<PAGE> 7
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
Penn-America Group, Inc. (the "Company") is an insurance holding company. Penn
Independent currently owns approximately 61.5% 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 $1.6 and $1.2 million
for the three month period ended March 31, 1996 and 1995. Losses and loss
adjustment expenses are net of amounts ceded to insurers of $2.5 and $2.6
million for the three months ended March 31, 1996 and 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Gross written premiums increased 16.5% to $18.0 million for the first quarter
of 1996, as compared to $15.5 million for the same quarter in 1995. The
increase in gross written premiums was primarily attributable to increased
volume. The increase in volume came primarily from a 17.1% increase in the
commercial multi-peril line to $7.0 million, as compared to $6.0 million for
the previous year's quarter and a 31.6% increase in personal automobile written
premiums to $4.8 million, as compared to $3.6 million in the first quarter of
1995. Overall gross written premiums increased in all lines of business.
Net written premiums increased 10.8% to $16.4 million as compared to $14.8
million in 1995. Net earned premium increased 14.6% to $15.6 million, as
compared to $13.6 million in 1995, which is attributable to the overall growth
in gross and net written premium.
Net investment income increased 35.9% to $1.6 million as compared to $1.2
million in 1995. The increase in investment income can be attributed to an
increase in the net yield on the portfolio to 6.85%, as compared to 6.81% in
1995 and the 32.2% increase in the investment portfolio to $99.1 million in
1996 as compared to $75.0 million as of March 31, 1995. The increase in the
investment portfolio was funded by positive cashflow from operations and the
investment of the net proceeds of $9 million note payable borrowed by the
Company in December 1995.
PAGE 7
<PAGE> 8
PENN-AMERICA GROUP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
Losses and loss adjustment expenses increased 16.4% to $9.9 million in the
first quarter of 1996 as compared to $8.5 million in 1995. The Company's
statutory combined ratio was 94.3%, as compared to 92.9% in 1995. The increase
in the combined ratio is attributed to a 1% increase in the loss ratio
principally due to severe winter weather in the first quarter of 1996, and a
0.5% increase in the expense ratio attributed to a higher mix of personal lines
business, which has a higher commission rate.
Amortization of deferred policy acquisition costs increased 13.1% to $4.0
million in the first quarter of 1996 as compared to $3.5 million in 1995. This
increase is attributed to the increased growth in gross earned premiums.
Net earnings increased 23.6% to $1.4 million in the first quarter of 1996 as
compared to $1.2 million for the same period in 1995. This increase is
principally attributed to increased earned premiums and increased investment
return.
Liquidity and Capital Resources
Net cash provided by operating activities was $4.1 million as compared to $2.6
million for the three months ended March 31, 1996 and 1995, respectively. This
increase in cash provided by operations primarily reflects the increase in net
premiums written during the period.
Net cash used by investing activities was $5.1 million for the three months
ended March 31, 1996 as compared to $2.5 million in the first quarter of 1995.
This increase was primarily due to the higher amount of cash provided by
operating activities for the first quarter of 1996 which was used to purchase
securities.
Net cash used by financing activities was $185 thousand in 1996, as compared to
$57 thousand for the same period in 1995. The increase in the use of cash for
financing activities was primarily due to a $177 thousand cash dividend paid to
stockholders.
PAGE 8
<PAGE> 9
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 9
<PAGE> 10
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: May 8, 1996 By: /s/ Jon S. Saltzman
------------------------- -------------------------
Jon S. Saltzman
President and
Chief Executive Officer
By: /s/ Rosemary R. Ferrero
--------------------------
Rosemary R. Ferrero
Principal Accounting and
Finance Officer
PAGE 10
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statement of Earnings at March 31, 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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 42,741
<DEBT-CARRYING-VALUE> 43,296
<DEBT-MARKET-VALUE> 43,107
<EQUITIES> 11,517
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 99,054
<CASH> 4,014
<RECOVER-REINSURE> 14,319
<DEFERRED-ACQUISITION> 5,954
<TOTAL-ASSETS> 141,621
<POLICY-LOSSES> 62,418
<UNEARNED-PREMIUMS> 27,076
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 10,100
0
0
<COMMON> 44
<OTHER-SE> 36,730
<TOTAL-LIABILITY-AND-EQUITY> 141,621
15,623
<INVESTMENT-INCOME> 1,598
<INVESTMENT-GAINS> 23
<OTHER-INCOME> 0
<BENEFITS> 9,852
<UNDERWRITING-AMORTIZATION> 3,988
<UNDERWRITING-OTHER> 1,061
<INCOME-PRETAX> 2,126
<INCOME-TAX> 697
<INCOME-CONTINUING> 1,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,429
<EPS-PRIMARY> .32
<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>
