<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14094
MEADOWBROOK INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2626206
(State of Incorporation) (IRS Employer Identification No.)
26600 TELEGRAPH ROAD, SOUTHFIELD, MICHIGAN 48034
(Address, zip code of principal executive offices)
(248) 358-1100
(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 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
--- ---
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding on August 11, 1997 was 8,661,397.
Total number of Pages: 18
----
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income 3-4
Condensed Consolidated Balance Sheet 5
Condensed Consolidated Statement of Cash Flows 6
Management Representation 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8-13
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14-17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Net premium earned $ 31,754,267 $ 41,368,745
Net commissions and fees 11,046,069 8,640,842
Net investment income 3,977,821 3,994,529
Miscellaneous income (778) (34,065)
------------ ------------
Total Revenues 46,777,379 53,970,051
Expenses:
Loss and loss adjustment expenses 35,112,105 31,321,929
Reinsurance recoveries (15,979,469) (11,866,696)
------------ ------------
Net loss and loss adjustment expenses 19,132,636 19,455,233
Other operating expenses 6,409,794 15,156,260
Salaries and employee benefits 12,597,696 11,753,421
Interest on notes payable 108,025 -
------------ ------------
Total Expenses 38,248,151 46,364,914
Income before income taxes 8,529,228 7,605,137
Federal income taxes:
Current 975,727 1,064,806
Deferred 1,085,136 654,438
------------ ------------
Total income taxes 2,060,863 1,719,244
------------ ------------
Net income $ 6,468,365 $ 5,885,893
============ ============
Primary earnings per share $0.71 $0.64
Fully diluted earnings per share $0.70 $0.64
Weighted average number of common shares and
common share equivalents outstanding:
Primary 9,141,033 9,270,924
Fully diluted 9,175,231 9,270,924
</TABLE>
3
<PAGE> 4
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Net premium earned $ 16,963,605 $ 20,103,027
Net commissions and fees 5,406,037 4,042,817
Net investment income 2,030,798 1,992,486
Miscellaneous income (778) (38,161)
----------- -----------
Total Revenues 24,399,662 26,100,169
Expenses:
Loss and loss adjustment expenses 20,327,086 12,173,107
Reinsurance recoveries (9,073,496) (4,426,896)
----------- -----------
Net loss and loss adjustment expenses 11,253,590 7,746,211
Other operating expenses 2,091,119 8,455,154
Salaries and employee benefits 6,344,031 5,827,875
Interest on notes payable 97,871 -
----------- -----------
Total Expenses 19,786,611 22,029,240
Income before income taxes 4,613,051 4,070,929
Federal income taxes:
Current 71,459 275,935
Deferred 1,046,122 680,956
----------- -----------
Total income taxes 1,117,581 956,891
----------- -----------
Net income $ 3,495,470 $ 3,114,038
=========== ===========
Primary and fully diluted earnings per share $ 0.38 $ 0.34
Weighted average number of common shares and
common share equivalents outstanding 9,175,037 9,271,002
</TABLE>
4
<PAGE> 5
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
------------- --------------
<S> <C> <C>
Investments:
Debt securities held to maturity, at amortized cost
(fair value of $117,536,681 and $122,485,366) $115,625,839 $120,116,668
Debt securities available for sale, at fair value
(cost of $17,685,045 and $16,025,804) 17,617,477 15,955,481
Equity securities available for sale, at fair value
(cost of $5,121,776 and $1,562,999) 5,488,640 1,420,949
Cash and cash equivalents 7,077,673 19,002,241
------------ ------------
Total investments and cash and cash equivalents 145,809,629 156,495,339
Premiums and agent balances receivable 41,175,552 25,907,407
Reinsurance recoverable on:
Paid losses 10,936,815 6,672,133
Unpaid losses 30,001,867 26,615,052
Deferred policy acquisition costs 4,919,716 4,264,795
Prepaid reinsurance premiums 23,470,969 20,271,068
Other assets 22,943,006 24,809,547
------------ ------------
Total assets $279,257,554 $265,035,341
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 94,358,192 $ 92,390,227
Unearned premiums 49,046,661 44,090,675
Notes payable, bank 3,883,000 -
Other liabilities 25,242,467 28,353,605
Commitments and contingencies - -
------------ ------------
Total liabilities 172,530,320 164,834,507
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 stated value; authorized 20,000,000 shares;
8,657,831 and 8,649,346 shares issued and outstanding 86,578 86,493
Additional paid-in capital 72,940,824 72,873,396
Retained earnings 33,502,295 27,381,111
Unrealized appreciation (depreciation) on available for sale
securities, net of deferred federal income taxes 197,537 (140,166)
------------ ------------
Total shareholders' equity 106,727,234 100,200,834
------------ ------------
Total liabilities and shareholders' equity $279,257,554 $265,035,341
============ ============
</TABLE>
5
<PAGE> 6
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Net cash (used in) provided by operating activities $ (11,357,859) $ 6,188,935
------------- -------------
Cash flows from investing activities:
Purchase of debt securities held to maturity - (25,532,930)
Purchase of debt securities available for sale (7,449,793) -
Purchase of equity securities available for sale (3,802,900) -
Proceeds from maturity of debt securities held to maturity 4,611,894 2,758,680
Proceeds from sale of debt securities available for sale 5,819,941 -
Proceeds from sale of equity securities available for sale 232,045 49,363
Proceeds from the sale of fixed assets 399,820 1,000
Capital expenditures (902,609) (1,345,734)
Purchase of subsidiary (2,995,293) -
------------- ------------
Net cash used in investing activities (4,086,895) (24,069,621)
-------------- ------------
Cash flows from financing activities:
Additional expenses from initial public offering - (51,193)
Proceeds from bank loan 3,883,000 -
Dividends paid on common stock (346,164) (172,400)
Retirement of common stock (106,274) -
Issuance of common stock 89,624 -
------------- ------------
Net cash provided by (used in) financing activities 3,520,186 (223,593)
------------- ------------
Decrease in cash and cash equivalents (11,924,568) (18,104,279)
Cash and cash equivalents, beginning of period 19,002,241 41,906,577
------------- ------------
Cash and cash equivalents, end of period $ 7,077,673 $ 23,802,298
============= ============
</TABLE>
6
<PAGE> 7
MANAGEMENT REPRESENTATION
In the opinion of management, the consolidated financial statements reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
the interim periods. Preparation of financial statements under generally
accepted accounting principles ("GAAP") requires management to make estimates.
Actual results could differ from those estimates. Interim results are not
necessarily indicative of results expected for the entire year. These
financial statements should be read in conjunction with the Company's 1996
Annual Report to Shareholders, as filed on Form 10-K to the Securities and
Exchange Commission.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the six months ended June 30, 1997 was $6.5 million, an increase
of $582,000, or 9.9% from $5.9 million for same period in 1996. This increase
was the result of a combination of the following items. Net earned premiums
declined $9.6 million over the prior year primarily due to the reinsurance of
the surety bond business to Connecticut Surety, which began on December 1,
1996. Commission and fee revenue has increased $2.4 million as a result of
additional fee revenue generated from the Association Self Insurance Services,
Inc. (ASI) acquisition in November of 1996. Salaries and employee benefits
were up $844,000 from the prior year due to the additional employees from ASI.
Other operating expenses were down $8.7 million from the same period in 1996 as
a result of the reinsurance of the bond operation and ceding commissions
recorded in connection with this transaction, in addition to management's
efforts to control costs.
REVENUE
Revenue for the six month period ended June 30, 1997 was $46.8 million, a
decrease of $7.2 million, or 13.3%, from 1996's revenue of $54.0 million. The
details of this decrease is reflected below:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------ ------
<S> <C> <C>
(In Thousands)
Risk management fees & commissions 11,046 8,641
Net earned premiums 31,754 41,369
Net investment income 3,978 3,994
Miscellaneous income (expense) (1) (34)
------ ------
46,777 53,970
</TABLE>
Risk Management Fees and Commissions
The Company's risk management fee and commission income generated from its
managed program operations and retail agency consist of the following:
8
<PAGE> 9
<TABLE>
<CAPTION>
Six Month Ended June 30,
1997 1996
------ -----
<S> <C> <C>
(In Thousands)
Commissions 3,245 3,251
Management fees 3,148 2,786
Claims fees 3,750 1,380
Loss control fees 608 706
Reinsurance placement 288 500
Miscellaneous fees & charges 7 18
------ -----
11,046 8,641
</TABLE>
Net fee and commission income increased by $2.4 million, or 27.8%, to $11.0
million for the six month period ended June 30, 1997 from $8.6 million for the
same period in 1996. Claims fees increased $2.4 million to $3.8 million in
1997, from $1.4 million in 1996, which explains the entire $2.4 million growth
in risk management fees and commissions. This is mainly the result of
additional fee revenue generated from the ASI acquisition. The $362,000
increase in management fees was almost entirely offset by the combined
decreases in reinsurance placement of $212,000 and loss control fees of
$98,000. Management fees were up over 1996 due to revenues from one new program
and growth in two existing programs.
Insurance Premiums
The Company's gross premiums written increased by $4.3 million, or 7.3%, to
$63.5 million for the six months ended June 30, 1997 from $59.2 million for the
same period in 1996. This was mainly due to growth in existing programs, new
programs, and retrospectively-rated adjustments, offset partially by
discontinued programs. Existing business grew by $6.5 million, or 16.3%, and
new business generated $3.8 million in additional premium. The growth in
existing business was primarily the result of two 1996 programs growing by a
total of $5.9 million. The new business was mainly generated from five new
accounts. In addition, approximately $2.0 million of retrospectively-rated
adjustments resulted in increased premiums. Also, premium assumed from
Workers' Compensation involuntary pools, in which the Company's insurance
subsidiaries participate, increased $727,000 over the prior year. Partially
offsetting the above items was the decrease in premiums from discontinued
programs. During 1996 the Company decided to decrease its writings in
historically unprofitable programs which accounted for a $8.7 million decline
in written premiums this year; $2.3 million of which was from surety bonds and
the remaining $6.4 million was from other discontinued programs.
Net premiums written decreased by $8.6 million, or 19.9%, to $34.5 million for
the six months ended June 30, 1997 from $43.1 million for the same period in
1996. On a pro forma basis, as if the reinsurance of the bond business had
occurred at the beginning of 1996, net written premiums increased $2.9 million,
or 9.2%. New business generated $1.2 million in additional premium, existing
business grew by $885,000, retrospectively-rated programs increased by $2.0
million, and Workers' Compensation involuntary pools increased by $727,000.
These increases were partially offset by the $1.9 million decrease in non-bond
discontinued programs.
9
<PAGE> 10
Net premiums earned decreased by $9.6 million, or 23.2%, to $31.8 million for
the six month period ended June 30, 1997 from $41.4 million for the same period
in 1996. On a pro forma basis, net earned premiums increased by $1.0 million,
or 3.3%, from 1996. This increase in earned premiums corresponds to the rise
in Workers' Compensation involuntary pools of $792,000, retrospectively-rated
program increases of $392,000, the effect of growth in new business of $532,000
and existing programs of $234,000. As explained above, the growth in premiums
was partially offset by the decrease from non-bond discontinued programs of
$939,000.
Net Investment Income
Net investment income was flat at $4.0 million for the six months ended June
30, 1997 from $4.0 million for the same period in 1996. This was a result of
the decrease in invested assets from cash outflows due to the Connecticut
Surety reinsurance transaction, the acquisition of ASI, and the run-off of the
surety bond book of business and other discontinued programs. The pre-tax
weighted average yield on invested assets was 5.3% for 1997 and 5.1% for 1996.
The Company's investment philosophy is one of maximizing after-tax earnings
through significant investments in tax-exempt bonds. Accordingly, the weighted
average yield on invested assets on an after-tax basis was 4.8%, which is a
slight increase from 4.6% for the same period in the prior year.
EXPENSES
Total expenses decreased $8.1 million, or 17.5%, to $38.2 million at June 30,
1997 from $46.4 million for the same period in 1996.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------ ------
<S> <C> <C>
(In Thousands)
Net losses and loss adjustment expenses incurred 19,132 19,455
Salaries & employee benefits 12,598 11,754
Other operating expenses 6,410 15,156
Interest on notes payable 108 -
------ ------
38,248 46,365
</TABLE>
Net losses and Loss Adjustment Expenses (LAE) Incurred
Net losses and LAE incurred decreased by $323,000, or 1.7%, to $19.1 million
for the six month period ended June 30, 1997 from $19.4 million for the same
period in 1996. The loss and LAE ratio for 1997 was 64.7% as compared to 50.1%
for 1996. On a pro forma basis, as if the Connecticut Surety reinsurance
ceding arrangement on the bond business had occurred at the beginning of 1996,
the loss and LAE ratio would have been 61.0% in 1996. Analyzing the results on
a pro forma basis, the 3.7 point, or $1.7 million, increase was primarily from
the run-off of claims on the surety bond book of business.
10
<PAGE> 11
Salaries and Employee Benefits
Salaries and employee benefits increased by $844,000, or 7.2%, to $12.6 million
for the six months ended June 30, 1997, compared to $11.8 million for the same
period in 1996. Salaries and employee benefits for 1997 include six months of
expenses for 56 employees of the recently acquired ASI; this increase is offset
partially by the reduction in bond department salaries due to the Connecticut
Surety arrangement. The average salaries and wages per person remained
relatively consistent for the first six months of 1997 compared to the same
period in 1996.
Other Operating Expenses
Other operating expenses decreased by $8.7 million, or 57.7%, to $6.4 million
for the six month period ended June 30, 1997 from $15.1 million for the same
period in 1996. On a pro forma basis, as if the reinsurance of the bond
business had occurred at the beginning of 1996, expenses decreased $3.8
million, or 37.4%, in 1997 versus 1996. Analyzing expenses utilizing GAAP
insurance ratios, the expense ratio decreased 21.2 points on an actual basis
and 13.1 points on a comparable pro forma basis. The $3.8 million, or 13.1
point, decrease is mainly the result of the earning of $2.9 million of
previously deferred income from the Connecticut Surety arrangement, which was
to cover expenses related to the run-off of the surety bond business.
Underwriting expenses were reduced by this $2.9 million ceding commission,
while incurred losses increased by the same amount. The remaining $937,000 of
the decrease is a result of the management's cost cutting efforts and the close
monitoring there of.
Interest Expense
Interest expense of $108,000, with an average effective interest rate of 7.8%,
was recorded for the six months ended June 30, 1997, related to draws on the
Company's line of credit. There was no interest expense recorded for the six
months ended June 30, 1996, as there was no debt outstanding during 1996.
Federal Income Taxes
The provision for income taxes was $2.1 million for the six month period ended
June 30, 1997, and $1.7 million for the same period in 1996, representing
effective tax rates of 24.2% and 22.6%, respectively. These tax rates were
significantly lower than the 34% corporate rate due to the Company's heavily
tax-exempt investment portfolio. The increase in the Company's effective tax
rate was due to the growth in underwriting income before tax over 1996.
11
<PAGE> 12
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the quarter ended June 30, 1997 was $3.5 million, an increase of
$381,000 or 12.2%, from $3.1 million for the same period in 1996. Revenue
decreased by $1.7 million, expenses decreased by $2.3 million, and taxes
increased by $161,000. This was primarily due to the reinsurance of the surety
bond book of business, which was offset partially by the high run-off of surety
claims and additional revenue and expenses from the ASI acquisition.
REVENUE
Revenue decreased by $1.7 million, or 6.5%, to $24.4 million for the quarter
ended June 30, 1997 compared to $26.1 million for the same period in 1996. Net
investment income was unchanged, while earned premium decreased by $3.1
million, or 15.6%, and net fees and commissions increased by $1.4 million, or
33.7%, for the quarter. On a pro forma basis, as if the reinsurance of the
bond business had occurred at the beginning of 1996, net earned premium
increased by $2.3 million. As explained previously in the six months ended
section, this growth was the result of Workers' Compensation involuntary pools
increasing by $1.8 million, existing programs by $473,000, new business by
$328,000, and retrospectively-rated programs by $220,000. These premium
increases were partially offset by the decline in non-bond discontinued
programs of $481,000. The increase in net fee and commission income is mainly
the result of additional fee revenue generated from the ASI acquisition, as
mentioned before.
EXPENSES
Expenses decreased by $2.3 million, or 10.2%, to $19.8 million for the quarter
ended June 30, 1997 compared to $22.0 million for the same period in 1996.
Other operating expenses decreased by $6.4 million, or 75.3%, net losses and
LAE incurred increased by $3.5 million, or 45.3%, and salaries and employee
benefits increased by $516,000, or 8.9%. As explained previously, these
fluctuations are the result of the following items. On a pro forma basis,
other operating expenses decreased by $3.5 million. $2.8 million of this was
due to the earning of previously deferred income from the Connecticut Surety
arrangement, which was to cover expenses related to the run-off of the surety
bond business. The remaining $682,000 of the decrease in other operating
expenses is a result of the management's cost cutting efforts. On a pro forma
basis, net losses and LAE incurred have increased by $3.6 million, primarily
from the run-off of claims on the surety bond book of business. Salaries and
employee benefits are up due to the additional employees from the recently
acquired ASI, which was offset partially by the reduction in bond department
salaries due to the Connecticut Surety arrangement.
FEDERAL INCOME TAXES
The provision for income taxes was $1.1 million for the quarter ended June 30,
1997, and $1.0 million for the same period in 1996, representing effective tax
rates of 24.2% and 23.5%, respectively. These tax rates were significantly
lower than the 34% corporate rate due to the Company's heavily tax-exempt
investment portfolio. The increase in the Company's effective tax rate was due
to the growth in underwriting income before tax over 1996.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Company are insurance premiums,
investment income, proceeds from the maturity and sale of invested assets, risk
management fees and agency commissions. Funds are primarily used for the
payment of claims, commissions, salaries and employee benefits, and other
operating expenses. In addition, the Company has a high volume of
intercompany transactions due to the insurance operations paying management
fees to the risk management operations. Such fees are subject to regulatory
approval by state insurance departments and are eliminated in consolidation.
Cash flows from operations for the six month period ended June 30, 1997 was a
negative $11.4 million as compared to a positive $6.2 million for the same
period in 1996. The negative cash flow for 1997 is the result of the
Connecticut Surety transaction, combined with the run-off of bonds and other
discontinued programs. The Company expects cash flows to improve in the third
quarter and to be positive by the end of 1997. At June 30, 1997, the Company
held $7.1 million in cash and cash equivalents.
The Company has one unsecured line of credit totaling $15.0 million, of which
$3.9 million was outstanding at June 30, 1997. The line expires on January 1,
2000. The Company drew on this line of credit to meet cash flow needs,
primarily to consummate the acquisition of ASI and to settle claims on bonds
and other discontinued programs. The Company had no debt outstanding during
1996.
SUBSEQUENT EVENT
On July 1st, 1997, the Company acquired for cash all of the outstanding stock
of Crest Financial Corporation, a California-based insurance organization.
This transaction is being accounted for as a purchase and the results of Crest
will be consolidated into the Company's financial statements beginning in the
third quarter of 1997.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(A) The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
11 Statement re computation of per share earnings
27 Financial Data Schedule
</TABLE>
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
June 30, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEADOWBROOK INSURANCE GROUP, INC.
By:/s/ Daniel G. Gibson
-------------------------
Chief Financial Officer
Dated: August 12, 1997
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11 STATEMENT RECOMPUTATION OF PER SHARE EARNINGS
27 FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 11
MEADOWBROOK INSURANCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Primary:
Weighted average shares outstanding 8,655,606 8,619,922
Common stock equivalents 485,427 651,002
---------- ----------
9,141,033 9,270,924
========== ==========
Fully Diluted:
Weighted average shares outstanding 8,655,606 8,619,922
Common stock equivalents 519,625 651,002
---------- ----------
9,175,231 9,270,924
========== ==========
Income before extraordinary item and
preferred dividend requirement $6,468,365 $5,885,893
Preferred dividend requirement - -
---------- ----------
Income applicable to common shareholders
and before extraordinary item $6,468,365 $5,885,893
Extraordinary item - -
---------- ----------
Net income applicable to common
shareholders $6,468,365 $5,885,893
========== ==========
Earnings per share:
Primary -
Net income before extraordinary item $ .71 $ .64
Extraordinary item - -
Net income .71 .64
Fully Diluted -
Net income before extraordinary item .70 .64
Extraordinary item - -
Net income .70 .64
</TABLE>
<PAGE> 2
EXHIBIT 11
MEADOWBROOK INSURANCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Primary:
Weighted average shares outstanding 8,658,358 8,620,000
Common stock equivalents 494,172 651,002
---------- ----------
9,152,530 9,271,002
========== ==========
Fully Diluted:
Weighted average shares outstanding 8,658,358 8,620,000
Common stock equivalents 516,679 651,002
---------- ----------
9,175,037 9,271,002
========== ==========
Income before extraordinary item and
preferred dividend requirement $3,495,470 $3,114,038
Preferred dividend requirement - -
---------- ----------
Income applicable to common shareholders
and before extraordinary item $3,495,470 $3,114,038
Extraordinary item - -
---------- ----------
Net income applicable to common
shareholders $3,495,470 $3,114,038
========== ==========
Earnings per share:
Primary -
Net income before extraordinary item $ .38 $ .34
Extraordinary item - -
Net income .38 .34
Fully Diluted -
Net income before extraordinary item .38 .34
Extraordinary item - -
Net income .38 .34
</TABLE>
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share".
Adoption of SFAS 128, effective for periods ending after December 15, 1997, is
not expected to have a material effect on reported earnings.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 17,617
<DEBT-CARRYING-VALUE> 115,626
<DEBT-MARKET-VALUE> 117,537
<EQUITIES> 5,489
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 138,732
<CASH> 7,078
<RECOVER-REINSURE> 10,937
<DEFERRED-ACQUISITION> 4,920
<TOTAL-ASSETS> 279,258
<POLICY-LOSSES> 94,358
<UNEARNED-PREMIUMS> 49,047
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 3,883
0
0
<COMMON> 87
<OTHER-SE> 106,640
<TOTAL-LIABILITY-AND-EQUITY> 279,258
31,754
<INVESTMENT-INCOME> 3,947
<INVESTMENT-GAINS> 31
<OTHER-INCOME> 11,045
<BENEFITS> 19,132
<UNDERWRITING-AMORTIZATION> 2,806
<UNDERWRITING-OTHER> 16,310
<INCOME-PRETAX> 8,529
<INCOME-TAX> 2,061
<INCOME-CONTINUING> 6,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,468
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
<RESERVE-OPEN> 65,775<F1>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 64,356<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Before reinsurance recoverable.
</FN>
</TABLE>
