-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+DUGvfXvRaOZxiqKGXKj2QWAv7yDuzq5vM05bXlFWHd066FHtHUdQtOKgsYeuFd n1zgIhUbFpEPFKRpT7Z2iw== 0000950135-96-003718.txt : 19961023 0000950135-96-003718.hdr.sgml : 19961022 ACCESSION NUMBER: 0000950135-96-003718 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH EAST INSURANCE CO CENTRAL INDEX KEY: 0000352162 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 010278387 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-11184 FILM NUMBER: 96616198 BUSINESS ADDRESS: STREET 1: 482 PAYNE RD CITY: SCARBOROUGH STATE: ME ZIP: 04074 BUSINESS PHONE: 2078832232 MAIL ADDRESS: STREET 1: 482 PAYNE RD CITY: SCARBOROUGH STATE: ME ZIP: 04074 10QSB 1 NORTH EAST INSURANCE COMPANY 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10 - QSB [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ---------- Commission File No. 0-11184 NORTH EAST INSURANCE COMPANY (Name of small business issuer as specified in its charter) Maine 01-0278387 (State or other Jurisdiction of (I.R.S employer incorporation or organization) identification number) 482 Payne Road, Scarborough, Maine 04074 ( Address of principal executive offices ) (207) 883-2232 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of August 13, 1996 there were 3,002,375 outstanding shares of Common Stock, $1.00 par value, the only authorized class of the issuer. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] 1 2 NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES INDEX ----- Part I. - Financial Information Item 1 - Financial Statements 3 Consolidated Balance Sheet June 30, 1996 3 Consolidated Statements of Operations Six Months Ended June 30, 1996 and 1995 4 Consolidated Statements of Operations Three Months Ended June 30, 1996 and 1995 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 8 Item 2 - Management's Discussion and Analysis of the Financial Condition and Results of Operations 9 Part II - Other Information Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12 2 3 North East Insurance Company and Subsidiaries Item 1. FINANCIAL INFORMATION - ----------------------------- Consolidated Balance Sheet as of June 30, 1996
ASSETS 1996 ---- Investments: Fixed maturities available for sale, at fair value (amortized cost $16,584,844) $16,299,970 Investment property, at cost less accumulated depreciation of $88,916 191,084 Equity securities available for sale, at fair value (cost $71,393) 27,766 Short-term investments 2,493,247 ----------- Total investments 19,012,067 Reinsurance (loss and loss adjustment expense reserves and paid recoverables) 4,308,222 Premium balances receivable 3,927,186 Deferred policy acquisition costs 245,563 Prepaid reinsurance premiums (ceded unearned premium) 2,581,470 Investment income due and accrued 256,346 Property and equipment, net of accumulated depreciation 501,630 Other assets 224,952 ----------- Total Assets $31,057,436 =========== LIABILITIES Losses and loss adjustment expenses $16,607,769 Unearned premiums 5,855,649 Ceded reinsurance balances payable 1,540,536 Reserve for unpaid expenses 499,099 Book overdraft 433,720 Federal income tax payable 6,683 Other liabilities 54,069 ----------- Total Liabilities 24,997,525 SHAREHOLDERS' EQUITY Common stock $1.00 par value, authorized 6,000,000 shares, issued and outstanding 3,002,375 shares 3,002,375 Additional paid-in capital 6,348,039 Unrealized depreciation of investment (328,501) Accumulated deficit (2,962,002) ----------- Total Shareholders' Equity 6,059,911 ----------- Total Liabilities and Shareholders' Equity $31,057,436 ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 North East Insurance Company and Subsidiaries Consolidated Statements of Operations for the Six Months ended June 30,
1996 1995 ---- ---- Revenues: Premiums earned $ 5,678,757 $ 6,137,330 Premiums ceded 2,221,089 2,694,346 ----------- ----------- Net premiums earned 3,457,668 3,442,984 Net investment income 518,260 681,108 Realized capital gains 70,730 (149,937) ----------- ----------- Total revenues 4,046,658 3,974,155 Expenses: Losses and loss adjustment expenses 3,676,300 4,521,965 Reinsurance recoveries (1,219,094) (1,575,535) ----------- ----------- Net losses and loss adjustment expenses 2,457,206 2,946,430 Underwriting expenses incurred 1,255,299 969,354 ----------- ----------- Total expenses 3,712,505 3,915,784 ----------- ----------- Income before provision for income taxes 334,153 58,371 Provision for income taxes, net of $106,929 tax benefit from loss carryforward for 1996 6,683 1,167 ----------- ----------- Net income $ 327,470 $ 57,204 =========== =========== Earnings per common share: Net income $ 0.11 $ 0.02 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 North East Insurance Company and Subsidiaries Consolidated Statements of Operations for the Three Months ended June 30,
1996 1995 ---- ---- Revenues: Premiums earned $2,880,649 $3,022,903 Premiums ceded 1,328,360 1,558,418 ---------- ---------- Net premiums earned 1,552,289 1,464,485 Net investment income 237,054 328,884 Realized capital gains (8,410) (149,937) ---------- ---------- Total revenues 1,780,933 1,643,432 Expenses: Losses and loss adjustment expenses 1,411,339 2,411,112 Reinsurance recoveries (607,538) (819,771) ---------- ---------- Net losses and loss adjustment expenses 803,801 1,591,341 Underwriting expenses incurred 661,251 (64,934) ---------- ---------- Total expenses 1,465,052 1,526,407 ---------- ---------- Income before provision for income taxes 315,881 117,025 Provision for income taxes, net of $101,082 tax benefit from loss carryforward for 1996 6,318 1,167 ---------- ---------- Net income $ 309,563 $ 115,858 ========== ========== Earnings per common share: Net income $ 0.10 $ 0.04 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 North East Insurance Company And Subsidiaries Consolidated Statements of Cash Flows for the Six Months ended June 30,
1996 1995 ---- ---- Cash flow from operating activities: Insurance premium received $ 3,214,068 $ 3,318,177 Loss and loss adjustment expenses paid (4,082,423) (3,720,273) Operating expenses paid (1,300,518) (1,214,690) Investment income received 590,698 721,420 ----------- ----------- Net cash used in operating activities (1,578,175) (895,366) ----------- ----------- Cash flows from investing activities: Fixed maturities available for sale, sold 3,829,782 1,247,973 Fixed maturities available for sale, purchased (2,339,671) 0 Proceeds from mortgage note 459,139 0 Proceeds from issuance of common stock 16,944 0 Purchase of furniture, fixtures and equipment, net (50,592) (27,587) ----------- ----------- Net cash provided in investing activities 1,915,602 1,220,386 ----------- ----------- Net increase in cash, book overdraft and short-term investments 337,427 325,020 Cash, book overdraft and short-term investments at beginning of year 1,722,100 844,155 ----------- ----------- Cash, book overdraft and short-term investments at end of period $ 2,059,527 $ 1,169,175 =========== -----------
The accompanying notes are an integral part of the consolidated financial statements. 6 7 North East Insurance Company And Subsidiaries Consolidated Reconciliation of Cash Used In Operating Activities to Net Income for the Six Months ended June 30,
1996 1995 ---- ---- Net income $ 327,470 $ 57,204 Decrease (increase) in net premium and ceded reinsurance balances 590,145 (93,277) Decrease in unearned premium reserve (60,006) (822,522) Decrease in loss and loss adjustment expense reserve (2,398,956) (231,580) Decrease in investment income due and accrued 72,438 40,312 Decrease in deferred policy acquisition costs 66,660 85,557 Decrease in federal income tax payable (7,817) 0 Decrease in expense accruals (241,292) (184,433) Amortization of bond premium, net 39,080 39,621 Depreciation and amortization expense 104,833 63,815 Loss on investment activities 8,409 82,723 Write down of mortgage note in default (79,139) 67,214 ----------- --------- Net cash used in operating activities $(1,578,175) $(895,366) =========== =========
The accompanying notes are an integral part of the consolidated financial statements. 7 8 North East Insurance Company and Subsidiaries Notes to Consolidated Financial Statements JUNE 30, 1996 1. The condensed financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures which are made are adequate to make the information presented not misleading, particularly when read in conjunction with the financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-KSB. In Management's opinion, the attached interim financial statements reflect all adjustments which are necessary for a fair statement of the results for the periods presented. 2. In March 1995, the FASB issued FAS No. 121 ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), which requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company adopted the provisions of FAS No. 121 effective January 1, 1996. Adopting FAS No. 121 did not have a material effect on the Company's consolidated results of operations or financial position. 3. North East Insurance Company owns 100% of American Colonial Insurance Company and North Atlantic Underwriters, Inc. whose results are consolidated herein. 4. Earnings per share are computed using the weighted average method. 8 9 North East Insurance Company and Subsidiaries Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Six Months Ended June 30, 1996 - ------------------------------ Net premiums written amounted to $3,397,662 for the six months ended June 30, 1996 compared with $2,620,462 for the six months ended June 30, 1995. Net premiums earned for the six months ended June 30, 1996 and 1995 amounted to $3,457,668 and $3,442,984, respectively. Loss and loss adjustment expenses represented 71.1 % and 85.6 % of net premium earned for the six months ended June 30, 1996 and 1995, respectively. The improvement is the result of very favorable loss experience in the second quarter of 1996 compared with adverse experience in the Company's property lines experienced in 1995. Underwriting expenses incurred represented 36.9% and 37.0% of net premiums written for the six months ended June 30, 1996 and 1995, respectively. The expense ratio benefits from the Company's reinsurance arrangements whereby the Company is recovering expenses from its reinsurers proportional to its direct experience. Total return from investment activities amounted to $588,990 for the six months ended June 30, 1996 compared with $531,171 for the six months ended June 30, 1995. The return on invested assets, based on amortized cost, net of allocated expenses was 5.9% for the six months ended June 30, 1996 compared with 4.8% for the six months ended June 30, 1995. Net income for the six months ended June 30, 1996 amounted to $327,470 or $0.11 per share compared with $57,204 or $0.02 per share for the six months ended June 30, 1995. Shareholders' equity at June 30, 1996 amounted to $6,059,911 or $2.02 per share compared with $6,421,051 or $2.15 per share at December 31, 1995. The decline in shareholders' equity is attributable to a decline in the market value of the Company's fixed maturities available for sale. The decline in market value resulted in a charge to surplus of $705,554 or $0.24 per share for the six months ended June 30, 1996. Three Months Ended June 30, 1996 - -------------------------------- Net premiums written amounted to $1,966,684 for the three months ended June 30, 1996 compared with $1,261,296 for the three months ended June 30, 1995. Net premiums earned for the three months ended June 30, 1996 and 1995 amounted to $1,552,289 and $1,464,485, respectively. 9 10 Loss and loss adjustment expenses represented 51.8 % and 108.7 % of net premium earned for the three months ended June 30, 1996 and 1995, respectively. The improvement is the result of very favorable loss experience in the second quarter of 1996 compared with adverse experience in the Company's property lines experienced in 1995 and the realization of certain indicated loss reserve redundancies for prior accident years. Underwriting expenses incurred amounted to $661,251 for the three months ended June 30, 1996 compared with a credit for the three months ended June 30, 1995 of $64,934. The credit in 1995 was the result of a restructuring of the Company's reinsurance arrangements during that period. The expense ratio benefits from the Company's reinsurance arrangements whereby the Company is recovering expenses from its reinsurers proportional to its direct experience. Net income for the three months ended June 30, 1996 amounted to $309,563 or $0.10 per share compared with $115,858 or $0.04 per share for the three months ended June 30, 1995. Shareholders' equity at June 30, 1996 amounted to $6,059,911 or $2.02 per share compared with $5,934,718 or $1.99 per share at March 31, 1996. The increase in shareholders' equity for the three month period ending June 30, 1996 comprises net income of $309,563 plus proceeds from capital issued of $16,944 less a $201,314 decline in the market value of the Company's fixed maturities available for sale. 10 11 Liquidity and Capital Resources - ------------------------------- Cash used in operating activities amounted to $1,578,175 for the six months ended June 30, 1996 compared with $895,366 for the six months ended June 30, 1995. The increase in cash used in operating activities is the result of a decline in investment income and an increase in loss payments for prior accident years. Cash provided by investing activities amounted to $1,915,602 for the six months ended June 30, 1996 compared with $1,220,386 for the six months ended June 30, 1995. The fair value of the Company's fixed maturities available for sale was $284,882 less than the amortized cost at June 30,1996 compared with $427,268 greater than amortized cost at December 31, 1995. The Company maintains short term investments to provide a cash resource should the demands from operations exceed incoming cash flow. Short term investments amounted to $2,493,247 at June 30, 1996 compared with $1,868,258 at December 31, 1995. The Company believes that this level is sufficient to meet any unanticipated cash demands. The Company has commenced a private placement of between 1 million and 1.5 million shares of its common stock. Successful consummation of the private placement would increase shareholders' equity by approximately $1.0 - $1.6 million. One potential use of net proceeds from such private placement would be to attempt to repurchase up to 810,000 shares of stock. Any such repurchase would offset the increase in shareholders' equity, by the amount of proceeds used for such purpose. 11 12 North East Insurance Company and Subsidiaries Part II: OTHER INFORMATION - -------------------------- Item 5. Other Information PRIVATE PLACEMENT OF STOCK. As previously reported, the Company has commenced a private placement of up to 1,500,000 shares of its Common Stock. Presently, the offering price is $1.25 per share. The offering period was scheduled to expire August 15, 1996, subject to the Company's right to extend the termination date from time to time. The Company has recently extended the termination date to September 15, 1996. BALLANTRAE TRANSACTION. As previously reported, an investor group (Ballantrae) entered into a Purchase Agreement as of May 14, 1996 to purchase 810,000 shares of NEIC common stock beneficially owned by Bernard D. Gershuny. The shares presently are held in a Non-Voting Trust and represent approximately 27% of the total outstanding shares of common stock of the Company. Consummation of the purchase is subject to a number of conditions that have not yet been satisfied, including the requirement that Ballantrae obtain prior regulatory approval of this transaction from the Maine Bureau of Insurance and the New York Insurance Department. On July 10, 1996, Ballantrae filed its application seeking Maine Bureau of Insurance approval. On August 2, 1996 the Bureau granted the Company's request to become an intervenor in this proceeding. A hearing on this application has tentatively been scheduled for September 16, 1996. To the Company's knowledge, Ballantrae has not yet filed an application with the New York Insurance Department, although the investor group has held informal discussions with the Department regarding such an application. The Company is presently engaged in discussions with Ballantrae concerning the implications of the proposed purchase of Mr. Gershuny's stock, and has not yet taken a position supporting or opposing Ballantrae's application for approval in Maine or New York. Item 6. Exhibits and Reports on Form 8 - K a) Exhibits pursuant to Item 601 of Regulation S-B 27 Financial Data Schedules b) Reports on Form 8-K The Company filed reports on Form 8-K on May 29, 1996, July 3, 1996 and July 10, 1996. 12 13 North East Insurance Company and Subsidiaries Form 10-QSB Exhibit Index Exhibit Number Description Page - ------ ----------- ---- 27 Financial Data Schedules 13 13 14 North East Insurance Company and Subsidiaries SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH EAST INSURANCE COMPANY Date: August 13, 1996 By /S/Robert G. Schatz -------------------------------- Robert G. Schatz President and Chief Executive Officer Date: August 13, 1996 By /S/Graham S. Payne -------------------------------- Graham S. Payne Treasurer and Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
7 0000352162 NORTHEAST INSURANCE COMPANY 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1.0 16,299,970 0 0 27,766 0 191,084 19,012,067 2,493,247 4,308,222 245,563 31,057,436 16,607,769 5,855,649 0 0 0 3,002,375 0 0 3,057,536 31,057,436 3,457,668 518,260 70,730 0 2,457,206 1,255,299 0 334,153 6,683 327,470 0 0 0 327,470 0.11 0.11 0 0 0 0 0 0 0
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