-----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, E3c5roAdoPL9+CJDdkb1HPjQlEoeo2kUH9Lskj7PGPoZDl2vV+FlXNWBuxUxIWnU 5wNStPjfXnA5xE54QumtoA== 0000950135-96-004949.txt : 19961118 0000950135-96-004949.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950135-96-004949 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96664774 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 GROUP 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 September 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 November 12, 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 September 30, 1996 3 Consolidated Statements of Operations Nine Months Ended September 30, 1996 and 1995 4 Consolidated Statements of Operations Three Months Ended September 30, 1996 and 1995 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 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 11 Item 6 - Exhibits and Reports on Form 8-K 11 2 3 North East Insurance Company and Subsidiaries PART I: FINANCIAL INFORMATION - ----------------------------- Item 1. FINANCIAL INFORMATION ----------------------------- Consolidated Balance Sheet as of September 30, 1996
1996 ----------- ASSETS Investments: Fixed maturities available for sale, at fair value (amortized cost $15,055,375) $14,814,452 Investment property, at cost less accumulated depreciation of $43,541 66,458 Equity securities available for sale, at fair value (cost $71,393) 24,012 Short-term investments 2,842,999 ----------- Total investments 17,747,921 Reinsurance (loss and loss adjustment expense reserves and paid recoverables) 5,166,702 Premium balances receivable 4,090,700 Deferred policy acquisition costs 250,370 Cash 929,773 Prepaid reinsurance premiums (ceded unearned premium) 2,703,333 Investment income due and accrued 348,221 Property and equipment, net of accumulated depreciation 440,377 Other assets 172,747 ----------- Total Assets $31,850,144 =========== LIABILITIES Losses and loss adjustment expenses $17,324,943 Unearned premiums 6,041,606 Ceded reinsurance balances payable 1,384,094 Reserve for unpaid expenses 660,840 Federal income tax payable 8,420 ----------- Total Liabilities 25,419,903 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 (288,304) Accumulated deficit (2,631,869) ----------- Total Shareholders' Equity 6,430,241 ----------- Total Liabilities and Shareholders' Equity $31,850,144 ===========
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 Nine Months ended September 30,
1996 1995 ----------- ----------- Revenues: Premiums earned $ 8,581,144 $ 9,047,866 Premiums ceded 3,455,500 3,705,791 ----------- ----------- Net premiums earned 5,125,644 5,342,075 Net investment income 825,866 992,416 Realized capital gains (losses) 48,783 (170,791) ----------- ----------- Total revenues 6,000,293 6,163,700 Expenses: Losses and loss adjustment expenses 5,574,888 5,978,089 Reinsurance recoveries (2,067,882) (1,992,069) ----------- ----------- Net losses and loss adjustment expenses 3,507,006 3,986,020 Underwriting expenses incurred 1,822,264 1,973,463 ----------- ----------- Total expenses 5,329,270 5,959,483 ----------- ----------- Income before provision for income taxes 671,023 204,217 Provision for income taxes, net of $241,908 and $65,071 tax benefit from loss carryforward for 1996 and 1995, respectively 13,420 4,067 ----------- ----------- Net income $ 657,603 $ 200,150 =========== =========== Earnings per common share: Net income $ 0.22 $ 0.07 =========== ===========
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 September 30,
1996 1995 ---------- ---------- Revenues: Premiums earned $2,902,387 $2,910,536 Premiums ceded 1,234,411 1,011,445 ---------- ---------- Net premiums earned 1,667,976 1,899,091 Net investment income 307,606 311,308 Realized capital losses (21,947) (20,854) ---------- ---------- Total revenues 1,953,635 2,189,545 Expenses: Losses and loss adjustment expenses 1,898,588 1,456,124 Reinsurance recoveries (848,788) (416,534) ---------- ---------- Net losses and loss adjustment expenses 1,049,800 1,039,590 Underwriting expenses incurred 566,965 1,004,109 ---------- ---------- Total expenses 1,616,765 2,043,699 ---------- ---------- Income before provision for income taxes 336,870 145,846 Provision for income taxes, net of $107,979 and $46,392 tax benefit from loss carryforward for 1996 and 1995, respectively 6,737 2,900 ---------- ---------- Net income $ 330,133 $ 142,946 ========== ========== Earnings per common share: Net income $ 0.11 $ 0.05 ========== ==========
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 Nine Months ended September 30,
1996 1995 ----------- ----------- Cash flow from operating activities: Insurance premium received $ 4,626,182 $ 4,860,347 Loss and loss adjustment expenses paid (5,273,529) (5,401,644) Operating expenses paid (1,657,630) (1,759,555) Investment income received 806,429 1,096,026 ----------- ----------- Net cash used in operating activities (1,498,548) (1,204,826) ----------- ----------- Cash flows from investing activities: Fixed maturities available for sale, sold 5,759,622 2,355,073 Fixed maturities available for sale, purchased (2,770,473) 0 Proceeds from mortgage note 459,139 0 Proceeds from sale of real estate 108,000 0 Proceeds from issuance of common stock 16,944 0 Purchase of furniture, fixtures and equipment, net (24,012) (40,397) ----------- ----------- Net cash provided in investing activities 3,549,220 2,314,676 ----------- ----------- Net increase in cash, book overdraft and short-term investments 2,050,672 1,109,850 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 $ 3,772,772 $ 1,954,005 =========== ===========
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 Nine Months ended September 30,
1996 1995 ----------- ----------- Net income $ 657,603 $ 200,150 Decrease (increase) in net premium and ceded reinsurance balances (588,291) 9,280 Increase (decrease) in unearned premium reserve 4,088 (725,888) Decrease in loss and loss adjustment expense reserve (1,681,782) (1,180,744) Decrease (increase) in investment income due and accrued (19,437) 104,479 Decrease in deferred policy acquisition costs 61,853 16,470 Decrease in federal income tax payable (6,080) 0 Increase (decrease) in expense accruals (81,415) 47,838 Amortization of bond premium, net 60,339 59,029 Depreciation and amortization expense 143,357 93,769 Loss on investment activities 17,231 103,577 Loss on sale of real estate 13,125 0 Adjustment to book value of mortgage note receivable (79,139) 67,214 ----------- ----------- Net cash used in operating activities $(1,498,548) $(1,204,826) =========== ===========
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 SEPTEMBER 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 Nine Months Ended September 30, 1996 - ------------------------------------ Net premiums written amounted to $5,129,732 for the nine months ended September 30, 1996 compared with $4,616,186 for the nine months ended September 30, 1995. Net premiums earned for the nine months ended September 30, 1996 and 1995 amounted to $5,125,644 and $5,342,075, respectively. Loss and loss adjustment expenses represented 68.4 % and 74.6 % of net premium earned for the nine months ended September 30, 1996 and 1995, respectively. The 1996 improvement is the result of favorable loss experience in the most recent six months ended September 30, 1996. The first three months ended March 31, 1996 included higher than normal weather related claims. This is in sharp contrast to 1995 in which we experienced a mild winter and higher losses in the second quarter of 1995, primarily from our property lines of business. Underwriting expenses incurred represented 35.5% and 42.8% of net premiums written for the nine months ended September 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 $874,649 for the nine months ended September 30, 1996 compared with $821,625 for the nine months ended September 30, 1995. The return on invested assets, based on amortized cost, net of allocated expenses was 6.1 % for the nine months ended September 30, 1996 compared with 5.0 % for the nine months ended September 30, 1995. Net income for the nine months ended September 30, 1996 amounted to $657,603 or $0.22 per share compared with $200,150 or $0.07 per share for the nine months ended September 30, 1995. Shareholders' equity at September 30, 1996 amounted to $6,430,241 or $2.14 per share compared with $6,421,051 or $2.15 per share at December 31, 1995. Common stock issued and outstanding amounted to 3,002,375 and 2,992,314 at September 30, 1996 and December 31, 1995, respectively, representing an additional 10,061 shares issued during 1996. The increase in shareholders' equity for the nine month period ending September 30, 1996 includes net income of $657,603 plus proceeds from new shares of common stock totaling $16,944 less a $665,357 decline in the market value of the Company's fixed maturities and equity securities available for sale. 9 10 Three Months Ended September 30, 1996 - ------------------------------------- Net premiums written amounted to $1,732,070 for the three months ended September 30, 1996 compared with $1,995,724 for the three months ended September 30, 1995. Net premiums earned for the three months ended September 30, 1996 and 1995 amounted to $1,667,976 and $1,899,091, respectively. Loss and loss adjustment expenses represented 62.9 % and 54.7 % of net premium earned for the three months ended September 30, 1996 and 1995, respectively. Both ratios reflect favorable results with the ratio for the three months ended September 30, 1995 being exceptional. Underwriting expenses incurred amounted to $566,965 for the three months ended September 30, 1996 compared with $1,004,109 for the three months ended September 30, 1995. Underwriting expenses for 1996 benefit 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 September 30, 1996 amounted to $330,133 or $0.11 per share compared with $142,946 or $0.05 per share for the three months ended September 30, 1995. Shareholders' equity at September 30, 1996 amounted to $6,430,241 or $ 2.14 per share compared with $6,059,911 or $2.02 per share at June 30, 1996. The increase in shareholders' equity for the three month period ending September 30, 1996 comprises net income of $330,133 plus a $40,197 net increase in the market value of the Company's fixed maturities and equity securities available for sale. 10 11 North East Insurance Company and Subsidiaries PART II: OTHER INFORMATION - -------------------------- Item 5. Other Information As previously reported, the Company and Ballantrae Partners, LLC ("Ballantrae") as of August 22, 1996 entered into a Standstill Agreement concerning future ownership and control of NEIC stock. Ballantrae has entered into a contract to purchase 810,000 shares of NEIC Common Stock beneficially owned by Bernard D. Gershuny. The shares represent approximately 27% of the NEIC Common Stock presently outstanding. Ballantrae's purchase of the Gershuny shares was made subject to a number of conditions, including the receipt of prior regulatory approval from the Maine Bureau of Insurance and the New York Insurance Department, as required by applicable law. On September 20, 1996 the Maine Bureau of Insurance issued an Order approving Ballantrae's proposed transaction. To the Company's knowledge, the New York Insurance Department has not yet acted on Ballantrae's pending application for approval. The Company, in June 1996, commenced a private placement of Common Stock through Advest, Inc., a registered broker-dealer. As previously reported, the Company terminated the offering in October 1996, and has returned all subscription funds to subscribers. The Company's decision to discontinue the private placement was based upon a number of factors, including changes in prevailing trading prices for NEIC stock since the commencement date of the offering, continued increases in retained earnings since such date due to favorable operating results, the status of Ballantrae's pending proposal to acquire Mr. Gershuny's stock and the execution of a Standstill Agreement with Ballantrae regarding future control of the Company, management's assessment of the prospects for achieving future improvements in the A.M. Best rating for the Company even without the private placement, costs associated with a further change in the terms of the private placement, potential costs of threatened litigation over the private placement, possible alternative capital raising transactions, and other factors. The Company plans to evaluate other alternatives for raising additional capital, but no decision has been made on whether to seek additional capital at this time. 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 August 28, 1996 and October 23, 1996. 11 12 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: November 12, 1996 By /s/ Robert G. Schatz ---------------------------------- Robert G. Schatz President and Chief Executive Officer Date: November 12, 1996 By /s/ Graham S. Payne ---------------------------------- Graham S. Payne Treasurer and Chief Financial Officer 12 13 North East Insurance Company and Subsidiaries Form 10-QSB Exhibit Index Exhibit Number Description Page - ------ ----------- ---- 27 Financial Data Schedules 14 13 EX-27 2 FINANCIAL DATA SCHEDULE
7 1 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 14,814,452 0 0 24,012 0 66,458 17,747,921 3,772,772 5,166,702 250,370 31,850,144 17,324,943 6,041,606 0 0 0 3,002,375 0 0 3,427,866 31,850,144 5,125,644 825,866 48,783 0 3,507,006 1,822,264 0 671,023 13,420 657,603 0 0 0 657,603 0.22 0.22 0 0 0 0 0 0 0
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