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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| Quarterly Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
OR
|_| Transition report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Commission File Number 0-3722
ATLANTIC AMERICAN CORPORATION
Incorporated pursuant to the laws of the State of Georgia
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Internal Revenue Service- Employer Identification No.
58-1027114
Address of Principal Executive Offices:
4370 Peachtree Road, N.E., Atlanta, Georgia 30319
(404) 266-5500
Indicate by check mark whether 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 total number of shares of the registrant's Common Stock, $1 par value,
outstanding on August 7, 2000, was 21,035,535.
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ATLANTIC AMERICAN CORPORATION
INDEX
Part 1. Financial Information Page No.
- --------------------------------- --------
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 2
Consolidated Statements of Operations -
Three months and six months ended June 30, 2000 and 1999 3
Consolidated Statements of Shareholders' Equity -
Six months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 18
Item 4. Submission of matters to a vote 18
of security holders
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; In thousands,
except share and per share data)
ASSETS
June 30, December 31,
2000 1999
-------------------------
Cash, including short-term investments
of $ 8,989 and $22,471 $20,254 $34,306
------------------------
Investments:
Bonds (cost: $ 162,264 and $ 143,220) 155,334 137,000
Common and preferred stocks (cost: $ 32,736
and $31,183) 41,535 48,684
Other invested assets (cost: $ 6,132 and $ 4,943) 5,717 6,440
Mortgage loans 3,593 3,645
Policy and student loans 2,395 3,749
Real estate 46 46
-----------------------
Total investments 209,343 198,841
-----------------------
Receivables: Reinsurance 38,527 39,287
Other (net of allowance for bad debts:
$ 1,743 and $1,717) 33,697 28,478
Deferred income taxes, net 6,844 4,299
Deferred acquisition costs 22,870 20,398
Other assets 4,949 5,074
Goodwill 19,694 20,461
------------------------
Total assets $ 356,178 $351,144
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy funds:
Future policy benefits $ 41,267 $ 40,093
Unearned premiums 40,439 34,293
Losses and claims 129,114 126,556
Other policy liabilities 5,046 4,203
------------------------
Total policy liabilities 215,866 205,145
Accounts payable and accrued expenses 16,511 16,051
Debt payable 50,000 51,000
------------------------
Total liabilities 282,377 272,196
------------------------
Commitments and contingencies (Note 9) Shareholders' equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series B preferred,
134,000 shares
issued and outstanding,$13,400 redemption value 134 134
Common stock, $1 par, 30,000,000 shares authorized;
21,412,138 shares issued in 2000 and 1999
and 21,030,052 outstanding in 2000 and
21,026,786 shares outstanding in 1999 21,412 21,412
Additional paid-in capital 55,074 55,677
Accumulated deficit (2,772) (4,558)
Accumulated other comprehensive income
- unrealized investment gains, net 1,415 7,836
Treasury stock, at cost, 382,086 shares in 2000 and
385,352 shares in 1999 (1,462) (1,553)
------------------------
Total shareholders' equity 73,801 78,948
------------------------
Total liabilities and shareholders' equity $ 356,178 $351,144
========================
The accompanying notes are an integral part of
these consolidated financial statements.
-2-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------
Unaudited; In thousands,
except per share data) 2000 1999 2000 1999
----- ----- ----- ----
Revenue:
Insurance premiums $32,811 $24,370 $64,690 $47,713
Investment income 3,843 2,863 7,846 5,734
Realized investment (losses)
gains, net (20) 614 527 1,479
Other income 211 132 673 390
-------------------------------------------
Total revenue 36,845 27,979 73,736 55,316
-------------------------------------------
Benefits and expenses:
Insurance benefits and losses
incurred 23,394 18,380 45,980 34,629
Commissions and underwriting
expenses 8,285 6,454 16,719 13,418
Interest expense 1,109 465 2,101 930
Other 2,982 2,012 6,135 4,191
-------------------------------------------
Total benefits and expenses 35,770 27,311 70,935 53,168
-------------------------------------------
Income before income tax expense 1,075 668 2,801 2,148
Income tax expense 364 17 938 44
-------------------------------------------
Net income $ 711 $ 651 $ 1,863 $ 2,104
==========================================
Net income per common
share (basic and diluted) $ .02 $ .02 $ .06 $ .08
===========================================
Weighted average common
shares outstanding, basic 21,025 19,071 21,018 19,091
===========================================
Weighted average common
shares outstanding, diluted 21,084 19,356 21,059 19,383
===========================================
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited; Amounts in thousands)
Net
Additional Unrealized
Preferred Common Paid-in Accumulated Investment Treasury
Six Months Ended June 30, 2000 Stock Stock Capital Deficit Gains Stock Total
- ---------------------------------- ---------- ---------- ----------- ---------- ----------- ----------- ----------
Balance, December 31, 1999 $ 134 $ 21,412 $ 55,677 $ (4,558) $ 7,836 $ (1,553) $ 78,948
Comprehensive income (loss):
Net income 1,863 1,863
Decrease in unrealized investment gains (9,878) (9,878)
Deferred income tax benefit attributable
to other comprehensive loss 3,457 3,457
----------
Total comprehensive loss (4,558)
----------
Dividends accrued on preferred stock (603) (603)
Purchase of shares for treasury (73) (73)
Issuance of shares for employee benefit plans
and stock options (77) 164 87
---------- ---------- ----------- ---------- ----------- ----------- ----------
Balance, June 30, 2000 $ 134 $ 21,412 $ 55,074 $ (2,772) $ 1,415 $ (1,462) $ 73,801
========== ========== =========== ========== =========== =========== ==========
Six Months Ended June 30, 1999
- ----------------------------------
Balance, December 31, 1998 $ 134 $ 19,406 $ 50,406 $ (15,213) $ 28,786 $ (1,302) $ 82,217
Comprehensive income (loss):
Net income 2,104 2,104
Decrease in unrealized investment gains (4,677) (4,677)
----------
Total comprehensive loss (2,573)
----------
Dividends accrued on preferred stock (603) (603)
Purchase of shares for treasury (436) (436)
Issuance of shares for employee benefit plans
and stock options (16) (7) 105 82
---------- ---------- ----------- ---------- ----------- ----------- ----------
Balance, June 30, 1999 $ 134 $ 19,406 $ 49,787 $ (13,116) $ 24,109 $ (1,633) $ 78,687
========== ========== =========== ========== =========== =========== ==========
The accompanying notes are an integral part
of these consolidated financial
statements.
-4-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
----------------------------
2000 1999
----------------------------
(Unaudited; In thousands)
(CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,863 $ 2,104
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred acquisition costs 7,523 5,230
Acquisition costs deferred (9,996) (6,905)
Realized investment gains (527) (1,479)
Increase in insurance reserves 10,721 13,521
Depreciation and amortization 860 662
Deferred income tax expense 912 -
Increase in receivables, net (4,461) (13,864)
Increase in other liabilities 323 799
Other, net (781) (453)
---------------------------
Net cash provided by (used in) operating
activities 6,437 (385)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured 5,847 29,064
Investments purchased (25,047) (36,917)
Additions to property and equipment (210) (350)
Acquisition of American Independent - 208
Acquisition of Association Casualty (93) -
---------------------------
Net cash used by investing activities (19,503) (7,995)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 87 82
Purchase of treasury shares (73) (436)
Repayments of debt (1,000) (25,000)
Proceeds from issuance of debt - 25,000
---------------------------
Net cash used by financing activities (986) (354)
---------------------------
Net decrease in cash and cash equivalents (14,052) (8,734)
Cash and cash equivalents at beginning of period 34,306 32,385
--------------------------
Cash and cash equivalents at end of period $ 20,254 $ 23,651
===========================
Supplemental cash flow information:
Cash paid for interest $ 2,033 $ 1,044
===========================
Cash paid for income taxes $ 41 $ 85
===========================
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; In thousands)
Note 1. Basis of presentation.
- -------
The accompanying unaudited condensed consolidated financial statements
include the accounts of Atlantic American Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
Note 2. Impact of recently issued accounting standards.
- -------
The Financial Accounting Standards Board has issued Statement 133,"Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
provides a comprehensive and consistent standard for recognition and measurement
of derivatives and hedging activity. SFAS 133 requires all derivatives to be
recorded on the balance sheet at fair value and establishes specific accounting
methods for hedges. Changes in the value of most derivatives and hedges will be
included in earnings in the period of the change. In June 2000 the Financial
Accounting Standards Board issued statement 138 which amends SFAS 133. SFAS 133
as amended by SFAS 137, is effective for years beginning after June 15, 2000.
The Company intends to adopt SFAS 133 on January 1, 2001. Management does not
believe the adoption of SFAS 133 as amended, will have a material effect on the
Company's financial condition or results of operations.
Note 3. Segment Information
The Company has four principal insurance subsidiaries that each focus on a
specific geographic region and/or specific products. Each company is managed
autonomously and is evaluated on its individual performance. The following
summary sets forth each company's revenue and pretax income (loss) for the
quarter and year-to-date periods ended June 30, 2000 and 1999.
Revenues
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
========================== ==========================
2000 1999 2000 1999
---------- ---------- ---------- ----------
American Southern $ 10,300 $ 10,518 $ 21,250 $ 20,628
Association Casualty 5,361 - 10,517 -
Georgia Casualty 8,043 5,672 15,266 11,211
Bankers Fidelity 13,057 11,579 26,301 23,005
Corporate and Other 1,722 1,474 3,727 2,921
Adjustments and eliminations (1,638) (1,264) (3,325) (2,449)
------- ------- ------- -------
Consolidated results $ 36,845 $ 27,979 $ 73,736 $ 55,316
======== ========== ========= =========
-6-
Income (loss) before
income tax provision
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2000 1999 2000 1999
---------- -------------- ---------- --------
American Southern $ 1,144 $ 1,008 $ 2,703 $ 2,643
Association Casualty 154 - (21) -
Georgia Casualty 71 (105) 515 71
Bankers Fidelity 599 712 1,659 1,558
Corporate and Other (893) (947) (2,055) (2,124)
----- ----- ------- -------
Consolidated results $ 1,075 $ 668 $ 2,801 $ 2,148
====== ===== ====== =====
Note 4. Credit Arrangements
The Company is a party to a five-year revolving credit facility that provides
for borrowings up to $30,000. The interest rate on the borrowings under the
facility is based upon the London Interbank Offered Rate ("LIBOR") plus an
applicable margin, 3.25% at June 30, 2000. The monthly credit facility provides
for the payment of all of the outstanding principal balance at June 30, 2004
with no required principal payments prior to that time.
The Company also has outstanding $25,000 of Series 1999, Variable Rate
Demand Bonds (the "Bonds") due July 1, 2009. The Bonds, which are redeemable at
the Company's option, pay a variable interest rate that approximates 30-day
LIBOR. The Bonds are backed by a thirteen-month letter of credit issued by
Wachovia Bank, N.A. The cost of the letter of credit and its associated fees are
3.25%, making the effective rate on the Bonds LIBOR plus 3.25% at June 30, 2000.
The interest on the Bonds is payable monthly and the letter of credit fees are
payable quarterly. The Bonds do not require the repayment of any principal prior
to maturity.
Subsequent to the end of the first quarter, the revolving credit facility and
letter of credit were both amended by Wachovia Bank, N.A. as a result of the
Company's operating performance during 1999. The amendment establishes new
covenants pertaining to funded debt, total capitalization, and EBITDA. Beginning
July 1, 2000, as a result of the Company meeting certain financial objectives,
the margin on the revolving credit facility will be decreased to 2.75% and the
cost of the letter of credit will be decreased to this same level. The margin on
the revolving credit facility and the cost of the letter of credit can be
further reduced if the Company meets certain financial objectives during
2000. The Company is in compliance with all debt covenants at June 30,2000 and
expects to remain in compliance for the remainder of 2000.
Note 5. Reconciliation of Other Comprehensive Loss
- -------
June 30,
2000 1999
---------------------------
Gain on sale of securities
included in net income $ 527 $ 1,479
===========================
Other comprehensive loss:
Net pre-tax unrealized loss arising during year $ (9,351) $ (3,198)
Reclassification adjustment (527) (1,479)
--------------------------
Net pre-tax unrealized loss recognized in other (9,878) (4,677)
comprehensive loss
Deferred income tax benefit attributable to other
comprehensive loss 3,457 -
-------------------------------
Net unrealized loss recognized in other
comprehensive loss (6,421) (4,677)
===========================
-7-
Note 6. Acquisition.
- -------
On July 1, 1999, the Company acquired 100% of the outstanding stock of
Association Casualty Insurance Company ("ACIC") and Association Risk Management
General Agency ("ARMGA"), for a combined price of $32,958 with $8,483 of the
purchase price paid in the form of common stock of the Company and the remaining
$24,475 paid in cash obtained from borrowings under the Company's revolving
credit facility. The acquisition of both ACIC and ARMGA were accounted for using
the purchase method of accounting. Accordingly, the Company has allocated the
purchase price of the companies based on the fair value of the assets acquired
and liabilities assumed and their results of operations are included in the
consolidated results of operations since the date of acquisition.
The following summarizes the Company's pro-forma unaudited results of
operations for the six months ended June 30, 1999, assuming the purchase of ACIC
and ARMGA had been consummated as of January 1, 1999:
Six months ended
June 30, 1999
-------------
Revenue $ 66,307
Net income 1,555
Per common share data:
Basic earnings per share 0.05
Diluted earnings per share 0.05
This pro-forma financial information has been prepared for the informational
purposes only and is not necessarily indicative of the results of operations had
the transaction been consummated on January 1, 1999, nor is it indicative of
results of operations that may be obtained in the future.
Note 8. Earnings per common share
- -------
A reconciliation of the numerator and denominator of the earnings per common
share calculations are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------
(In thousands, except per share data) 2000 1999 2000 1999
--------------------------------------------
Basic Earnings Per Common Share
Net income $ 711 $ 651 $ 1,863 $ 2,104
--------------------------------------------
Less preferred stock dividends (301) (301) (603) (603)
--------------------------------------------
Net income applicable to common
shareholders $ 410 $ 350 $ 1,260 $ 1,501
============================================
Weighted average common shares
outstanding 21,025 19,071 21,018 19,091
============================================
Net income per common share $ .02 $ .02 $ .06 $ .08
============================================
Diluted Earnings Per Common Share:
Net income applicable to common
shareholders $ 410 $ 350 $ 1,260 $ 1,501
============================================
Weighted average common shares
outstanding 21,025 19,071 21,018 19,091
Effect of dilutive stock options 59 285 41 292
--------------------------------------------
Weighted average common shares
outstanding adjusted for dilutive
stock options 21,084 19,356 21,059 19,383
============================================
Net income per common share $ .02 $ .02 $ .06 $ .08
============================================
-8-
Outstanding stock options of 811,000 and 11,000 in the six month and quarterly
periods were excluded from the earnings per common share calculation in 2000 and
1999, respectively, since their impact was antidilutive. The assumed conversion
of the Series B Preferred stock was excluded from the earnings per common share
calculation for 2000 and 1999 since its impact was antidilutive.
Note 9. Commitments and Contigencies
From time to time the Company and its subsidiaries are parties to litigation
occurring in the normal course of business. In the opinion of management, such
litigation will not have a material adverse effect on the Company's
financial position or results of operations.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overall Corporate Results
On a consolidated basis, the Company earned $711,000 or $0.02 per diluted share
during the second quarter of 2000 compared to net income of $651,000 or $0.02
per diluted share during the second quarter of 1999. Year-to-date net income was
$1.9 million or $0.06 per share compared to net income of $2.1 million or $0.08
per share for the first six months of 1999. Pre-tax income increased to $1.1
million during the second quarter of 2000 from $668,000 for the comparable
period in 1999. For the first six months of 2000 pre-tax income was $2.8 million
compared to $2.1 million in the first half of 1999.
The Company, beginning in the first quarter of 2000, is recognizing a deferred
tax provision as a result of the Company's year-end 1999 reassessment of its
valuation reserve related to the Company's net operating loss carryforwards. For
a further discussion of the Company's valuation allowance refer to note 5 of the
Company's consolidated financial statements included in the Company's 1999
Annual Report on Form 10-K for the year ended December 31, 1999.
A more detailed analysis of the individual operating entities and other
corporate activities is provided below.
UNDERWRITING RESULTS
American Southern
The following is a summary of American Southern's premiums for the second
quarter and first six months of 2000 and the comparable periods in 1999 (in
thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- ----------------------------
2000 1999 2000 1999
------------- ----------- ----------------------------
Gross written premiums 12,000 6,453 21,272 27,635
Ceded premiums (1,237) (1,290) (2,555) (2,563)
------------- ----------- ----------------------------
Net written premiums $ 10,763 $ 5,163 $ 18,717 $ 25,072
============= =========== ============================
Net earned premiums $ 9,006 $ 9,392 $ 18,684 $ 18,364
============= =========== ============================
Gross written premiums at American Southern increased $5.5 million for the
quarter while declining $6.4 million for the year to date period. During 2000
American Southern has been recognizing the premium on one of its larger
contracts on a monthly basis; during 1999 the entire annual contract was
recognized as written premium during the first quarter. This contract was
renewed, through a competitive bidding process, in the early 2000; however, one
of the other parties bidding for this work has appealed the awarding of this
business to American Southern. While the Company is confident that it can defend
any appeal, as a conservative measure American Southern is recognizing this
premium on a monthly basis until the appeal is settled rather than recognizing
the annual premium and offsetting this with unearned premium as was done in
1999.
Net earned premium for the quarter decreased $386,000 while for the first six
months it is up $320,000. The contract discussed previously, when renewed, was
done so at a lower rate than in the previous year. As a result of this rate
reduction earned premium for the quarter declined slightly in comparison to
the previous year. While American Southern renewed this contract at a lower
rate, it is management's opinion that this contract will remain profitable.
This reduction in earned premium is offset partially, particularly for the year
to date period, by the increase in earned premium from American Southern's
joint venture with the AAA of the Carolinas' Motor Club. This program began
writing business in 1999 and as a result did not have a significant impact
on earned premiums in the first quarter of 1999. Earned premiums from the
joint venture were $821,000 in the second quarter of 2000 compared to $480,000
in the second quarter of 1999. For the year to date period earned premiums
from this program were $1.6 million in 2000 compared to $678,000 in 1999.
-10-
The following is a break out of American Southern's earned premium by line of
business for the second quarter and first six month of 2000 and the comparable
periods in 1999 (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- -----------------------
2000 1999 2000 1999
------------- ----------- ----------- -----------
Commercial automobile $ 6,621 $ 6,981 $ 13,527 $ 13,801
Private passenger auto 821 480 1,640 678
General liability 827 1,124 1,791 2,298
Property 722 792 1,698 1,557
Other 15 15 28 30
------------- ----------- ----------- -----------
$ 9,006 $ 9,392 $ 18,684 $ 18,364
============= =========== =========== ===========
American Southern produces much of its business through contracts with various
states and municipalities, some of which represent significant amounts of
revenue for the company. These contracts, which last from one to three years,
are periodically subject to competitive renewal quotes and the loss of a
significant contract could have a material adverse effect on the business or
financial condition of American Southern and the Company. Other than the
contract discussed above, none of American Southern's significant contracts are
currently up for renewal. In an effort to increase the number of programs
underwritten by American Southern and to insulate it from the loss of any one
program, the company is continually evaluating new underwriting programs.
The following is a break-out of the loss and expense ratios of American Southern
for the second quarter and first six months of 2000 and for the comparable
periods in 1999:
Three months ended Six months ended
June 30, June 30,
------------------------ --------------------
2000 1999 2000 1999
------------------------ --------------------
Loss ratio 71.2% 79.7% 67.6% 72.4%
Expense ratio* 30.1% 21.1% 31.3% 25.1%
------------------------ --------------------
Combined ratio 101.3% 100.8% 98.9% 97.5%
======================== ====================
*Excludes the amortization of goodwill associated with the acquisition of
American Southern.
The loss ratio for the second quarter and year to date period represents an
improvement over the comparable periods in 1999. This improvement is caused, in
part, by improving results on the Company's private passenger automobile line.
The increase in the expense ratio is due in part to an increase in the company's
private passenger auto line of business on which the company pays a 15%
commission. This commission exceeds the company's commission on its other lines
of business; however, it is competitive with the industry. In addition, much of
American Southern's business is written with a profit sharing arrangement that
rewards the company's agents for writing profitable business, as a result a
lower loss ratio results in a higher commission paid to the agent.
Association Casualty
The results of both Association Casualty Insurance Company and Association Risk
Management General Agency (together referred to as "Association Casualty") are
presented for the first six months of 2000; however, since the Company did not
own these companies during the first half of 1999 no comparative information is
presented.
-11-
The following is a summary of Association Casualty's premiums for the second
quarter and first six months of 2000 (in thousands):
Three months Six months
ended ended
June 30, 2000 June 30, 2000
-------------- ----------------
Gross written premiums 6,849 11,854
Ceded premiums (1,763) (2,116)
---------------- -------------
Net written premiums 5,086 9,738
================= ================
Net earned premiums $ 4,618 $ 8,986
================= ================
Association Casualty writes predominately workers' compensation insurance in the
state of Texas (95% of net earned premiums). The Texas' workers compensation
market remains extremely competitive; however, Association Casualty has been
successful in attracting new business and in increasing the rates it is charging
for renewal business. Compared to the first six months of 1999 (preacquisition)
net written premiums are up 18.3%.
The following is the loss and expense ratio for Association Casualty for the
first quarter of 2000:
Three months Six months
ended ended
June 30, 2000 June 30, 2000
---------------- ---------------
Loss ratio 68.0% 75.1%
Expense ratio* 33.6% 35.3%
---------------- ---------------
Combined ratio 101.6% 110.4%
================ ===============
*Excludes the amortization of goodwill and interest on an intercompany surplus
note associated with the acquisition of Association Casualty.
Association Casualty continues to be adversely impacted by the liberal
interpretation of workers' compensation laws in the State of Texas. The company
is also seeing an increase in the number of claims that are being reported for
second surgeries. The company has been taking action to increase its pricing and
the impact of this action is being seen in increased premiums and a lower ratio.
The loss ratio for the quarter improved to 68.0% from 82.6% for the first
quarter of 2000. In addition, the frequency of severe claims decreased
during the second quarter as compared to the first quarter.
-12-
Georgia Casualty
The following is a summary of Georgia Casualty's premiums for the second quarter
and first six months of 2000 and the comparable periods in 1999 (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
Gross written premiums 9,602 6,248 20,623 13,065
Ceded premiums (1,022) (1,484) (1,840) (2,871)
------------ ---------- ------------- -----------
Net written premiums $ 8,580 $ 4,764 $ 18,783 $ 10,194
============ ========= ========== =========
Net earned premiums $ 7,364 $ 4,778 $ 13,789 $ 9,340
============ ========== =========== ===========
Gross written premiums at Georgia Casualty increased $3.4 million or 53.7%
during the second quarter of 2000 and $7.6 million or 57.8% during the first six
half of 2000. The increase in premium is the result of several factors. First,
the company, beginning in the first quarter of 2000, began evaluating and
underwriting insurance for large associations and other homogenous risks. In
addition, the company has been aggressively increasing premiums on its renewal
business and has been pricing new business at rates higher than those used a
year ago. Lastly, the new management team at Georgia Casualty, through its
relationship with the insurance community, has broadened the agency force used
by the company. The decline in ceded premium is the result of the
discontinuation of the stop-loss reinsurance agreement that the company put in
place in the first quarter of 1999. Due to the improved results seen by Georgia
Casualty, the protection offered by the stop loss agreement is, in the opinion
of management, no longer necessary.
The following is a break-out of Georgia Casualty's earned premium by line of
business for the second quarter and first six months of 2000 and the comparable
periods in 1999 (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
Workers' compensation $ 4,454 $ 3,228 $ 8,485 $ 6,216
General liability 663 294 1,239 596
Commercial multi-peril 973 364 1,714 758
Commercial automobile 1,209 747 2,217 1,468
Property 65 145 134 302
----------- --------- -------- --------
$ 7,364 $ 4,778 $ 13,789 $ 9,340
========== ============ =============== ========
-13-
The following is a break out of Georgia Casualty's loss and expense ratios for
the second quarter and first six months of 2000 and the comparable periods in
1999:
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
Loss ratio 71.7% 79.6% 70.3% 78.5%
Expense ratio 36.5% 41.3% 36.6% 40.8%
------------------------- --------------------------
Combined ratio 108.2% 120.9% 106.9% 119.3%
========================= ==========================
The loss ratio declined to 71.7% in the second quarter of 2000 from 79.6% in the
second quarter of 1999 and from 78.5% for the first six months of 1999 to 70.3%
for the comparable period in 2000. The primary reason for the decline is the
complete elimination, during the latter part of 1999, of two underwriting
programs the performance of which was substandard. In addition, the company is
seeing the benefits of the increased rates that began in the fourth quarter
of 1999. Also, the mix of business that Georgia Casualty underwrites has changed
from one of higher hazards (e.g., logging and habitational contractors)
to low and moderate hazards (e.g., retail and light manufacturing). The
expense ratio for the quarter declined to 36.5% from 41.3%, and to 36.6% from
40.8% for the year to date period, primarily as a result of the increase in
earned premiums and only a moderate increase in fixed expenses.
Bankers Fidelity
The following summarizes Bankers Fidelity's premiums for the second quarter and
first six months of 2000 and the comparable periods in 1999 (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- ----------------------------
2000 1999 2000 1999
------------------------- ----------------------------
Medicare supplement $ 7,598 $ 6,227 $ 14,992 $ 12,169
Other health 751 815 1,516 1,652
Life 3,474 3,158 6,723 6,188
--------------- --------- ------------ ------------
Total all lines $ 11,823 $ 10,200 $ 23,231 $ 20,009
========= ====== ====== ========
Premium revenue at Bankers Fidelity increased $1.6 million or 15.9% during the
second quarter of 2000 and $3.2 million or 16.1% for the year to date period.
The most significant increase in premium arose in the Medicare supplement line
of business which increased 22.0% for the quarter and 23.2% for the year. During
1999, Bankers Fidelity expanded its Medicare supplement product into additional
states which, over the course of the year, increased the sales of this product.
The effects of this expansion are now being fully seen. In addition, during the
fourth quarter of 1999 and first quarter of 2000 Bankers Fidelity implemented
rate increases on this product, in some cases up to 30%. While the full effect
of these rate increases is just now being been seen on renewal business, it is
being reflected in the new business written by the company. In spite of these
rate increases, the renewal rate on this product was in excess of 86% for the
year. Bankers Fidelity is also continuing to see increased sales of its life
products. The major marketing effort at Bankers Fidelity continues to be on this
product line.
-14-
The following summarizes Bankers Fidelity's operating expenses for the second
quarter and first six months of 2000 and the comparable periods in 1999 (in
thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- ----------------------------
2000 1999 2000 1999
------------------------- ----------------------------
Benefits and losses $ 8,566 $ 7,088 $ 16,908 $ 14,008
Commission and other
expenses 3,892 3,776 7,734 7,436
-------- ------- ------------- --------
Total expenses $ 12,458 10,864 24,642 21,444
=========== =========== ============ =========
The increase in both benefits and losses and commission and other expenses is
directly attributable to the increase in premiums. Benefits and losses are up
20.9% for the quarter and 20.7% for the year, slightly out pacing the increase
in premiums. As a percentage of premiums, benefits and losses were 72.4% for the
quarter and 72.8% for the year compared to 69.5% in the second quarter of 1999
and 70.0% for the first six months of 1999. The increase is primarily
attributable to increased medical costs. The rate increases that Bankers
Fidelity has put in place will ultimately mitigate the increases in medical
costs; however, it will take several quarters before the full effect of the rate
increases is seen.
As a result of an effort to reduce commission costs as well as streamline
expenses, commission and other expenses increased only 3.1% during the quarter
and 4.0% year to date. As a percentage of premium, these expenses were 32.9% for
the second quarter of 2000 compared to 37.0% in the second quarter of 1999. Year
to date this ratio improved to 33.3% from 37.2% in 1999.
INVESTMENT INCOME AND REALIZED GAINS
Investment income for the quarter increased $980,000 over the second quarter of
1999 and increased $2.1 million year to date. The addition of Association
Casualty accounted for $612,000 of the increase for the quarter and $1.2 million
of the year to date increase. The Company also benefited from a significant gain
in a real estate partnership in which it is involved. The investment, which is
accounted for under the equity method, generated income of approximately
$634,000 during the first half of 2000. To take advantage of the steepening
yield curve the company shifted securities from short-term to longer-term
securities. This also contributed to the increase in investment income for the
quarter.
The Company recognized a $20,000 realized loss for the quarter. Management
continually evaluates the Company's investment portfolio and when
opportunities arise will divest appreciated investments.
INTEREST EXPENSE
Interest expense for the second quarter and first six months of 2000 increased
significantly compared to 1999. In conjunction with the acquisition of
Association Casualty, the Company entered into a $30.0 million revolving credit
facility with Wachovia Bank, N.A. During the first quarter of 2000, the Company
paid down $1.0 million on the revolver, leaving $25.0 million outstanding under
the facility. This debt, coupled with the $25 million variable rated demand
bonds entered into during the second quarter of 1999, the proceeds of which were
used to pay down the Company's prior credit facility, bring the total debt at
June 30, 2000 to $50.0 million, up from $26.0 million in the first quarter of
1999. In addition both the base interest rate, LIBOR, and the interest rate
margin increased over the prior year. The interest rate on both the revolver and
the bonds is variable and is tied to 30-day LIBOR.
OTHER EXPENSES AND TAXES
The increase in other operating expenses during the quarter and year is
attributable to the inclusion of Association Casualty, beginning in the third
quarter of 1999.
-15-
The Company, beginning in the first quarter of 2000 is recognizing a deferred
tax provision as a result of the Company's year-end 1999 reassessment of its
valuation reserve related to the Company's net operating loss carryforwards. For
a further discussion of the Company's valuation allowance refer to Note 5 of the
Company's consolidated financial statements included in the Company's 1999
Annual Report on Form 10-K for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The major cash needs of the Company are for the payment of claims and expenses
as they come due and the maintenance of adequate statutory capital and surplus
to satisfy state regulatory requirements and meet debt service requirements of
the Company. The Company's primary source of cash is written premiums and
investment income. Cash payments consist of current claim payments to insureds
and operating expenses such as salaries, employee benefits, commissions, taxes,
and shareholder dividends from the subsidiaries, when earnings warrant such
dividend payments. By statute, the state regulatory authorities establish
minimum liquidity standards primarily to protect policyholders.
The Company's insurance subsidiaries reported a combined statutory income of
$1.4 million for the first six months of 2000 compared to statutory net income
of $2.2 million for the first six months of 1999. The reasons for the decrease
in statutory earnings in the first half of 2000 are the same as those discussed
in "Results of Operations" above. Statutory results are further compounded by
the recognition of 100% of the costs of acquiring business. In a growth
environment this can cause statutory results to appear deflated. Statutory
results differ from the results of operations under generally accepted
accounting principles ("GAAP") for the Casualty Division due to the deferral of
acquisition costs. The Life and Health Division's statutory results differ from
GAAP primarily due to deferral of acquisition costs, as well as different
reserving methods.
The Company has one series of preferred stock outstanding, substantially all of
which is held by affiliates of the Company's chairman and principal
shareholders. The outstanding shares of Series B Preferred Stock ("Series B
Stock") have a stated value of $100 per share, accrue annual dividends at a rate
of $9.00 per share, in certain circumstances may be convertible into an
aggregate of approximately 3,358,000 shares of common stock, and are redeemable
at the Company's option. The Series B Stock is not currently convertible. At
June 30, 2000, the Company had accrued, but unpaid dividends on the Series B
Stock totaling $5.4 million.
On June 24, 1999, the Company issued $25.0 million in Taxable Variable Rate
Demand Bonds, Series 1999 (the "Bonds") to replace the Company's existing bank
facility. The Bonds will mature on July 1, 2009 and pay a variable interest rate
that approximates 30-day LIBOR. The Bonds are backed by a Letter of Credit
issued by Wachovia Bank, N.A. The cost of the Letter of Credit and its
associated fees was 325 basis points at June 30, 2000, making the effective cost
of the bonds LIBOR plus 325 basis points. The credit facility that was replaced
by the Bonds was a term loan with an interest rate of prime less 50 basis points
and would have matured December 31, 2000.
On July 1, 1999, the Company entered into a $30.0 million revolving credit
facility with Wachovia Bank, N.A. to finance a portion of its acquisition of
Association Casualty. The revolver has a five-year term and requires no
principal payments until maturity. The interest rate on the revolver is 30-day
LIBOR plus 325 basis points at June 30, 2000. The Company paid down $1.0 million
on this facility during the first quarter of 2000, reducing the outstanding
balance to $25.0 million.
The Company is required, under both credit facilities, to meet certain debt
covenants including maintaining certain ratios of earnings before interest,
taxes, depreciation and amortization ("EBITDA") to interest, debt to EBITDA and
debt to total capitalization. The Company was in compliance with all of its debt
covenants at June 30, 2000.
The Company provides certain administrative and other services to each of its
insurance subsidiaries. The amounts charged to and paid by the subsidiaries in
the first quarter of 2000 increased slightly over the first quarter of 1999. In
addition, the Company has a formal tax-sharing agreement between the Company and
its insurance subsidiaries. It is anticipated that this agreement will provide
the Company with additional funds from profitable subsidiaries due to the
subsidiaries' use of the Company's tax loss carryforwards, which totaled
approximately $35 million at June 30, 2000.
Over 90% of the investment assets of the insurance subsidiaries are in
marketable securities that can be converted into cash, if required; however, use
of such assets by the Company is limited by state insurance regulations.
Dividend payments to the Company by its insurance subsidiaries are limited to
the accumulated statutory earnings of the individual insurance subsidiaries,
subject to annual limitations. At June 30, 2000, Georgia Casualty had $6.2
million of accumulated statutory earnings, American Southern had $19.5 million
of accumulated statutory earnings, Association Casualty had $13.8 million of
accumulated statutory earnings, and
-16-
Bankers Fidelity had $12.4 million of accumulated statutory earnings.
Net cash provided by operating activities was $6.4 million in the first half of
2000 compared to net cash used in operating activities of $385,000 in the first
half of 1999. Cash and short-term investments decreased from $34.3 million at
December 31, 1999, to $20.3 million at June 30, 2000, mainly due to an increase
in longer-term investments. Total investments (excluding short-term investments)
increased to $209.3 million due to the shift from short-term investments.
The Company believes that the dividends, fees, and tax-sharing payments it
receives from its subsidiaries and, if needed, borrowings from banks will enable
the Company to meet its liquidity requirements for the foreseeable future.
Management is not aware of any current recommendations by regulatory
authorities, which, if implemented, would have a material adverse effect on the
Company's liquidity, capital resources or operations.
FORWARD-LOOKING STATEMENTS
This report contains and references certain information that constitutes
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Those statements, to the extent they are not
historical facts, should be considered forward-looking and subject to various
risks and uncertainties. Such forward-looking statements are made based upon
management's assessments of various risks and uncertainties, as well as
assumptions made in accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of such risks and uncertainties, including those
identified in the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1999 and the other filings made by the Company from time to
time with the Securities and Exchange Commission.
-17-
PART II. OTHER INFORMATION
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
Due to nature of the Company's business it is exposed to both interest rate
and market risk. Changes in interest rates, which represent the largest factor
affecting the Company, may result in changes in the fair market value of the
Company's investments, cash flows and interest income and expense. The Company
is also subject to risk from changes in equity prices.
Refer to our annual Report on Form 10-K for the year December 31, 1999 for a
detailed disclosure about Quantitative and qualitative disclosures concerning
market risk. Quantitative and qualitative disclosures about market risk have not
materially changed since December 31, 1999.
Item 4. Submission of matters to a vote of security-holders.
- -------------------------------------------------------------
On May 2, 2000, the shareholders of the Company cast the following votes at
the annual meeting of shareholders for the election of directors of the Company,
and the appointment of Arthur Andersen LLP as the Company's auditors.
Election of Directors Shares Voted
- ------------------------------------------- -----------------------------
Director Nominee For Withheld
- ---------------- --- --------
J. Mack Robinson 19,161,012 179,629
Hilton H. Howell, Jr. 19,283,871 56,770
Samuel E. Hudgins 19,155,591 185,050
D. Raymond Riddle 19,284,598 56,043
Harriett J. Robinson 19,160,880 179,761
Scott G. Thompson 19,284,486 56,155
Mark C. West 19,284,698 55,943
William H. Whaley, M.D. 19,283,189 57,452
Dom H. Wyant 19,154,184 186,457
Edward E. Elson 19,265,765 74,876
Harold K. Fischer 19,164,897 175,744
Appointment of Independent Public Shares Voted
Accountants
- ------------------------------------------- --------------------------------
For Against Abstain
Arthur Andersen LLP 19,307,007 10,541 23,093
-18-
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.1 First Admendment to Credit Agreement, between the
Company and Wachovia Bank, N.A., dated as of March
24, 2000.
Exhibit 27. Financial data schedule
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the first quarter of 2000.
-19-
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.
ATLANTIC AMERICAN CORPORATION
-----------------------------
(Registrant)
/s/
Date: August 10, 2000 By: ---------------------------
Edward L. Rand, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-20-
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made the
24th day of March, 2000, between ATLANTIC AMERICAN CORPORATION, a Georgia
corporation (the "Borrower") and WACHOVIA BANK, N.A (the "Bank").
Background:
----------
The Borrower and the Bank have entered into a Credit Agreement dated as
of July 1, 1999 (the "Credit Agreement"). The Borrower and the Bank wish to
amend the Credit Agreement in certain respects, as hereinafter provided.
NOW, THEREFORE, the Borrower and the Bank agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which
are not otherwise defined herein shall have the
respective meanings assigned to them in the Credit
Agreement.
SECTION 2. The Credit Agreement is amended as set forth in this
Section 2.
2.1. Amendment to Section 1.01. Section 1.01 of the Credit
-------------------------- Agreement is hereby amended by
inserting a new definition to
read as follows:
"Effective Date" means March 24, 2000.
2.2. Amendment to Section 2.05. Section 2.05(a) of the Credit
------------------------- Agreement is hereby amended and
restated in its entirety to
read as follows:
(a)"Applicable Margin" shall be determined quarterly based
upon the ratio of Funded Debt to EBITDA (calculated as of the
last day of each Fiscal Quarter), as follows:
Ratio of Funded Debt to EBITDA Base Rate Loans Euro-Dollar Loans
------------------------------ --------------- -----------------
Greater than or equal to 5.5 to 1.0 0% 3.75%
Greater than or equal to 5.0 to 1.0
but less than 5.5 to 1.0 0% 3.25%
Greater than or equal to 4.5 to 1.0
but less than 5.0 to 1.0 0% 2.75%
Greater than or equal to 4.0 to 1.0
but less than 4.5 to 1.0 0% 2.50%
Greater than or equal to 3.5 to 1.0
but less than 4.0 to 1.0 0% 2.25%
Greater than or equal to 3.0 to 1.0
but less than 3.5 to 1.0 0% 2.00%
Less than 3.0 to 1.0 0% 1.75%
The Applicable Margin shall be determined effective as of the date
(herein, the "Rate Determination Date") which is 60 days after the last
day of the Fiscal Quarter as of the end of which the foregoing ratio is
being determined, based on the quarterly financial statements of the
Borrower for such Fiscal Quarter, and the Applicable Margin so
determined shall remain effective from such Rate Determination Date
until the date which is 60 days after the last day of the Fiscal
Quarter in which such Rate Determination Date falls (which latter date
shall be a new Rate Determination Date); provided that (i) for the
period from and including the Effective Date to but excluding the
Rate Determination Date next following the Effective Date, the
Applicable Margin shall be 0% for Base Rate Loans and 3.25% for Euro-
Dollar Loans (ii) in the case of any Applicable Margin determined for
the fourth and final Fiscal Quarter of a Fiscal Year, the Rate
Determination Date shall be the date which is 120 days after the
last day of such final Fiscal Quarter and such Applicable Margin shall
be determined based upon the annual audited financial statements of
the Borrower for the Fiscal Year ended on the last day of such final
Fiscal Quarter, and (iii) if on any Rate Determination Date the
Borrower shall have failed to deliver to the Banks the financial
statements required to be delivered pursuant to Section 5.01(a) or
Section 5.01(b) with respect to the Fiscal Year or Fiscal Quarter, as
the case may be, most recently ended prior to such Rate Determination
Date, then for the period beginning on such Rate Determination Date and
ending on the immediately succeeding Rate Determination Date, the
Applicable Margin shall be determined as if the ratio of Funded Debt
to EBITDA was more than 5.5 to 1.0 at all times during such period.
Any change in the Applicable Margin on any Rate Determination Date
shall result in a corresponding change, effective on and as of such
Rate Determination Date, in the interest rate applicable to each
Loan outstanding on such Rate Determination Date, provided that
no Applicable Margin shall be decreased pursuant to this Section
2.05 if a Default is in existence on the Rate Determination Date.
2.3. Amendment to Section 5.03. Section 5.03 of the Credit Agreement
------------------------------- is hereby amended and restated in its
entirety to read as follows:
SECTION 5.03. Ratio of Funded Debt to Consolidated Total
Capitalization. The ratio of Funded Debt to Consolidated Total
Capitalization will not at any time exceed (i) for the period from and
including the Effective Date to and including December 31, 2000, 50%
and (ii) for any period on or after January 1, 2001, 40%.
2.4. Amendment to Section 5.05. Section 5.05 of the Credit Agreement
--------------------------------- is hereby amended and restated in its
entirety to read as follows:
SECTION 5.05. Ratio of Funded Debt to EBITDA. As of the end of
each Fiscal Quarter, the ratio of Funded Debt as of the end of such
Fiscal Quarter to EBITDA for the period of 4 consecutive Fiscal
Quarters then ended shall be less than (a) 5.85 to 1.0 for each Fiscal
Quarter ending on or before March 31, 2000, (b) 5.10 to 1.0 for each
Fiscal Quarter ending after March 31, 2000, and on or before June 30,
2000, (c) 4.35 to 1.0 for each Fiscal Quarter ending after June 30,
2000, and on or before December 31, 2000, (d) 3.50 to 1.0 for each
Fiscal Quarter ending after December 31, 2000, and on or before
September 30, 2001, and (c) 3.00 to 1.0 for each Fiscal Quarter
thereafter.
2.5. Amendment to Section 5.06. Section 5.06 of the Credit Agreement
--------------------------------- is hereby amended and restated in its
entirety to read as follows:
SECTION 5.06. Ratio of EBITDA to Consolidated Interest
Expense. At the end of each Fiscal Quarter, the ratio of EBITDA for the
period of 4 consecutive Fiscal Quarters then ended to Consolidated
Interest Expense for the period of 4 consecutive Fiscal Quarters then
ended shall be greater than (a) 2.5 to 1.0 for each Fiscal Quarter
ending on or before June 30, 2000, (b) 3.0 to 1.0 for each Fiscal
Quarter ending on or before June 30, 2001 and (c) 3.5 to 1.0 for each
Fiscal Quarter thereafter.
SECTION 3. No Other Amendment. Except for the amendment set forth
above, the text of the Credit Agreement shall remain unchanged and in full force
and effect. This Amendment is not intended to effect, nor shall it be construed
as, a novation. The Credit Agreement and this Amendment shall be construed
together as a single instrument and any reference to the "Agreement" or any
other defined term for the Credit Agreement in the Credit Agreement, the Loan
Documents or any certificate, instrument or other document delivered pursuant
thereto shall mean the Credit Agreement as amended hereby and as it may be
amended, supplemented or otherwise modified hereafter. Nothing herein contained
shall waive, annul, vary or affect any provision, condition, covenant or
agreement contained in the Credit Agreement, except as herein amended, or any of
the other Loan Documents nor affect nor impair any rights, powers or remedies
under the Credit Agreement, as hereby amended or any of the other Loan
Documents. The Bank does hereby reserve all of its rights and remedies against
all parties who may be or may hereafter become secondarily liable for the
repayment of the Notes. The Borrower promises and agrees to perform all of the
requirements, conditions, agreements and obligations under the terms of the
Credit Agreement, as heretofore and hereby amended, and the other Loan
Documents, the Credit Agreement, as amended, and the other Loan Documents being
hereby ratified and affirmed. The Borrower hereby expressly agrees that the
Credit Agreement, as amended, and the other Loan Documents are in full force and
effect.
SECTION 4. Representations and Warranties. The Borrower hereby
---------------------------------------- represents and warrants in
favor of the Bank as follows:
(a) The representations and warranties of the Borrower
contained in Article IV of the Credit Agreement are true on
and as of the date hereof;
(b) No Default or Event of Default under the Credit Agreement has
occurred and is continuing on the date hereof;
(c) The Borrower has the corporate power and authority to enter into
this Amendment and to do all acts and things as are required or contemplated
hereunder to be done, observed and performed by it;
(d) This Amendment has been duly authorized, validly executed and
delivered by one or more authorized officers of the Borrower, and this Amendment
and the Credit Agreement, as amended hereby constitutes the legal, valid and
binding obligation of the Borrower enforceable against it in accordance with its
terms; and
(e) The execution and delivery of this Amendment and the Borrower's
performance hereunder and under the Credit Agreement as amended hereby do not
and will not require the consent or approval of any regulatory authority or
governmental authority or agency having jurisdiction over the Borrower other
than those which have already been obtained or given, nor be in contravention of
or in conflict with the Articles of Incorporation or Bylaws of the Borrower, or
the provision of any statute, or any judgment, order or indenture, instrument,
agreement or undertaking, to which the Borrower is a party or by which its
assets or properties are or may become bound.
SECTION 5. Counterparts. This Amendment may be executed in multiple
------------ counterparts, each of which shall be deemed
to be an original and all of which, taken
together, shall constitute one and the same
agreement.
SECTION 6. Governing Law. This Amendment shall be construed in
-------------- accordance with and governed by the laws
of the State of Georgia.
SECTION 7. Amendment Fee. On the Effective Date, the Borrower shall
-------------- pay to the Bank an amendment fee equal to
the product of the Commitment (irrespective
of usage) as of such date multiplied by
0.25%.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal by their respective authorized officers as of the day
and year first above written.
Attest: ATLANTIC AMERICAN CORPORATION
_______________________________ By:________________________________(SEAL)
Its:__________________________ Its: __________________________________
[CORPORATE SEAL]
WACHOVIA BANK, N.A.
By:__________________________________
Title:________________________________
7 3-MOS DEC-31-2000 JUN-30-2000 0 155334 155334 41535 3593 46 209343 20254 38527 22870 356178 170381 40439 5046 0 50000 0 134 21412 52255 356178 32811 3843 (20) 211 23394 8285 0 1075 364 711 0 0 0 711 0.02 0.02 0 0 0 0 0 0 0