Atlantic American Corp. has a market cap of $36.1 million; its shares were traded at around $1.62 with and P/S ratio of 0.4.
Highlight of Business Operations:On a consolidated basis, the Company had net income of $0.4 million, or $0.01 per diluted share, for the three month period ended March 31, 2010, compared to net income of $0.3 million, or $0.01 per diluted share, for the three month period ended March 31, 2009. Premium revenue for the three month period ended March 31, 2010 increased $0.6 million, or 2.5%, to $23.4 million. The increase in premiums was primarily attributable to new business generated by the Companys life and health operations as a result of increased marketing initiatives. Partially offsetting the increase in the life and health premiums during the three month period ended March 31, 2010 was a continued decline in property and casualty premiums. The increase in net income during the three month period ended March 31, 2010 was primarily due to the overall increase in net earned premiums coupled with a relatively consistent level of fixed expenses.
Premium revenue at Bankers Fidelity increased $1.5 million, or 10.8%, during the three month period ended March 31, 2010 over the comparable period in 2009, primarily due to successful marketing initiatives, recruiting of new agents, and effective utilization of the companys proprietary lead program. Premiums from the Medicare supplement line of business increased $1.0 million, or 10.0%, during the three month period ended March 31, 2010 over the comparable period in 2009 while premiums from the life insurance line of business increased $0.2 million, or 9.0%, during the same comparable period. The other health products premiums increased $0.2 million, or 24.9%, during the three month period ended March 31, 2010 over the comparable period in 2009 due primarily to an increase in sales of short-term care products and increased business activities with group associations.
The Parents insurance subsidiaries reported statutory net income of $1.9 million for the three month period ended March 31, 2010 compared to statutory net income of $1.9 million for the three month period ended March 31, 2009. Statutory results are impacted by the recognition of all costs of acquiring business. In a scenario in which the Company is growing, statutory results are generally lower than results determined under generally accepted accounting principles (GAAP). The Parents insurance subsidiaries reported GAAP net income of $1.9 million for the three month period ended March 31, 2010, compared to $1.8 million for the three month period ended March 31, 2009. The reasons for the increase in GAAP net income in the three month period ended March 31, 2010 are discussed above under Results of Operations. Statutory results for the Companys property and casualty operations may differ from the Companys results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Companys life and health operations statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.
In addition to these internal funding sources, the Company maintains its revolving credit facility (the Credit Agreement) with Wachovia Bank, National Association (Wachovia) pursuant to which the Company was able to, subject to the terms and conditions thereof, initially borrow or reborrow up to $15.0 million (the Commitment Amount). In accordance with the terms of the Credit Agreement, the Commitment Amount is incrementally reduced every six months and was equal to $10.5 million at March 31, 2010. The interest rate on amounts outstanding under the Credit Agreement is, at the option of the Company, equivalent to either (a) the base rate (which equals the higher of the Prime Rate or 0.5% above the Federal Funds Rate, each as defined) or (b) the LIBOR determined on an interest period of 1-month, 2-months, 3-months or 6-months, plus an Applicable Margin (as defined). The Applicable Margin varies based upon the Companys leverage ratio (funded debt to total capitalization, each as defined) and ranges from 1.75% to 2.50%. Interest on amounts outstanding is payable quarterly. The Credit Agreement requires the Company to comply with certain covenants, including, among others, ratios that relate funded debt to both total capitalization and earnings before interest, taxes, depreciation and amortization, as well as the maintenance of minimum levels of tangible net worth. The Company must also comply with limitations on capital expenditures, certain payments, additional debt obligations, equity repurchases and certain redemptions, as well as minimum risk-based capital levels. Upon the occurrence of an event of default, Wachovia may terminate the Credit Agreement and declare all amounts outstanding due and payable in full. During the three month period ended March 31, 2010, there was no balance outstanding under this Credit Agreement and the Company was in compliance with all terms of the Credit Agreement. The termination date of this Credit Agreement is June 30, 2010 and the Company currently does not anticipate entering into any future credit agreements. Notwithstanding the foregoing, however, changes in business or general economic conditions could result in the Company determining that it is in the Companys best interest to enter into such an agreement at any time in the future. In such event, no assurances can be provided that the Company would be able to enter into such an agreement in a timely manner, on acceptable terms, or at all.
At March 31, 2010, the Company had 70,000 shares of Series D Preferred Stock (Series D Preferred Stock) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Companys Chairman Emeritus. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Companys common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,754,000 shares of the Companys common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Companys option. The Series D Preferred Stock is not currently convertible. At March 31, 2010, the Company had accrued, but unpaid, dividends on the Series D Preferred Stock totaling $0.1 million.
Net cash used in operating activities was $3.7 million in the three month period ended March 31, 2010, compared to $6.1 million in the three month period ended March 31, 2009. Cash and short-term investments decreased from $20.1 million at December 31, 2009 to $17.4 million at March 31, 2010. The decrease in cash and short-term investments during the three month period ended March 31, 2010 was primarily due to the payment of agent profit sharing commissions, expenses associated with new business and annual management bonuses.
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