content: SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      Form 10-Q
  
  (Mark One)
  
  (x)  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
       EXCHANGE ACT OF 1934
  
  For the quarterly period ended     March 31, 1997
  
                                         OR
  
  ( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
       EXCHANGE ACT OF 1934
  
  For the transition period from                  to
  
  Commission file number                 0-22316
  
                              Penn-America Group, Inc.
               (Exact name of registrant as specified in its charter)
  
  
           Pennsylvania                                    23-2731409
  (State or other jurisdiction of             (I.R.S. Employer Identification No.)
   incorporation or organization)
  
  
                  420 South York Road, Hatboro, Pennsylvania 19040
            (Address of principal executive offices, including zip code)
  
  
                                   (215) 443-3600
                (Registrant's telephone number, including area code)
  
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding  12 months  (or for such other  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 .
  
  At May 9, 1997  6,740,770  shares of the  registrant's  common  stock,  $.01 par
  value, were outstanding.
  
  
                                       Page 1
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                                        Index
  
                                                                      Page Number
  
  Part I - Financial Information
  
           Consolidated Unaudited Balance Sheets - March 31, 1997 and
                  December 31, 1996                                            3
  
           Consolidated Unaudited Statements of Earnings - For the three
                  months ended March 31, 1997 and 1996                         4
  
           Consolidated Unaudited Statement of Stockholders' Equity -
                  For the three months ended March 31, 1997                    5
  
           Consolidated Unaudited Statements of Cash Flows -
                  For the three months ended March 31, 1997 and 1996           6
  
           Notes to Unaudited Consolidated Financial Statements                7
  
           Management's Discussion and Analysis of Results
                  of Operations and Financial Condition                        7
  
  Part II - Other Information                                                  9
  
  
                                       Page 2
  
  <PAGE>
  
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                             Consolidated Balance Sheets
                                     (unaudited)
                          (in thousands, except share data)
  <TABLE>
  <CAPTION>
                                                                                           March 31,     December 31,
                                                                                             1997           1996
  <S>                                                                                         <C>            <C>  
  ASSETS
  Investments:
      Fixed Maturities:
        Available for sale, at fair value (amortized cost 1997, $47,855; 1996, $49,244)   $  46,957      $  48,954
        Held to maturity, at amortized cost (fair value 1997, $53,457; 1996, $44,111)        54,488         44,227
      Equity securities, at fair value (cost 1997, $10,717; 1996, $10,597)                   12,390         12,390
      Short term investments, at cost, which approximates fair value                          4,900          7,000
                                                                                          ---------      ---------
        Total investments                                                                   118,735        112,571
  Cash                                                                                        1,725          2,979
  Receivables:
      Accrued investment income                                                               1,842          1,671
      Premiums receivable, net                                                               10,859         10,494
      Reinsurance recoverable                                                                15,817         15,719
      Note receivable, affiliate                                                                 75            275
                                                                                          ---------      ---------
        Total receivables                                                                    28,593         28,159
  Prepaid reinsurance premiums                                                                2,632          2,668
  Deferred policy acquisition costs                                                           7,726          7,231
  Capital leases                                                                              1,929          1,950
  Deferred income tax                                                                         2,515          2,211
  Income tax recoverable                                                                         --            249
  Other assets                                                                                  523            587
                                                                                          ---------      ---------
        Total assets                                                                      $ 164,378      $ 158,605
                                                                                          =========      =========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
      Unpaid losses and loss adjustment expenses                                          $  73,940      $  70,728
      Unearned premiums                                                                      32,128         30,865
      Accounts payable and accrued expenses                                                     991          1,773
      Capitalized lease obligations                                                           2,003          2,030
      Income tax payable                                                                        645             --
      Notes payable, bank                                                                     9,000          9,000
      Other liabilities                                                                       2,121          1,872
                                                                                          ---------      ---------
        Total liabilities                                                                   120,828        116,268
                                                                                          ---------      ---------
  Stockholders' equity:
      Preferred stock, $.01 par value; authorized 2,000,000 shares;
        none issued                                                                              --             --
      Common stock, $.01 par value; authorized 10,000,000 shares;
        issued and outstanding 1997, 6,710,638 shares and 1996, 6,676,131 shares                 67             67
      Additional paid-in capital                                                             22,087         21,844
      Unrealized investment gains, net of tax                                                   511            993
      Unrealized loss on fixed maturities transferred to held to maturity                       (43)            --
      Retained earnings                                                                      21,015         19,533
                                                                                          ---------      ---------
                                                                                             43,637         42,437
      Unearned compensation from restricted stock awards                                        (87)          (100)
                                                                                          ---------      ---------
        Total stockholders' equity                                                           43,550         42,337
                                                                                          ---------      ---------
  
        Total liabilities and stockholders' equity                                        $ 164,378      $ 158,605
                                                                                          =========      =========
  </TABLE>
  
        See accompanying notes to unaudited consolidated financial statements
  
                                       Page 3
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                         Consolidated Statements of Earnings
                                     (unaudited)
  
                 For the three months ended March 31, 1997 and 1996
                  (in thousands, except share and per share data)
  <TABLE>
  <CAPTION>
                                                                1997            1996
  Revenues:
  <S>                                                       <C>            <C>       
      Premiums earned                                       $   20,899     $   15,623
      Net investment income                                      1,940          1,598
      Net realized investment gains                                  1             23
                                                            ----------     ----------
        Total revenues                                          22,840         17,244
                                                            ----------     ----------
  
  Losses and expenses:
      Losses and loss adjustment expenses                       13,217          9,852
      Amortization of deferred policy acquisition costs          5,698          3,988
      Other underwriting expenses                                1,144          1,061
      Interest expense                                             192            217
                                                            ----------     ----------
        Total losses and expenses                               20,251         15,118
                                                            ----------     ----------
  
  Earnings before income tax                                     2,589          2,126
  
  Income tax                                                       839            697
                                                            ----------     ----------
  
  Net earnings                                              $    1,750     $    1,429
                                                            ==========     ==========
  
  Weighted average number of shares outstanding              6,689,457      6,649,818
                                                            ==========     ==========
  
  Net earnings per share (See Note 1)                       $      .26     $      .21
                                                            ==========     ==========
  
  Cash dividends per share (See Note 1)                     $      .04     $      .03
                                                            ==========     ==========
  </TABLE>
  
        See accompanying notes to unaudited consolidated financial statements
  
                                       Page 4
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                   Consolidated Statement of Stockholders' Equity
                                     (unaudited)
  
                      For the three months ended March 31, 1997
                               (dollars in thousands)
  
  <TABLE>
  <CAPTION>
                                                                                           Unrealized
                                                                                            Loss on              Unearned
                                                                                          Transfer of           Compensation
                                                                                Unrealized   Fixed                 From
                                                                     Additional Investment Maturities            Restricted
                                                      Common Stock     Paid-In    Gains    to Held to  Retained    Stock
                                                   Shares    Amount    Capital   (Losses),  Maturity   Earnings    Awards      Total
                                                                                   Net
  <S>                                            <C>           <C>     <C>         <C>      <C>       <C>         <C>       <C>    
  Balance at December 31, 1996                    6,676,131     $67     $21,844     $993     $   0     $19,533     $(100)    $42,337
  Net earnings                                                                                           1,750                 1,750
  Issuance of common stock                           34,507      --         243                                                  243
  Amortization of unearned 
       compensation from
       restricted stock awards                                                                                        13          13
  Unrealized investment losses 
       from fixed maturities 
       available for sale and 
       equities, net of tax                                                         (532)                                        (532)
  Unrealized loss on fixed maturities
       transferred to held to maturity                                                50         (50)                               0
  Accretion of net loss on fixed maturities
       transferred to held to maturity                                                             7                                7
  Cash dividends paid                                                                                     (268)                  (268)
                                                  -----------------------------------------------------------------------------------
  Balance at March 31, 1997                       6,710,638     $67     $22,087     $511     $(43)     $21,015     $ (87)    $43,550
                                                  ===================================================================================
  </TABLE>
  
  
       See accompanying notes to unaudited consolidated financial statements.
  
                                       Page 5
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                        Consolidated Statements of Cash Flows
                                     (unaudited)
  
                 For the three months ended March 31, 1997 and 1996
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                                          1997          1996
  <S>                                                                                  <C>           <C>     
  Cash flows from operating activities
      Net earnings                                                                     $  1,750      $  1,429
      Adjustments to reconcile net earnings to net cash provided by
        operating activities
          Amortization and depreciation expense                                              85            71
          Net realized investment gains                                                      (1)          (23)
          Deferred income tax                                                               (55)          (93)
          Net decrease in premiums and notes receivable,
             prepaid reinsurance premiums and unearned premiums                           1,135           454
          Net increase in unpaid losses and loss adjustment expense
             and reinsurance recoverable                                                  3,114         1,912
          Decrease (increase) in:
             Accrued investment income                                                     (171)          (89)
             Deferred policy acquisition costs                                             (495)         (238)
             Income tax recoverable                                                         249           529
             Other assets                                                                    37          (183)
          Increase (decrease) in:
             Accounts payable and accrued expenses                                         (782)         (406)
             Income tax payable                                                             645           500
             Other liabilities                                                              249           204
                                                                                       --------      --------
          Net cash provided by operating activities                                       5,760         4,067
                                                                                       --------      --------
  
  Cash flows from investing activities
      Purchases of equity securities                                                       (316)       (1,926)
      Purchases of fixed maturities available for sale                                   (8,000)      (11,033)
      Purchases of fixed maturities held to maturity                                     (3,028)      (11,064)
      Proceeds from sales of equity securities                                              197         1,266
      Proceeds from sales and maturities of fixed maturities available for sale           1,000        10,181
      Proceeds from maturities of fixed maturities held to maturity                       1,085         2,004
      Change in short term investments                                                    2,100         5,500
                                                                                       --------      --------
          Net cash used by investing activities                                          (6,962)       (5,072)
                                                                                       --------      --------
  
  Cash flows from financing activities
      Issuance of common stock                                                              243            66
      Principal payment on note payable, affiliate                                           --           (50)
      Dividends paid                                                                       (268)         (177)
      Principal payments on capital lease obligations                                       (27)          (24)
                                                                                       --------      --------
          Net cash used by financing activities                                             (52)         (185)
                                                                                       --------      --------
  
  Decrease in cash                                                                       (1,254)       (1,190)
  Cash, beginning of period                                                               2,979         5,204
                                                                                       ========      ========
  Cash, end of period                                                                  $  1,725      $  4,014
                                                                                       ========      ========
  
  Supplemental  disclosure  of cash flow  information  Cash paid during the period
      for:
        Income tax refund                                                                    --          (240)
        Interest                                                                            197           189
  
  Supplemental non-cash disclosure
        Cost of securities transferred from available for sale to held to maturity        8,002            --
  </TABLE>
  
       See accompanying notes to unaudited consolidated financial statements.
  
                                       Page 6
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
                Notes to Unaudited Consolidated Financial Statements
  
  Note 1 - Basis of Presentation
  
  Penn-America  Group, Inc. (the "Company") is an insurance holding company.  Penn
  Independent  Corporation  currently owns approximately  61.2% of the outstanding
  common stock of the Company.
  
  The accompanying  unaudited  consolidated financial statements should be read in
  conjunction with the financial  statements and notes for the year ended December
  31, 1996. In the opinion of management,  the financial  information reflects all
  adjustments   (consisting  only  of  normal  recurring  adjustments)  which  are
  necessary for a fair presentation of financial position,  results of operations,
  and cash flows for the interim  periods.  The results of operations  for interim
  periods are not  necessarily  indicative  of the results to be expected  for the
  entire year.
  
  On  January  29,  1997,  Penn-America  declared  a 3 for 2 stock  split  for all
  shareholders of record on February 14, 1997. All earnings and dividend per share
  data disclosed herein has been retroactively adjusted to reflect this split.
  
  Note 2 - Reinsurance
  
  Premiums  earned are net of amounts ceded to reinsurers of $1.8 and $1.6 million
  for the three  month  period  ended  March 31,  1997 and 1996.  Losses  and loss
  adjustment  expenses  are net of  amounts  ceded  to  insurers  of $1.8 and $2.5
  million for the three months ended March 31, 1997 and 1996.
  
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
  
  Results of Operations
  
  Gross written premiums increased 32.7% to $24.0 million for the first quarter of
  1997, as compared to $18.0 million for the same quarter in 1996. The increase in
  gross  written  premiums  was  primarily  attributable  to  increased  volume in
  addition to some rate increases which occurred  automatically because some risks
  are  exposure  related.  The  increase  in volume came  primarily  from a 103.8%
  increase in the personal  automobile lines to $9.7 million,  as compared to $4.8
  million for the same period in 1996.  Commercial  lines volume increased 7.3% to
  $14.3 million.
  
  Net written  premiums  increased  35.5% to $22.2 million in the first quarter of
  1997 as  compared  to $16.4  million in the first  quarter  of 1996.  Net earned
  premium increased 33.8% to $20.9 million,  as compared to $15.6 million in 1996.
  These increases are  attributable to the overall growth in gross and net written
  premium.
  
  Net  investment  income  increased  21.4% to $1.9  million as  compared  to $1.6
  million in 1996. The increase in investment  income can be attributed to a 19.9%
  increase in the  investment  portfolio to $118.7  million in 1997 as compared to
  $99.1 million as of March 31, 1996. The increase in the investment portfolio was
  funded by cash flow from operations.
  
  
                                       Page 7
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
                                     (continued)
  
  
  Losses and loss  adjustment  expenses  increased  34.2% to $13.2  million in the
  first quarter of 1997 as compared to $9.9 million in 1996.  The increase in loss
  and loss adjustment expenses was fairly consistent with the growth in net earned
  premiums,  as the loss and loss  adjustment  expense ratio was 63.2 and 63.1 for
  the periods ended March 31, 1997 and 1996, respectively. The Company's statutory
  combined ratio  increased to 95.6%,  as compared to 94.3% in 1996. The 1.3 point
  increase is  primarily  attributed  to growth in the personal  automobile  lines
  premium  volume.   Commission  rates  for  the  personal  automobile  lines  are
  approximately 5 percentage  points higher than the commercial  lines  commission
  rates.  The  overall net  commission  rates were 24.7% and 23.2% for the periods
  ended March 31, 1997 and 1996, respectively.
  
  Amortization  of  deferred  policy  acquisition  costs  increased  42.9% to $5.7
  million in the first  quarter of 1997 as compared  to $4.0  million for the same
  period in 1996.  This  increase  is  attributed  to the  growth in gross  earned
  premiums and the higher percentage of written premium in the auto business.
  
  Net earnings  increased  22.4% to $1.8  million in the first  quarter of 1997 as
  compared  to $1.4  million  for the  same  period  in  1996.  This  increase  is
  principally  attributed to increased  earned  premiums and increased  investment
  return.
  
  New Accounting Standard
  
  In March 1997,  the Financial  Accounting  Standards  Board issued SFAS No. 128,
  "Earnings  per  Share",  which  defines  the  computation,   presentation,   and
  disclosure   requirements  for  earnings  per  share  (EPS).  It  requires  dual
  presentation  of Basic EPS and Diluted EPS on the face of the income  statement.
  Basic EPS  excludes  dilution  and is computed by dividing  income  available to
  common stockholders by the weighted-average  number of common shares outstanding
  for the period.  Diluted EPS reflects the potential dilution that could occur if
  securities  or other  contracts  to  reissue  common  stock  were  exercised  or
  converted into common stock. The statement is effective for financial statements
  issued for periods ending after December 15, 1997,  including  interim  periods,
  earlier  application is not permitted When adopted,  all  prior-period  EPS data
  presented will be restated.
  
  Liquidity and Capital Resources
  
  Net cash provided by operating  activities  was $5.8 million as compared to $4.1
  million for the three months ended March 31, 1997 and 1996,  respectively.  This
  increase in cash provided by operations  primarily  reflects the increase in net
  premiums written during the period.
  
  Net cash used by  investing  activities  was $7.0  million for the three  months
  ended March 31, 1997 as compared to $5.1  million in the first  quarter of 1996.
  This  increase  was  primarily  due to the  higher  amount of cash  provided  by
  operating  activities  for the first  quarter of 1997 which was used to purchase
  securities.
  
  
                                       Page 8
  <PAGE>
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
                                     (continued)
  
  
  Net cash used by financing  activities  was $52 thousand in 1997, as compared to
  $185 thousand used for the same period in 1996.  The decrease in the use of cash
  for financing  activities  was primarily due to $268 thousand cash dividend paid
  to stockholders offset by $243 thousand  contribution to paid in capital through
  the exercise of stock options by some of the Company's stockholders.
  
  During April of 1997,  the Company  signed a  commitment  letter to increase its
  credit  facility  with PNC Bank to $15 million from its present $9 million.  The
  structure  of the credit  facility is expected to provide that the $9 million is
  to be repaid over a five year period and a $6 million revolving credit line with
  principal to be repaid after the second  anniversary,  over a three year period.
  Both  portions of the credit  facility are  expected to incur  interest at LIBOR
  plus a factor which could vary between 100 and 225 basis  points.  The increased
  facility  will  be  used  to add  to the  capital  of  the  Company's  insurance
  subsidiary,  Penn-America  Insurance  Company,  and its newly formed subsidiary,
  Penn-Star Insurance Company. Penn-Star is domiciled in the State of Pennsylvania
  and its focus will be to write  directly the  non-standard  automobile  coverage
  that currently is written by Penn-America Insurance Company. Until Penn-Star has
  been admitted in the states where we currently  write  automobile  coverage,  it
  will assume the auto premium written directly by its parent,  Penn-America under
  a reinsurance agreement.
  
                                       Page 9
  <PAGE>
  
  
  
                       PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
                             PART II. OTHER INFORMATION
  
  
  
  Item 1.       Legal Proceedings - None
  
  Item 2.       Changes in Securities - None
  
  Item 3.       Default Upon Senior Securities - None
  
  Item 4.       Submission of Matters to a Vote by Security Holders - None
  
  Item 5.       Other Information - None
  
  Item 6.       Exhibits and Reports on Form 8-K - None
  
  
  
                                      Page 10
  
  <PAGE>
  
                                      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.
  
  
  
  
                                           Penn-America Group, Inc.
  
  
  
  
  Date: May 9, 1997                        By: /s/ Jon S. Saltzman
                                               Jon S. Saltzman
                                               President and
                                               Chief Executive Officer
  
  
  
                                           By: /s/ Rosemary R. Ferrero
                                               Rosemary R. Ferrero
                                               Principal Accounting and
                                               Finance Officer
  
  
  
                                       Page 11
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 29837}]
metadata_filer: {"company-data": {"conformed-name": "PENN AMERICA GROUP INC", "cik": "0000910110", "assigned-sic": "6351", "irs-number": "232731409", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22316", "film-number": "97599191"}, "business-address": {"street1": "420 SOUTH YORK RD", "city": "HATBORO", "state": "PA", "zip": "19040", "phone": "2154433600"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      Form 10-Q
  
  (Mark One)
  
  (x)  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
       EXCHANGE ACT OF 1934
  
  For the quarterly period ended     March 31, 1997
  
                                         OR
  
  ( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
       EXCHANGE ACT OF 1934
  
  For the transition period from                  to
  
  Commission file number                 0-22316
  
                              Penn-America Group, Inc.
               (Exact name of registrant as specified in its charter)
  
           Pennsylvania                                    23-2731409
  (State or other jurisdiction of             (I.R.S. Employer Identification No.)
   incorporation or organization)
  
                  420 South York Road, Hatboro, Pennsylvania 19040
            (Address of principal executive offices, including zip code)
  
                                   (215) 443-3600
                (Registrant's telephone number, including area code)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding  12 months  (or for such other  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 .
  
  At May 9, 1997  6,740,770  shares of the  registrant's  common  stock,  $.01 par
  value, were outstanding.
  
                                       Page 1
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                                        Index
  
                                                                      Page Number
  
  Part I - Financial Information
  
           Consolidated Unaudited Balance Sheets - March 31, 1997 and
                  December 31, 1996                                            3
  
           Consolidated Unaudited Statements of Earnings - For the three
                  months ended March 31, 1997 and 1996                         4
  
           Consolidated Unaudited Statement of Stockholders' Equity -
                  For the three months ended March 31, 1997                    5
  
           Consolidated Unaudited Statements of Cash Flows -
                  For the three months ended March 31, 1997 and 1996           6
  
           Notes to Unaudited Consolidated Financial Statements                7
  
           Management's Discussion and Analysis of Results
                  of Operations and Financial Condition                        7
  
  Part II - Other Information                                                  9
  
                                       Page 2
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                             Consolidated Balance Sheets
                                     (unaudited)
                          (in thousands, except share data)
  March 31,     December 31,
                                                                                             1997           1996
  ASSETS
  Investments:
      Fixed Maturities:
        Available for sale, at fair value (amortized cost 1997, $47,855; 1996, $49,244)   $  46,957      $  48,954
        Held to maturity, at amortized cost (fair value 1997, $53,457; 1996, $44,111)        54,488         44,227
      Equity securities, at fair value (cost 1997, $10,717; 1996, $10,597)                   12,390         12,390
      Short term investments, at cost, which approximates fair value                          4,900          7,000
                                                                                          ---------      ---------
        Total investments                                                                   118,735        112,571
  Cash                                                                                        1,725          2,979
  Receivables:
      Accrued investment income                                                               1,842          1,671
      Premiums receivable, net                                                               10,859         10,494
      Reinsurance recoverable                                                                15,817         15,719
      Note receivable, affiliate                                                                 75            275
                                                                                          ---------      ---------
        Total receivables                                                                    28,593         28,159
  Prepaid reinsurance premiums                                                                2,632          2,668
  Deferred policy acquisition costs                                                           7,726          7,231
  Capital leases                                                                              1,929          1,950
  Deferred income tax                                                                         2,515          2,211
  Income tax recoverable                                                                         --            249
  Other assets                                                                                  523            587
                                                                                          ---------      ---------
        Total assets                                                                      $ 164,378      $ 158,605
                                                                                          =========      =========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
      Unpaid losses and loss adjustment expenses                                          $  73,940      $  70,728
      Unearned premiums                                                                      32,128         30,865
      Accounts payable and accrued expenses                                                     991          1,773
      Capitalized lease obligations                                                           2,003          2,030
      Income tax payable                                                                        645             --
      Notes payable, bank                                                                     9,000          9,000
      Other liabilities                                                                       2,121          1,872
                                                                                          ---------      ---------
        Total liabilities                                                                   120,828        116,268
                                                                                          ---------      ---------
  Stockholders' equity:
      Preferred stock, $.01 par value; authorized 2,000,000 shares;
        none issued                                                                              --             --
      Common stock, $.01 par value; authorized 10,000,000 shares;
        issued and outstanding 1997, 6,710,638 shares and 1996, 6,676,131 shares                 67             67
      Additional paid-in capital                                                             22,087         21,844
      Unrealized investment gains, net of tax                                                   511            993
      Unrealized loss on fixed maturities transferred to held to maturity                       (43)            --
      Retained earnings                                                                      21,015         19,533
                                                                                          ---------      ---------
                                                                                             43,637         42,437
      Unearned compensation from restricted stock awards                                        (87)          (100)
                                                                                          ---------      ---------
        Total stockholders' equity                                                           43,550         42,337
                                                                                          ---------      ---------
  
        Total liabilities and stockholders' equity                                        $ 164,378      $ 158,605
                                                                                          =========      =========
  See accompanying notes to unaudited consolidated financial statements
  
                                       Page 3
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                         Consolidated Statements of Earnings
                                     (unaudited)
  
                 For the three months ended March 31, 1997 and 1996
                  (in thousands, except share and per share data)
  1997            1996
  Revenues:
  Premiums earned                                       $   20,899     $   15,623
      Net investment income                                      1,940          1,598
      Net realized investment gains                                  1             23
                                                            ----------     ----------
        Total revenues                                          22,840         17,244
                                                            ----------     ----------
  
  Losses and expenses:
      Losses and loss adjustment expenses                       13,217          9,852
      Amortization of deferred policy acquisition costs          5,698          3,988
      Other underwriting expenses                                1,144          1,061
      Interest expense                                             192            217
                                                            ----------     ----------
        Total losses and expenses                               20,251         15,118
                                                            ----------     ----------
  
  Earnings before income tax                                     2,589          2,126
  
  Income tax                                                       839            697
                                                            ----------     ----------
  
  Net earnings                                              $    1,750     $    1,429
                                                            ==========     ==========
  
  Weighted average number of shares outstanding              6,689,457      6,649,818
                                                            ==========     ==========
  
  Net earnings per share (See Note 1)                       $      .26     $      .21
                                                            ==========     ==========
  
  Cash dividends per share (See Note 1)                     $      .04     $      .03
                                                            ==========     ==========
  See accompanying notes to unaudited consolidated financial statements
  
                                       Page 4
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                   Consolidated Statement of Stockholders' Equity
                                     (unaudited)
  
                      For the three months ended March 31, 1997
                               (dollars in thousands)
  Unrealized
                                                                                            Loss on              Unearned
                                                                                          Transfer of           Compensation
                                                                                Unrealized   Fixed                 From
                                                                     Additional Investment Maturities            Restricted
                                                      Common Stock     Paid-In    Gains    to Held to  Retained    Stock
                                                   Shares    Amount    Capital   (Losses),  Maturity   Earnings    Awards      Total
                                                                                   Net
  Balance at December 31, 1996                    6,676,131     $67     $21,844     $993     $   0     $19,533     $(100)    $42,337
  Net earnings                                                                                           1,750                 1,750
  Issuance of common stock                           34,507      --         243                                                  243
  Amortization of unearned 
       compensation from
       restricted stock awards                                                                                        13          13
  Unrealized investment losses 
       from fixed maturities 
       available for sale and 
       equities, net of tax                                                         (532)                                        (532)
  Unrealized loss on fixed maturities
       transferred to held to maturity                                                50         (50)                               0
  Accretion of net loss on fixed maturities
       transferred to held to maturity                                                             7                                7
  Cash dividends paid                                                                                     (268)                  (268)
                                                  -----------------------------------------------------------------------------------
  Balance at March 31, 1997                       6,710,638     $67     $22,087     $511     $(43)     $21,015     $ (87)    $43,550
                                                  ===================================================================================
  See accompanying notes to unaudited consolidated financial statements.
  
                                       Page 5
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                        Consolidated Statements of Cash Flows
                                     (unaudited)
  
                 For the three months ended March 31, 1997 and 1996
                                   (in thousands)
  1997          1996
  Cash flows from operating activities
      Net earnings                                                                     $  1,750      $  1,429
      Adjustments to reconcile net earnings to net cash provided by
        operating activities
          Amortization and depreciation expense                                              85            71
          Net realized investment gains                                                      (1)          (23)
          Deferred income tax                                                               (55)          (93)
          Net decrease in premiums and notes receivable,
             prepaid reinsurance premiums and unearned premiums                           1,135           454
          Net increase in unpaid losses and loss adjustment expense
             and reinsurance recoverable                                                  3,114         1,912
          Decrease (increase) in:
             Accrued investment income                                                     (171)          (89)
             Deferred policy acquisition costs                                             (495)         (238)
             Income tax recoverable                                                         249           529
             Other assets                                                                    37          (183)
          Increase (decrease) in:
             Accounts payable and accrued expenses                                         (782)         (406)
             Income tax payable                                                             645           500
             Other liabilities                                                              249           204
                                                                                       --------      --------
          Net cash provided by operating activities                                       5,760         4,067
                                                                                       --------      --------
  
  Cash flows from investing activities
      Purchases of equity securities                                                       (316)       (1,926)
      Purchases of fixed maturities available for sale                                   (8,000)      (11,033)
      Purchases of fixed maturities held to maturity                                     (3,028)      (11,064)
      Proceeds from sales of equity securities                                              197         1,266
      Proceeds from sales and maturities of fixed maturities available for sale           1,000        10,181
      Proceeds from maturities of fixed maturities held to maturity                       1,085         2,004
      Change in short term investments                                                    2,100         5,500
                                                                                       --------      --------
          Net cash used by investing activities                                          (6,962)       (5,072)
                                                                                       --------      --------
  
  Cash flows from financing activities
      Issuance of common stock                                                              243            66
      Principal payment on note payable, affiliate                                           --           (50)
      Dividends paid                                                                       (268)         (177)
      Principal payments on capital lease obligations                                       (27)          (24)
                                                                                       --------      --------
          Net cash used by financing activities                                             (52)         (185)
                                                                                       --------      --------
  
  Decrease in cash                                                                       (1,254)       (1,190)
  Cash, beginning of period                                                               2,979         5,204
                                                                                       ========      ========
  Cash, end of period                                                                  $  1,725      $  4,014
                                                                                       ========      ========
  
  Supplemental  disclosure  of cash flow  information  Cash paid during the period
      for:
        Income tax refund                                                                    --          (240)
        Interest                                                                            197           189
  
  Supplemental non-cash disclosure
        Cost of securities transferred from available for sale to held to maturity        8,002            --
  See accompanying notes to unaudited consolidated financial statements.
  
                                       Page 6
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
                Notes to Unaudited Consolidated Financial Statements
  
  Note 1 - Basis of Presentation
  
  Penn-America  Group, Inc. (the "Company") is an insurance holding company.  Penn
  Independent  Corporation  currently owns approximately  61.2% of the outstanding
  common stock of the Company.
  
  The accompanying  unaudited  consolidated financial statements should be read in
  conjunction with the financial  statements and notes for the year ended December
  31, 1996. In the opinion of management,  the financial  information reflects all
  adjustments   (consisting  only  of  normal  recurring  adjustments)  which  are
  necessary for a fair presentation of financial position,  results of operations,
  and cash flows for the interim  periods.  The results of operations  for interim
  periods are not  necessarily  indicative  of the results to be expected  for the
  entire year.
  
  On  January  29,  1997,  Penn-America  declared  a 3 for 2 stock  split  for all
  shareholders of record on February 14, 1997. All earnings and dividend per share
  data disclosed herein has been retroactively adjusted to reflect this split.
  
  Note 2 - Reinsurance
  
  Premiums  earned are net of amounts ceded to reinsurers of $1.8 and $1.6 million
  for the three  month  period  ended  March 31,  1997 and 1996.  Losses  and loss
  adjustment  expenses  are net of  amounts  ceded  to  insurers  of $1.8 and $2.5
  million for the three months ended March 31, 1997 and 1996.
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
  
  Results of Operations
  
  Gross written premiums increased 32.7% to $24.0 million for the first quarter of
  1997, as compared to $18.0 million for the same quarter in 1996. The increase in
  gross  written  premiums  was  primarily  attributable  to  increased  volume in
  addition to some rate increases which occurred  automatically because some risks
  are  exposure  related.  The  increase  in volume came  primarily  from a 103.8%
  increase in the personal  automobile lines to $9.7 million,  as compared to $4.8
  million for the same period in 1996.  Commercial  lines volume increased 7.3% to
  $14.3 million.
  
  Net written  premiums  increased  35.5% to $22.2 million in the first quarter of
  1997 as  compared  to $16.4  million in the first  quarter  of 1996.  Net earned
  premium increased 33.8% to $20.9 million,  as compared to $15.6 million in 1996.
  These increases are  attributable to the overall growth in gross and net written
  premium.
  
  Net  investment  income  increased  21.4% to $1.9  million as  compared  to $1.6
  million in 1996. The increase in investment  income can be attributed to a 19.9%
  increase in the  investment  portfolio to $118.7  million in 1997 as compared to
  $99.1 million as of March 31, 1996. The increase in the investment portfolio was
  funded by cash flow from operations.
  
                                       Page 7
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
                                     (continued)
  
  Losses and loss  adjustment  expenses  increased  34.2% to $13.2  million in the
  first quarter of 1997 as compared to $9.9 million in 1996.  The increase in loss
  and loss adjustment expenses was fairly consistent with the growth in net earned
  premiums,  as the loss and loss  adjustment  expense ratio was 63.2 and 63.1 for
  the periods ended March 31, 1997 and 1996, respectively. The Company's statutory
  combined ratio  increased to 95.6%,  as compared to 94.3% in 1996. The 1.3 point
  increase is  primarily  attributed  to growth in the personal  automobile  lines
  premium  volume.   Commission  rates  for  the  personal  automobile  lines  are
  approximately 5 percentage  points higher than the commercial  lines  commission
  rates.  The  overall net  commission  rates were 24.7% and 23.2% for the periods
  ended March 31, 1997 and 1996, respectively.
  
  Amortization  of  deferred  policy  acquisition  costs  increased  42.9% to $5.7
  million in the first  quarter of 1997 as compared  to $4.0  million for the same
  period in 1996.  This  increase  is  attributed  to the  growth in gross  earned
  premiums and the higher percentage of written premium in the auto business.
  
  Net earnings  increased  22.4% to $1.8  million in the first  quarter of 1997 as
  compared  to $1.4  million  for the  same  period  in  1996.  This  increase  is
  principally  attributed to increased  earned  premiums and increased  investment
  return.
  
  New Accounting Standard
  
  In March 1997,  the Financial  Accounting  Standards  Board issued SFAS No. 128,
  "Earnings  per  Share",  which  defines  the  computation,   presentation,   and
  disclosure   requirements  for  earnings  per  share  (EPS).  It  requires  dual
  presentation  of Basic EPS and Diluted EPS on the face of the income  statement.
  Basic EPS  excludes  dilution  and is computed by dividing  income  available to
  common stockholders by the weighted-average  number of common shares outstanding
  for the period.  Diluted EPS reflects the potential dilution that could occur if
  securities  or other  contracts  to  reissue  common  stock  were  exercised  or
  converted into common stock. The statement is effective for financial statements
  issued for periods ending after December 15, 1997,  including  interim  periods,
  earlier  application is not permitted When adopted,  all  prior-period  EPS data
  presented will be restated.
  
  Liquidity and Capital Resources
  
  Net cash provided by operating  activities  was $5.8 million as compared to $4.1
  million for the three months ended March 31, 1997 and 1996,  respectively.  This
  increase in cash provided by operations  primarily  reflects the increase in net
  premiums written during the period.
  
  Net cash used by  investing  activities  was $7.0  million for the three  months
  ended March 31, 1997 as compared to $5.1  million in the first  quarter of 1996.
  This  increase  was  primarily  due to the  higher  amount of cash  provided  by
  operating  activities  for the first  quarter of 1997 which was used to purchase
  securities.
  
                                       Page 8
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
  Management's  Discussion  and Analysis of Results of  Operations  and  Financial
  Condition
                                     (continued)
  
  Net cash used by financing  activities  was $52 thousand in 1997, as compared to
  $185 thousand used for the same period in 1996.  The decrease in the use of cash
  for financing  activities  was primarily due to $268 thousand cash dividend paid
  to stockholders offset by $243 thousand  contribution to paid in capital through
  the exercise of stock options by some of the Company's stockholders.
  
  During April of 1997,  the Company  signed a  commitment  letter to increase its
  credit  facility  with PNC Bank to $15 million from its present $9 million.  The
  structure  of the credit  facility is expected to provide that the $9 million is
  to be repaid over a five year period and a $6 million revolving credit line with
  principal to be repaid after the second  anniversary,  over a three year period.
  Both  portions of the credit  facility are  expected to incur  interest at LIBOR
  plus a factor which could vary between 100 and 225 basis  points.  The increased
  facility  will  be  used  to add  to the  capital  of  the  Company's  insurance
  subsidiary,  Penn-America  Insurance  Company,  and its newly formed subsidiary,
  Penn-Star Insurance Company. Penn-Star is domiciled in the State of Pennsylvania
  and its focus will be to write  directly the  non-standard  automobile  coverage
  that currently is written by Penn-America Insurance Company. Until Penn-Star has
  been admitted in the states where we currently  write  automobile  coverage,  it
  will assume the auto premium written directly by its parent,  Penn-America under
  a reinsurance agreement.
  
                                       Page 9
  PENN-AMERICA GROUP, INC. AND SUBSIDIARY
  
                             PART II. OTHER INFORMATION
  
  Item 1.       Legal Proceedings - None
  
  Item 2.       Changes in Securities - None
  
  Item 3.       Default Upon Senior Securities - None
  
  Item 4.       Submission of Matters to a Vote by Security Holders - None
  
  Item 5.       Other Information - None
  
  Item 6.       Exhibits and Reports on Form 8-K - None
  
                                      Page 10
  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.
  
                                           Penn-America Group, Inc.
  
  Date: May 9, 1997                        By: /s/ Jon S. Saltzman
                                               Jon S. Saltzman
                                               President and
                                               Chief Executive Officer
  
                                           By: /s/ Rosemary R. Ferrero
                                               Rosemary R. Ferrero
                                               Principal Accounting and
                                               Finance Officer
  
                                       Page 11