<PAGE>



                                   FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
 
    [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 
    For the quarterly period ended September 30, 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 0-13972
 
                     PENN TREATY AMERICAN CORPORATION
                     --------------------------------
          (Exact name of registrant as specified in its charter)
 
         PENNSYLVANIA                                23-1664166)
-------------------------------                  -------------------
(State or other jurisdiction of                   (I.R.S. Employer
 incorporation of organization)                  Identification No.

 
                  3440 Lehigh Street, Allentown, PA 18103
                  ---------------------------------------
       (Address, including zip code, of principal executive offices)

                               (610) 965-2222 
                               --------------
             (Registrant's telephone number, including area code)
 
NOT APPLICABLE
 
    (Former name, former address and former fiscal year, if change since last
report)
 
    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 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 number of shares outstanding on the Registrant's common stock, par value
$.10 per share, as of November 12, 1997 was 7,570,167.
 
<PAGE>


PART I FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
The registrant's Unaudited Consolidated Balance Sheets, Statements of Income 
and Statements of Cash Flows and Notes thereto required under this item are 
contained on pages 3 through 7 of this report, respectively. These financial 
statements represent the consolidation of the operations of the registrant, 
and its subsidiaries, American Network Insurance Company ("ANIC"), Senior 
Financial Consultants Company and Penn Treaty Life Insurance Company 
("PTLIC"). ANIC, PTLIC and its subsidiary, Network America Life Insurance 
Company ("Network America") (collectively, "the Insurers"), are underwriters 
of long-term care insurance products. PTLIC and its subsidiary are also 
underwriters of life insurance products.
 
                                       2
<PAGE>


                      PENN TREATY AMERICAN CORPORATION
                              AND SUBSIDIARIES 
                        Consolidated Balance Sheets
 
<TABLE>
<CAPTION>
                                                          SEPTEMBER 30,    DECEMBER 31,
                                                               1997             1996
                                                          -------------   -------------
                         ASSETS                            (UNAUDITED) 
<S>                                                       <C>             <C>
Investments:
 Bonds, available for sale at market 
  (cost of $260,151,966
  and $199,508,579, respectively).......................  $  265,181,218  $  201,329,966
 Equity securities at market value, 
  (cost of $16,290,256 and $9,642,912,
  respectively).........................................      20,436,337      11,247,516
 Policy loans...........................................          83,056          84,232
                                                          --------------  --------------
   Total investments....................................     285,700,611     212,661,714
 Cash and cash equivalents..............................      13,431,655      51,612,067
 Property and equipment, at cost, less accumulated 
  depreciation of $2,530,944 and
  $2,205,407, respectively..............................       8,722,313       8,092,028
 Unamortized deferred policy acquisition costs..........     107,137,660      82,176,268
 Receivables from agents, less allowance 
  for uncollectable amounts of $231,226 and
  $231,226, respectively................................       1,573,059       1,543,382
 Accrued investment income..............................       4,380,171       3,581,077
 Federal income tax recoverable.........................         199,213         175,219
 Cost in excess of fair value of net assets acquired, 
  less accumulated amortization of $524,259 
  and $324,203, respectively............................       6,203,821       6,042,786
 Present value of future profits acquired................       3,700,417       4,011,668
 Receivable from reinsurers..............................      10,592,802      10,105,654
 Other assets............................................       7,470,921       6,766,129
                                                          --------------  --------------
    Total assets........................................  $  449,112,643  $  386,767,992
                                                          --------------  --------------
                                                          --------------  --------------
                         LIABILITIES
Policy reserves:
 Accident and health....................................  $  134,552,182  $  101,107,697
 Life...................................................       9,254,823       8,523,267
 Unearned premium reserve...............................           9,283          12,215
 Policy and contract claims.............................      63,728,975      57,539,380
 Accounts payable and other liabilities.................       5,897,351       4,768,441
 Long-term debt.........................................      76,860,589      77,114,592
 Deferred income taxes..................................      24,612,505      18,795,316
                                                          --------------  --------------
    Total liabilities...................................     314,915,708     267,860,908
                                                          --------------  --------------
                                                          --------------  --------------
Commitments and contingencies
                  SHAREHOLDERS' EQUITY
 Preferred stock, par value $1.00; 5,000,000 shares 
   authorized, none  outstanding........................        --              --
 Common stock, par value $.10; 25,000,000 and 
   10,000,000 shares authorized,
   8,158,589 and 8,116,464 shares issued................         815,858         811,646
Additional paid-in capital..............................      52,999,702      52,526,956
Net unrealized appreciation of securities...............       6,067,991       2,261,154
Retained earnings.......................................      76,019,258      65,013,202
                                                          --------------  --------------
                                                             135,902,809     120,612,958
Less 605,629 common shares held in treasury, at cost....      (1,705,874)     (1,705,874)
                                                          --------------  --------------
                                                             134,196,935     118,907,084
                                                          --------------  --------------
    Total liabilities and shareholders' equity..........  $  449,112,643  $  386,767,992
                                                          --------------  --------------
                                                          --------------  --------------
</TABLE>
 
    See accompanying notes to consolidated financial statements.


                                         3
<PAGE>


                           PENN TREATY AMERICAN CORPORATION
                                  AND SUBSIDIARIES
                        Consolidated Statements of Operations
                                     (unaudited)
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                    -------------------------------  ------------------------------
                                                         1997           1996             1997           1996
                                                     -------------  -------------    --------------  -------------
<S>                                                  <C>            <C>             <C>             <C>
Revenues:
 Accident and health premiums......................  $  41,532,517  $  31,510,960   $  120,429,921  $  92,378,776
 Life premiums.....................................        907,514        873,634        2,782,290      2,685,953
                                                     -------------  -------------   --------------  -------------
                                                        42,440,031     32,384,594      123,212,211     95,064,729
 Net investment income.............................      4,584,786      2,601,980       12,581,291      7,493,143
 Net realized capital gains........................        774,502           (218)         935,125         92,665
 Other income......................................        125,025         88,637          305,105        269,929
                                                     -------------  -------------   --------------  -------------
                                                        47,924,344     35,074,993      137,033,732    102,920,466
Benefits and expenses:
 Benefits to policyholders.........................     29,509,710     20,161,328       86,369,820     61,779,767
 Commissions.......................................     14,165,956     10,658,991       40,510,995     31,529,578
 Net policy acquisition costs deferred.............     (8,186,116)    (4,053,954)     (24,961,392)   (13,526,533)
 General and administrative expense................      5,324,882      3,850,155       15,478,528     10,643,236
 Interest expense..................................      1,192,821         36,696        3,584,441        106,651
                                                     -------------  -------------   --------------  -------------
                                                        42,007,253     30,653,216      120,982,392     90,532,699
                                                     -------------  -------------   --------------  -------------
Income before federal income taxes.................      5,917,091      4,421,777       16,051,340     12,387,767
Provision for federal income taxes.................      1,745,542      1,324,276        4,703,380      3,714,276
                                                     -------------  -------------   --------------  -------------
 Net Income........................................  $   4,171,549  $   3,097,501   $   11,347,960  $   8,673,491
                                                     -------------  -------------   --------------  -------------
                                                     -------------  -------------   --------------  -------------
Primary earnings per share.........................  $        0.55  $        0.43   $         1.51  $        1.23
Fully diluted earnings per share...................  $        0.49       --         $         1.35       --
Weighted average number of shares outstanding......      7,551,352      7,178,976        7,530,590      7,057,317
Weighted average number of shares outstanding
  (fully diluted)..................................     10,425,972       --             10,380,858       --
                                                     -------------  -------------   --------------  -------------
                                                     -------------  -------------   --------------  -------------
</TABLE>
 
    See accompanying notes to consolidated financial statements.
 
                                       4
<PAGE>


                      PENN TREATY AMERICAN CORPORATION
                             AND SUBSIDIARIES 
                   Consolidated Statements of Cash Flows 
                   for the nine months ended September 30, 
                               (unaudited)
 
<TABLE>
<CAPTION>
                                                        1997           1996
                                                    -------------  -------------
<S>                                                 <C>            <C>
Net cash flow from operating activities:
 Net income.......................................  $  11,347,960  $   8,673,491
 Adjustments to reconcile net income to cash 
  provided by operations:
  Amortization of intangible assets and 
    renewal commissions...........................        829,510         76,477
  Policy acquisition costs, net...................    (24,961,392)   (13,526,533)
  Deferred income taxes...........................      4,184,047      1,801,308
  Depreciation expense............................        316,003        271,939
  Net realized capital gains......................       (935,125)       (92,665)
 Increase (decrease) due to change in:
  Receivables from agents.........................        (29,677)      (325,255)
  Receivable from reinsurers......................       (487,148)      (791,562)
  Policy and contract claims......................      6,189,595      7,062,544
  Policy and unearned premium reserves............     34,173,109     20,926,785
  Accounts payable and other liabilities..........      1,128,910      1,426,719
  Federal income taxes (recoverable) payable......        (23,994)        79,711
  Accrued investment income.......................       (799,094)       (71,863)
  Other, net......................................     (1,918,282)    (1,047,739)
                                                    -------------  -------------
   Cash provided by operations....................     29,014,422     24,463,357
Cash flow from (used in) investing 
  activities:
 Acquisition of business, net of 
   cash received..................................        --          (1,518,102)
 Proceeds from sales of investments...............     16,247,198      8,701,987
 Maturities of investments........................     15,796,418      7,851,943
 Purchase of investments..........................    (98,515,120)   (37,432,259)
 Acquisition of property and equipment............       (946,285)    (2,076,888)
                                                    -------------  -------------
   Cash used in investing.........................    (67,417,789)   (24,473,319)
 Cash flow from (used in) financing 
   activities:
 Proceeds from excercise of stock options.........        476,958        510,377
 Repayments of mortgages and other debts..........       (254,003)      (123,191)
                                                    -------------  -------------
   Cash provided by financing.....................        222,955        387,186
                                                    -------------  -------------
(Decrease) increase in cash and cash equivalents..    (38,180,412)       377,224
Cash balances:
Beginning of period...............................     51,612,067      8,881,061
                                                    -------------  -------------
End of period.....................................  $  13,431,655  $   9,258,285
                                                    -------------  -------------
                                                    -------------  -------------
</TABLE>
 
    See accompanying notes to consolidated financial statements.
 
                                      5
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1997 
(unaudited)

The Consolidated Financial Statements should be read in conjunction with
these notes and with the Notes to Consolidated Financial Statements included in
Penn Treaty American Corporation's ("the Company's") Annual Report on Form 10-K
for the year ended December 31, 1996.
 
In the opinion of management, the summarized financial information reflects
all adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the financial position and results of
operations for the interim periods. Certain prior period amounts have been
reclassified to conform with current period presentation.
 
1. INVESTMENTS
 
   Management has categorized all of its investment securities as available
   for sale since they may be sold in response to changes in interest rates,
   prepayments, and similar factors. Investments in this classification are
   reported at their current market value with net unrealized gains and losses,
   net of the applicable deferred income tax effect, being added to or deducted
   from the Company's total shareholders' equity on the balance sheet. As of
   September 30, 1997, shareholders' equity was increased by $6,067,991 due to
   unrealized gains of $9,175,333 in the investment portfolio. As of December
   31, 1996, shareholders' equity was increased by $2,261,154 due to unrealized
   gains of $3,425,991 in the investment portfolio.
 
   The amortized cost and estimated market value of investments available
   for sale as of September 30, 1997 and December 31, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                       SEPTEMBER 30, 1997              DECEMBER 31, 1996
                                                 ------------------------------  ------------------------------
<S>                                              <C>             <C>             <C>             <C>
                                                   AMORTIZED       ESTIMATED       AMORTIZED       ESTIMATED
                                                      COST        MARKET VALUE        COST        MARKET VALUE
                                                 --------------  --------------  --------------  --------------
U.S. Treasury securities and obligations of U.S
  Government authorities and agencies..........  $  185,088,341  $  188,332,178  $  149,354,655  $  150,196,015

Obligations of states and political sub-
  divisions....................................      34,398,403      33,757,463      30,460,952      31,537,001

Debt securities issued by foreign
  governments..................................         399,275         415,433         424,275         445,250

Corporate securities...........................      39,815,807      42,225,696      19,068,114      18,959,700

Other debt securities..........................         450,140         450,448         200,583         192,000

Equities.......................................      16,290,256      20,436,337       9,642,912      11,247,516

Policy Loans...................................          83,056          83,056          84,232          84,232
                                                 --------------  --------------  --------------  --------------
Total Investments..............................  $  276,525,278  $  285,700,611  $  209,235,723  $  212,661,714
                                                 --------------  --------------  --------------  --------------
                                                 --------------  --------------  --------------  --------------
Net unrealized gain (loss).....................       9,175,333                       3,425,991
                                                 --------------                  --------------
                                                 $  285,700,611                  $  212,661,714
                                                 --------------                  --------------
                                                 --------------                  --------------
</TABLE>
 
                                          6

<PAGE>

2. New Accounting Principle:
 
   In February 1997, the Financial Accounting Standards Board ("FASB")
   issued Statement of Financial Accounting Standard No. 128, "Earnings per
   Share" ("SFAS 128"). SFAS 128 establishes standards for computing and
   presenting earnings per share, and simplifies the standards for computing
   earnings per share previously found in Accounting Principles Board Opinion
   No. 15, "Earnings per Share." Primary and fully diluted earnings per share
   will be replaced with basic and diluted earnings per share, and these
   amounts are required to be shown on the face of the income statement. In
   addition, a reconciliation of the numerator and denominator of the basic
   earnings per share computation to the numerator and denominator of the
   diluted earnings per share computation is required.
 
   Basic earnings per share 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 earnings per share
   reflects the potential dilution that could occur if securities or other
   contracts to issue common stock were exercised or converted into common
   stock. This Statement is effective for financial statements issued for
   periods ending after December 15, 1997, and requires restatement of all
   prior-period earnings per share data presented. Management has determined
   the impact that SFAS 128 may have on the financial statements for the 
   current quarter and prior year quarter is as follows:
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED      NINE MONTHS ENDED SEPTEMBER
                                                                SEPTEMBER 30,                     30,
                                                          --------------------------  ---------------------------
<S>                                                       <C>           <C>           <C>            <C>
                                                              1997          1996          1997           1996
                                                          ------------  ------------  -------------  ------------
Net income..............................................  $  4,171,549  $  3,097,501  $  11,347,960  $  8,673,491
Weighted average common shares outstanding..............     7,551,352     7,178,976      7,530,590     7,057,317
Basic earnings per share................................  $       0.55  $       0.43  $        1.51  $       1.23
                                                          ------------  ------------  -------------  ------------
                                                          ------------  ------------  -------------  ------------
Net income..............................................  $  4,171,549  $  3,097,501  $  11,347,960  $  8,673,491
Adjustments net of tax:
  Interest expense on convertible debt..................       823,418       --           2,477,188       --
  Amortization of debt offering costs...................        64,017       --             192,589       --
                                                          ------------  ------------  -------------  ------------
Diluted net income......................................  $  5,058,984  $  3,097,501  $  14,017,737  $  8,673,491
                                                          ------------  ------------  -------------  ------------
                                                          ------------  ------------  -------------  ------------
Weighted average common shares outstanding..............     7,551,352     7,178,976      7,530,590     7,057,317
Common stock equivalents due to dilutive effect of
  stock options.........................................       246,280       151,299        221,927       132,740
Shares converted from convertible debt..................     2,628,340       --           2,628,340       --
                                                          ------------  ------------  -------------  ------------
Total outstanding shares for fully diluted earnings 
  per share computation.................................    10,425,972     7,330,275     10,380,858     7,190,057
Diluted earnings per share..............................  $       0.49  $       0.42  $        1.35  $       1.21
                                                          ------------  ------------  -------------  ------------
                                                          ------------  ------------  -------------  ------------
</TABLE>

                                       7
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.
 
Three Months Ended September 30, 1997 and 1996:
 
    ACCIDENT AND HEALTH PREMIUMS.  First year accident and health premiums
earned in the three month period ended September 30, 1997 (the "1997 quarter"),
including long-term care and Medicare supplement, increased 29.3% to
$14,192,136, compared to $10,974,991 in the same period in 1996 (the "1996
quarter"). First year long-term care premiums earned in the 1997 quarter
increased 26.9% to $13,784,336, compared to $10,864,391 in the 1996 quarter.
These results reflect increased market demand for the Company's newest products,
which include nursing home coverage with attached home health care riders, and
its Assisted Living and Personal Freedom policies, which combine the benefit
coverage of skilled, assisted living and custodial nursing home and home health
care protection under one benefit plan. The Company introduced these plans in
late 1996 and management believes this increase is indicative of the growing
need for comprehensive coverage. First year Medicare supplement premiums earned
by the Company in the 1997 quarter increased to $407,800 from $110,600 in the
1996 quarter. Total new business for this product remains low due to the
Company's continued reduced emphasis of its Medicare supplement products because
of lower profit margins associated with this line of business.
 
    Renewal accident and health premiums earned by the Company in the 1997 
quarter increased 28.2% to $25,626,181, compared to $19,988,957 in the 1996 
quarter. Renewal long-term care premiums earned in the 1997 quarter increased 
29.2% to $25,049,250, compared to $19,386,718 in the 1996 quarter. This 
increase reflects renewals of a larger base of in-force policies. The Company 
continues to experience an increase in persistency (renewals as a percentage 
of total prior year business). Renewal Medicare supplement premiums in the 
1997 quarter decreased 4.2% to $576,931, compared to $602,239 in the 1996 
quarter.
 
    DISABILITY PREMIUMS.  The Company, following its August 1996 acquisition of
ANIC, posted $1,714,200 in disability premium in the 1997 quarter. Due to the
accounting of the acquisition as a purchase, only one month of disability income
is recorded for the 1996 quarter. During the 1997 quarter, first year disability
premiums were $309,141 and renewal premiums were $1,405,059.
 
    LIFE PREMIUMS.  First year life premiums earned by the Company in the 1997
quarter decreased 21.5% to $270,824, compared to $345,040 in the 1996 quarter.
Renewal life premiums earned by the Company in the 1997 quarter increased to
$636,690, compared to $528,594 in the 1996 quarter. The Company's life business
has remained stable as the Company is focusing its marketing efforts on its
Assisted Living, Personal Freedom, Independent Living and other long-term care
plans.
 
    NET INVESTMENT INCOME.  Net investment income earned by the Company for the
1997 quarter increased 76.2% to $4,584,786, from $2,601,980 for the 1996
quarter. This increase was primarily the result of growth in the Company's
invested assets from the proceeds of the Company's November 1996, $74,750,000
convertible debt issuance and continued premium growth. The Company also
recognized approximately $775,000 in capital gains. These gains were recognized
in part to offset the one-time recognition of costs related to consolidating

                                       8
<PAGE>

certain of its Vermont operations. Also, as the Company has increased its 
equity holdings to approximately 10% of its invested assets, it recognizes a 
lower current yield from dividends received than from its fixed income 
portfolio. Management intends to periodically recognize capital gains to 
supplement its current investment income.
 
    BENEFITS TO POLICYHOLDERS.  Total benefits to policyholders in the 1997
quarter increased 46.4% to $29,509,710 compared to $20,161,328 in the 1996
quarter.
 
    Accident and health benefits to policyholders, excluding disability
benefits, in the 1997 quarter increased 44.7% to $28,098,325 compared to
$19,416,579 in the 1996 quarter. The Company's accident and health loss ratio
(the ratio of benefits to policyholders to total accident and health premiums)
was 70.6% in the 1997 quarter, compared to 62.7% in the 1996 quarter. In the
1997 quarter, incurred claims as a percentage of accident and health premiums
were 42.1% compared to 43.7% in the 1996 quarter.
 
    The Company uses independent case managers to develop and monitor plans of
care and to control claims in its home health care coverage. Prior to 1997, the
cost associated with case management was reported as a general and
administrative expense. Management believes that these costs impact total
benefits expense, and has chosen to report them as benefits to policyholders to
objectively compare benefits costs in different periods. The amounts reported in
the 1997 quarter due to case management were approximately $300,000 or .8% of
accident and health premiums. Expenses related to case management in the 1996
quarter were immaterial and have not been reclassified to benefits.
 
    Disability benefits were $781,562 in the 1997 quarter or 45.6% of premiums.
Due to the Company's acquisition of ANIC in August 1996, only one month of
disability benefits are recorded in the 1996 quarter.
 
    Life benefits to policyholders in the 1997 quarter increased to $629,824,
compared to $484,429 for the 1996 quarter. The life loss ratio (the ratio of
claims experience and increases in policy reserves to total life premium) was
69.4% in the 1997 quarter, compared to 55.4% in the 1996 quarter, and reflects
the actual claims incurred and actuarial reserves necessary to support the
portfolio mix of business.
 
    COMMISSIONS.  Commissions to agents increased 32.9% to $14,165,953 in the
1997 quarter compared to $10,658,991 in the 1996 quarter.
 
    First year commissions on accident and health business in the 1997 quarter
increased 34.6% to $9,576,089 compared to $7,116,404 in the 1996 quarter,
corresponding to the increase in first year accident and health premiums and an
increase in younger (below age 65) policies being sold at higher first year
commissions. The ratio of first year accident and health commissions to first
year accident and health premiums was 67.5% in the 1997 quarter and 64.8% in the
1996 quarter. First year commissions on life business in the 1997 quarter
increased 7.5% to $244,729, compared to $227,598 in the 1996 quarter. The
ratio of first year life commissions to first year life premiums was 90.4% in
the 1997 quarter compared to 66.0% in the 1996 quarter. First year disability
commissions, at 59.4% of premiums, were $183,532 in the 1997 quarter.
 
    Renewal commissions on accident and health business in the 1997 quarter
increased 24.4% to $3,959,158, compared to $3,182,832 in the 1996 quarter,
consistent with the increase in renewal 

                                       9
<PAGE>

premiums discussed above. The ratio of renewal accident and health 
commissions to renewal accident and health premiums was 15.4% in the 1997 
quarter and 15.9% in the 1996 quarter. This ratio fluctuates in relation to 
the age of the policies in force and the rates of commissions paid to the 
agents. Life renewal commissions were 11.7% of premiums in the 1997 quarter 
compared to 12.2% in the 1996 quarter. Renewal commissions of $128,213 were 
9.1% of disability premiums.
 
    NET POLICY ACQUISITION COSTS DEFERRED.  The net deferred policy 
acquisition costs in the 1997 quarter increased 101.9% to $8,186,116 compared 
to $4,053,954 in the 1996 quarter. This deferral is net of amortization, 
which decreases or increases as the Company's actual persistency is higher or 
lower than the persistency assumed for reserving purposes. Cost deferrals are 
higher in the current period due to the deferral of higher commissions and 
longer than anticipated policy duration.
 
    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses in
the 1997 quarter increased 38.3% to $5,324,882, compared to $3,850,155 in the
1996 quarter. This increase was due to variable expense growth related to the
rise in premiums, approximately $572,000 related to the operating expense and
amortization of goodwill of ANIC, and to the amortization of approximately
$90,000 related to the Company's convertible debt issuance. In addition, the
Company recorded one time charges due to the consolidation of certain of its
Vermont operations, which will result in reduced future expenses. The Company
recognized capital gains in the current period, which more than offset the
recognition of these costs. The ratio of general and administrative expenses to
total premiums, excluding the ANIC goodwill and debt interest and cost
amortization, was 12.0% in the 1997 quarter, compared to 11.9% in the 1996
quarter, reflecting the additional costs of ANIC as a percent of premiums.
Management expects that this ratio will decline as premium growth continues and
efficiencies are gained from the ANIC acquisition. Interest expense grew to
$1,192,821 in the 1997 quarter compared to $36,696 in the 1996 quarter due to
the addition of the convertible debt.
 
    PROVISION FOR FEDERAL INCOME TAXES.  The provision for federal income taxes
recorded by the Company for the 1997 quarter increased 31.8% to $1,745,542,
compared to $1,324,276 for the 1996 quarter. The effective tax rates of
approximately 30% in both quarters are below the normal federal corporate rate
as a result of credits from the small life insurance company deduction as well
as the Company's investments in tax-exempt bonds.

                                       10
<PAGE>

Nine Months Ended September 30, 1997 and 1996:
 
    ACCIDENT AND HEALTH PREMIUMS.  First year accident and health premiums
earned in the nine month period ended September 30, 1997 (the "1997 period"),
including long-term care and Medicare supplement, increased 24.5% to
$40,088,209, compared to $32,195,941 in the same period in 1996 (the "1996
period"). First year long-term care premiums earned in the 1997 period increased
23.1% to $39,086,285, compared to $31,750,676 in the 1996 period. These results
reflect increased market demand for the Company's newest products, which include
nursing home coverage with attached home health care riders, and its Assisted
Living and Personal Freedom policies, which combine the benefit coverage of
skilled, assisted living and custodial nursing home and home health care
protection in one comprehensive benefit plan. Management believes this increase
is indicative of the growing need for comprehensive coverage following its late
1996 introduction of the plans. First year Medicare supplement premiums earned
by the Company in the 1997 period increased to $1,001,924 from $445,265 in the
1996 period.
 
    Renewal accident and health premiums earned by the Company in the 1997 
period increased 26.2% to $75,269,666, compared to $59,635,823 in the 1996 
period. Renewal long-term care premiums earned in the 1997 period increased 
27.2% to $73,341,333, compared to $57,677,311 in the 1996 period. This 
increase reflects renewals of a larger base of in-force policies and 
continued increases in persistency (renewals as a percentage of total prior 
year business). Renewal Medicare supplement premiums in the 1997 period 
decreased 1.5% to $1,928,333, compared to $1,958,512 in the 1996 period.
 
    DISABILITY PREMIUMS.  The Company, following its August 1996 acquisition of
ANIC, posted $5,072,046 in disability premium in the 1997 period. Due to the
accounting of the acquisition as a purchase, only one month of disability income
is recorded for the 1996 period. During the 1997 period, first year disability
premiums were $947,203 and renewal premiums were $4,124,844.
 
    LIFE PREMIUMS.  First year life premiums earned by the Company in the 1997
period decreased 24.2% to $829,445, compared to $1,093,827 in the 1996 period.
Renewal life premiums earned by the Company in the 1997 period increased to
$1,952,845, compared to $1,592,126 in the 1996 period.
 
    NET INVESTMENT INCOME.  Net investment income earned by the Company for 
the 1997 period increased 67.9% to $12,581,291, from $7,493,143 for the 1996 
period. This increase was primarily the result of growth in the Company's 
invested assets from the proceeds of the Company's November 1996, $74,750,000 
convertible debt issuance and continued premium growth. The Company also 
recognized approximately $775,000 in capital gains. These gains were 
recognized in part to offset the one-time recognition of costs related to 
consolidating certain of its Vermont operations. Also, as the Company has 
increased its equity holdings to approximately 10% of its invested assets, it 
recognizes a lower current yield from dividends received than from its fixed 
income portfolio. Management intends to periodically recognize capital gains 
to supplement its current investment income.
 
    BENEFITS TO POLICYHOLDERS.  Total benefits to policyholders in the 1997
period increased 39.8% to $86,369,820 compared to $61,779,767 in the 1996
period.

                                       11
<PAGE>

    Accident and health benefits to policyholders, excluding disability
benefits, in the 1997 period increased 37.1% to $82,290,432 compared to
$60,014,459 in the 1996 period. The Company's accident and health loss ratio
(the ratio of benefits to policyholders to total accident and health premiums)
was 71.3% in the 1997 period, compared to 65.4% in the 1996 period. In the 1997
period, incurred claims as a percentage of accident and health premiums were
43.7% compared to 43.9% in the 1996 period.
 
    The Company uses independent case managers to develop and monitor plans of
care and to control claims in its home health care coverage. Prior to 1997, the
cost associated with case management was reported as a general and
administrative expense. Management believes that these costs impact total
benefits expense, and has chosen to report them as benefits to policyholders to
objectively compare benefits costs in different periods. The amounts reported in
the 1997 period due to case management were approximately $700,000 or .6% of
accident and health premiums. Expenses related to case management in the 1996
period were approximately $350,000 and have not been reclassified to benefits.
 
    The Company has historically developed the final factors used for future
benefit reserves on new products within two quarters of the initial product
offering. Until the new factors are developed, existing factors of a similar
product are used. Typically, the Company experiences minimal changes in reserves
due to this methodology since new business develops slowly, and persistency, a
major component of reserve factors, remains stable. In the 1997 period, however,
the Company found that the new factors developed for its Assisted Living and
Personal Freedom policies incorporate a significant increase in policyholder
persistency, which materially increased the level of reserves required for these
policies. Also, the Company experienced substantial growth in these policies
during 1997, which, when the new factors were applied, presented additional
increases in future benefit reserves. This addition to benefit reserves,
however, is offset by expense deferrals that arise from the same factor
components for deferred acquisition costs.
 
    Disability benefits were $2,341,036 in the 1997 period or 46.2% of premiums.
Only one month of disability benefits were recorded in the 1996 period due to
the accounting for the August 1996 acquisition of ANIC as a purchase.
 
    Life benefits to policyholders in the 1997 period increased to $1,738,352
compared to $1,504,988 for the 1996 period. The life loss ratio (the ratio of
claims experience and increases in policy reserves to total life premium) was
62.5% in the 1997 period, compared to 56.0% in the 1996 period.
 
    COMMISSIONS.  Commissions to agents increased 28.5% to $40,510,995 in the
1997 period compared to $31,529,578 in the 1996 period.
 
    First year commissions on accident and health business in the 1997 period
increased 27.4% to $26,785,170, compared to $21,027,007 in the 1996 period,
corresponding to the increase in first year accident and health premiums. The
ratio of first year accident and health commissions to first year accident and
health premiums was 66.3% in the 1997 period and 65.3% in the 1996 period. First
year commissions on life business in the 1997 period decreased 15.1% to
$685,147, compared to $806,627 in the 1996 period. The ratio of first year life
commissions to first year life premiums was 82.6% in the 1997 period compared to
73.7% in the 1996 period. First year disability commissions, at 59.1% of
premiums, were $560,259 in the 1997 period.
 
                                       12
<PAGE>

    Renewal commissions on accident and health business in the 1997 period
increased 25.7% to $11,864,815, compared to $9,440,753 in the 1996 period,
consistent with the increase in renewal premiums discussed above. The ratio of
renewal accident and health commissions to renewal accident and health premiums
was 15.8% in the 1997 period and 15.8% in the 1996 period. Life renewal
commissions were 12.0% of premiums in the 1997 period compared to 11.8% in the
1996 period. Renewal commissions of $382,031 were 9.3% of disability premiums.
 
    NET POLICY ACQUISITION COSTS DEFERRED.  The net deferred policy acquisition
costs in the 1997 period increased 84.5% to $24,961,392 compared to $13,526,533
in the 1996 period. This deferral is net of amortization, which decreases or
increases as the Company's actual persistency is higher or lower than the
persistency assumed for reserving purposes. The Company has historically
developed the final factors used for deferred acquisition costs on new products
within two quarters of the initial product offering. Until the new factors are
developed, existing factors of a similar product are used. In the 1997 period,
the Company found that the new factors developed for its Assisted Living and
Personal Freedom policies incorporate a significant increase in policyholder
persistency, which materially increased the expected amortization period for
these policies. Also, the Company experienced substantial growth in these
policies during 1997, which, when the new factors were applied, presented
additional increases in current deferrals. This addition to deferred acquisition
costs, however, is offset by benefit increases that arise from the same factor
components for benefits reserves.
 
    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses in
the 1997 period increased 45.4% to $15,478,528, compared to $10,643,236 in the
1996 period. This increase was due to variable expense growth related to the
rise in premiums, approximately $1,797,000 related to the operating expense and
amortization of goodwill of ANIC, and to the amortization of approximately
$270,000 related to the Company's convertible debt issuance. In addition, the
Company has incurred additional printing, actuarial and legal fees related to
the filing of products in its newly licensed states and from duplicate filings
of tax-qualified plans in each of its licensed states. During the 1997 period,
the Company recorded one time charges due to the consolidation of certain of its
Vermont operations, which will result in reduced future expenses. The Company
recognized capital gains in the current period, which more than offset the
recognition of these costs.
 
    The ratio of general and administrative expenses to total premiums, 
excluding the ANIC goodwill and debt interest and cost amortization, was 
12.0% in the 1997 period, compared to 11.3% in the 1996 period, reflecting 
the additional costs of ANIC as a percent of premiums. Management expects 
that this ratio will decline as premium growth continues and efficiencies are 
gained from the ANIC acquisition. Interest expense grew to $3,584,441 in the 
1997 period compared to $106,651 in the 1996 period due to the addition of 
the convertible debt.
 
    PROVISION FOR FEDERAL INCOME TAXES.  The provision for federal income taxes
recorded by the Company for the 1997 period increased 26.6% to $4,703,380,
compared to $3,714,276 for the 1996 period. The effective tax rates of
approximately 29.3% and 30.0% in the 1997 and 1996 periods, respectively are
below the normal federal corporate rate as a result of credits from the small
life insurance company deduction as well as the Company's investments in
tax-exempt bonds.
 
Liquidity and Capital Resources:

                                       13
<PAGE>
 
    The Company's consolidated liquidity requirements have historically been
created and met from the operations of its insurance subsidiaries. The Company's
primary sources of cash are premiums and investment income. The Company has
provided, and may continue to provide, cash through public offerings of its
common stock, capital markets activities or debt instruments. The primary uses
of cash are policy acquisition costs (principally commissions), payments to
policyholders, investment purchases and general and administrative expenses.
 
    Statutory requirements allow insurers to pay dividends only from statutory
earnings as approved by the state insurance commissioner. Statutory earnings are
generally lower than publicly-reported earnings due to the immediate or
accelerated recognition of all costs associated with premium growth and benefit
reserves. The Company has not and does not intend to pay shareholder dividends
in the near future due to these requirements, choosing to retain statutory
surplus to support continued premium growth.
 
    The Company invests in securities and other investments authorized by
applicable state laws and regulations and follows an investment policy designed
to maximize yield to the extent consistent with liquidity requirements and
preservation of assets. On December 31, 1996, the market value of the Company's
investment portfolio exceeded cost by 1.6% or approximately $3,426,000. At
September 30, 1997, the market value of the Company's portfolio exceeded its
cost with a current unrealized gain of approximately $9,175,333. The increase in
the market value of the portfolio is largely attributable to higher equities
holdings, which have appreciated in value since purchase.
 
    As of December 31, 1996, shareholders' equity was increased by approximately
$2,261,000 due to unrealized gains in the investment portfolio. As of September
30, 1997, shareholders' equity was increased by approximately $6,067,991 due to
unrealized gains in the investment portfolio.
 
    In November, 1996, the Company contributed $5,000,000 of the net proceeds of
the public offering in July 1995 to Network America. In December, 1996, the
Company contributed an additional $20,000,000 to the surplus of Network America,
$20,000,000 to PTLIC, and $5,000,000 to the surplus of ANIC. These funds were
made available through the November 1996 issuance of $74,750,000 convertible,
subordinated debt by the Company. The debt issuance was intended to provide
additional surplus for future subsidiary growth and for acquisitions of blocks
of business. The Company believes that it has retained sufficient proceeds from
the debt issuance to meet its interest payment obligations, and has not relied
upon the dividend paying ability of its subsidiaries to meet these obligations.
The Company believes that its insurance subsidiaries' capital and surplus
presently meet or exceed the requirements in all jurisdictions in which they are
licensed.
 
    The Company's debt also consists of a mortgage note in the approximate
amount of $2,000,000. This note is currently amortized over 12 years and has a
balloon payment due on the remaining outstanding balance in September 1998.
Although the note carries a variable interest rate, the Company has entered into
an amortizing swap agreement with the same bank, with a notional amount equal to
the outstanding debt, which has the effect of converting the note to a fixed
rate of interest. In 1996, the Company acquired a block of renewal commissions
from an agency. In addition to cash, the Company entered a two-year agreement to
pay an additional $325,000 to the seller.
 
                                       14
<PAGE>

    The Company's continued growth is dependent upon its ability to (i) continue
marketing efforts to expand its historical markets, (ii) continue to expand its
network of agents and effectively market its products in states where its
insurance subsidiaries are currently licensed and (iii) fund such marketing and
expansion while at the same time maintaining minimum statutory levels of capital
and surplus required to support such growth. Management believes that the funds
necessary to accomplish the foregoing, including funds required to maintain
adequate levels of statutory surplus in the Company's insurance subsidiaries,
can be met for the foreseeable future by funds generated from the Company's debt
issuance, its public offering in 1995 and from operations.
 
    In the event (i) the Company fails to maintain minimum loss ratios 
calculated in accordance with statutory guidelines, (ii) the Company fails to 
meet other requirements mandated and enforced by regulatory authorities, 
(iii) the Company has adverse claims experience in the future, (iv) the 
Company is unable to obtain additional financing to support future growth, 
(v) the economy continues to effect the buying powers of senior citizens, or 
(vi) the Company fails to maintain its current ratings from A.M. Best or 
Standard & Poor's, the Company's results of operations, liquidity and capital 
resources could be adversely affected.

    Certain statements made by the Company may be cconsidered forward 
looking. Although the Company believes that its expectations are based on 
reasonable assumptions within the bounds of its business and operations, 
there can be no assurance actual results will not differ significantly from 
its expectations.

                                       15
<PAGE>
 
New Accounting Principle:
 
    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 establishes standards for computing and presenting earnings per share,
and simplifies the standards for computing earnings per share previously found
in Accounting Principles Board Opinion No. 15, "Earnings per Share." Primary and
fully diluted earnings per share will be replaced with basic and diluted
earnings per share, and these amounts are required to be shown on the face of
the income statement. In addition, a reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation will be required.
 
    Basic earnings per share 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 earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, and requires restatement of all prior-period earnings per share data
presented. Management has determined the impact that SFAS 128 may have on the
financial statements will result in similar statements of earnings per share as
are currently reported.


                                       16
<PAGE>
 
                           PART II  OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
    The Insurers are parties to various lawsuits generally arising in the normal
course of their insurance business. The Company does not believe that the
eventual outcome of any of the suits to which the Insurers are currently a party
will have a material effect on the financial condition or result of operations
of the Company.
 
ITEM 2. CHANGES IN SECURITIES
 
NOT APPLICABLE
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
NOT APPLICABLE
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
NOT APPLICABLE.
 
ITEM 5. OTHER INFORMATION
 
In September 1997, the Company's Board of Directors appointed David Trindle
to fill the unexpired term of John Mahoney, who resigned as a director of the
Company in August 1997. Mr. Trindle will continue as a member of the Company's
Board of Directors until the 1999 Annual Meeting of the Company's Shareholders.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
(a) Exhibits:
 
    Exhibit 11--Earnings Per Share Calculation
    Exhibit 27--Financial Data Schedule
 
(b) Reports on Form 8-K:
 
    The Company filed no reports on Form 8-K during the quarter ending September
30, 1997.


                                       17
<PAGE>

                                    SIGNATURES
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                   PENN TREATY AMERICAN CORPORATION
                                   -------------------------------------------
                                                Registrant
 


Date       November 12, 1997                   /s/ Irving Levit 
    ----------------------------   -------------------------------------------
                                   Irving Levit
                                   President
 


Date       November 12, 1997                   /s/ Michael F. Grill 
    ----------------------------   -------------------------------------------
                                   Michael F. Grill
                                   Treasurer
 



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