þ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Georgia
|
58-1027114
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
4370 Peachtree Road, N.E.,
|
30319
|
|
Atlanta, Georgia
|
(Zip Code)
|
|
(Address of principal executive offices)
|
Part I. Financial Information
|
Page No.
|
|
Item 1.
|
Financial Statements:
|
|
2
|
||
3
|
||
4
|
||
5
|
||
6
|
||
7
|
||
Item 2.
|
18
|
|
Item 4.
|
25
|
|
Part II. Other Information
|
||
Item 2.
|
26
|
|
Item 6.
|
26
|
|
Signatures |
27
|
Unaudited September 30,
2014
|
December 31,
2013
|
|||||||
Cash and cash equivalents
|
$
|
16,494
|
$
|
33,102
|
||||
Investments:
|
||||||||
Fixed maturities (cost: $206,184 and $201,217)
|
213,100
|
201,303
|
||||||
Common and non-redeemable preferred stocks (cost: $11,969 and $12,432)
|
15,783
|
21,890
|
||||||
Other invested assets (cost: $3,064 and $2,123)
|
3,064
|
2,123
|
||||||
Policy loans
|
2,206
|
2,369
|
||||||
Real estate
|
38
|
38
|
||||||
Investment in unconsolidated trusts
|
1,238
|
1,238
|
||||||
Total investments
|
235,429
|
228,961
|
||||||
Receivables:
|
||||||||
Reinsurance
|
15,588
|
14,314
|
||||||
Insurance premiums and other (net of allowance for doubtful accounts: $378 and $339)
|
14,045
|
9,343
|
||||||
Deferred income taxes, net
|
-
|
363
|
||||||
Deferred acquisition costs
|
26,992
|
27,509
|
||||||
Other assets
|
5,833
|
3,245
|
||||||
Intangibles
|
2,544
|
2,544
|
||||||
Total assets
|
$
|
316,925
|
$
|
319,381
|
Insurance reserves and policyholder funds:
|
||||||||
Future policy benefits
|
$
|
70,651
|
$
|
69,864
|
||||
Unearned premiums
|
27,143
|
27,415
|
||||||
Losses and claims
|
66,388
|
63,018
|
||||||
Other policy liabilities
|
1,382
|
2,076
|
||||||
Total insurance reserves and policyholder funds
|
165,564
|
162,373
|
||||||
Accounts payable and accrued expenses
|
15,054
|
14,843
|
||||||
Deferred income taxes, net
|
387
|
-
|
||||||
Junior subordinated debenture obligations, net (Note 3)
|
33,738
|
41,238
|
||||||
Total liabilities
|
214,743
|
218,454
|
||||||
Commitments and contingencies (Note 6)
|
||||||||
Shareholders’ equity:
|
||||||||
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 65,000 shares issued and outstanding; $6,500 redemption value
|
65
|
65
|
||||||
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,638,210 and 21,117,874
|
22,401
|
22,401
|
||||||
Additional paid-in capital
|
57,473
|
57,103
|
||||||
Retained earnings
|
21,111
|
18,738
|
||||||
Accumulated other comprehensive income
|
6,975
|
6,204
|
||||||
Unearned stock grant compensation
|
(564
|
)
|
(485
|
)
|
||||
Treasury stock, at cost: 1,762,684 and 1,283,020 shares
|
(5,279
|
)
|
(3,099
|
)
|
||||
Total shareholders’ equity
|
102,182
|
100,927
|
||||||
Total liabilities and shareholders’ equity
|
$
|
316,925
|
$
|
319,381
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Revenue:
|
||||||||||||||||
Insurance premiums
|
$
|
38,337
|
$
|
38,385
|
$
|
115,211
|
$
|
107,777
|
||||||||
Investment income
|
2,678
|
2,534
|
7,875
|
8,213
|
||||||||||||
Realized investment gains, net
|
848
|
2,283
|
1,441
|
8,415
|
||||||||||||
Other income (Note 3)
|
793
|
45
|
875
|
140
|
||||||||||||
Total revenue
|
42,656
|
43,247
|
125,402
|
124,545
|
||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits and losses incurred
|
27,094
|
26,786
|
80,991
|
75,147
|
||||||||||||
Commissions and underwriting expenses
|
10,238
|
10,396
|
30,219
|
30,081
|
||||||||||||
Interest expense
|
388
|
442
|
1,251
|
1,457
|
||||||||||||
Other expense
|
3,349
|
2,934
|
9,375
|
8,097
|
||||||||||||
Total benefits and expenses
|
41,069
|
40,558
|
121,836
|
114,782
|
||||||||||||
Income before income taxes
|
1,587
|
2,689
|
3,566
|
9,763
|
||||||||||||
Income tax expense
|
136
|
9
|
418
|
201
|
||||||||||||
Net income
|
1,451
|
2,680
|
3,148
|
9,562
|
||||||||||||
Preferred stock dividends
|
(117
|
)
|
(118
|
)
|
(353
|
)
|
(364
|
)
|
||||||||
Net income applicable to common shareholders
|
$
|
1,334
|
$
|
2,562
|
$
|
2,795
|
$
|
9,198
|
||||||||
Earnings per common share (basic)
|
$
|
.06
|
$
|
.12
|
$
|
.13
|
$
|
.43
|
||||||||
Earnings per common share (diluted)
|
$
|
.06
|
$
|
.12
|
$
|
.13
|
$
|
.42
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Net income
|
$
|
1,451
|
$
|
2,680
|
$
|
3,148
|
$
|
9,562
|
||||||||
Other comprehensive income (loss):
|
||||||||||||||||
Available-for-sale securities:
|
||||||||||||||||
Gross unrealized holding gain (loss) arising in the period
|
(7,103
|
)
|
(3,912
|
)
|
2,627
|
(16,921
|
)
|
|||||||||
Related income tax effect
|
2,487
|
1,369
|
(919
|
)
|
5,922
|
|||||||||||
Less: reclassification adjustment for net realized gains included in net income (1)
|
(848
|
)
|
(2,283
|
)
|
(1,441
|
)
|
(8,415
|
)
|
||||||||
Related income tax effect (2)
|
296
|
799
|
504
|
2,945
|
||||||||||||
Net effect on other comprehensive income (loss)
|
(5,168
|
)
|
(4,027
|
)
|
771
|
(16,469
|
)
|
|||||||||
Derivative financial instrument:
|
||||||||||||||||
Fair value adjustment to derivative financial instrument
|
-
|
-
|
-
|
141
|
||||||||||||
Related income tax effect
|
-
|
-
|
-
|
(49
|
)
|
|||||||||||
Net effect on other comprehensive income (loss)
|
-
|
-
|
-
|
92
|
||||||||||||
Total other comprehensive income (loss), net of tax
|
(5,168
|
)
|
(4,027
|
)
|
771
|
(16,377
|
)
|
|||||||||
Total comprehensive income (loss)
|
$
|
(3,717
|
)
|
$
|
(1,347
|
)
|
$
|
3,919
|
$
|
(6,815
|
)
|
(1) | Realized gains on available-for-sale securities recognized in realized investment gains, net on the accompanying condensed consolidated statements of operations. |
(2) | Income tax effect on reclassification adjustment for net realized gains included in income tax expense on the accompanying condensed consolidated statements of operations. |
Nine Months Ended September 30, 2014
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid-In
Capital
|
Retained Earnings
|
Accumulated
Other
Comprehensive
Income
|
Unearned Stock Grant Compensation
|
Treasury
Stock
|
Total
|
||||||||||||||||||||||||
Balance, December 31, 2013
|
$
|
65
|
$
|
22,401
|
$
|
57,103
|
$
|
18,738
|
$
|
6,204
|
$
|
(485
|
)
|
$
|
(3,099
|
)
|
$
|
100,927
|
||||||||||||||
Net income
|
-
|
-
|
-
|
3,148
|
-
|
-
|
-
|
3,148
|
||||||||||||||||||||||||
Other comprehensive income, net of tax
|
-
|
-
|
-
|
-
|
771
|
-
|
-
|
771
|
||||||||||||||||||||||||
Dividends on common stock
|
-
|
-
|
-
|
(422
|
)
|
-
|
-
|
-
|
(422
|
)
|
||||||||||||||||||||||
Dividends accrued on preferred stock
|
-
|
-
|
-
|
(353
|
)
|
-
|
-
|
-
|
(353
|
)
|
||||||||||||||||||||||
Restricted stock grants
|
-
|
-
|
328
|
-
|
-
|
(559
|
)
|
231
|
-
|
|||||||||||||||||||||||
Amortization of unearned compensation
|
-
|
-
|
-
|
-
|
-
|
480
|
-
|
480
|
||||||||||||||||||||||||
Purchase of shares for treasury
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,440
|
)
|
(2,440
|
)
|
||||||||||||||||||||||
Issuance of shares under stock plans
|
-
|
-
|
42
|
-
|
-
|
-
|
29
|
71
|
||||||||||||||||||||||||
Balance, September 30, 2014
|
$
|
65
|
$
|
22,401
|
$
|
57,473
|
$
|
21,111
|
$
|
6,975
|
$
|
(564
|
)
|
$
|
(5,279
|
)
|
$
|
102,182
|
||||||||||||||
Nine Months Ended September 30, 2013
|
||||||||||||||||||||||||||||||||
Balance, December 31, 2012
|
$
|
70
|
$
|
22,401
|
$
|
57,180
|
$
|
8,621
|
$
|
19,571
|
$
|
-
|
$
|
(2,107
|
)
|
$
|
105,736
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
9,562
|
-
|
-
|
-
|
9,562
|
||||||||||||||||||||||||
Other comprehensive loss, net of tax
|
-
|
-
|
-
|
-
|
(16,377
|
)
|
-
|
-
|
(16,377
|
)
|
||||||||||||||||||||||
Preferred stock redeemed
|
(5
|
)
|
-
|
(495
|
)
|
-
|
-
|
-
|
-
|
(500
|
)
|
|||||||||||||||||||||
Dividends on common stock
|
-
|
-
|
-
|
(423
|
)
|
-
|
-
|
-
|
(423
|
)
|
||||||||||||||||||||||
Dividends accrued on preferred stock
|
-
|
-
|
-
|
(364
|
)
|
-
|
-
|
-
|
(364
|
)
|
||||||||||||||||||||||
Restricted stock grants
|
-
|
-
|
393
|
-
|
-
|
(704
|
)
|
311
|
-
|
|||||||||||||||||||||||
Amortization of unearned compensation
|
-
|
-
|
-
|
-
|
-
|
137
|
-
|
137
|
||||||||||||||||||||||||
Purchase of shares for treasury
|
-
|
-
|
-
|
-
|
-
|
-
|
(867
|
)
|
(867
|
)
|
||||||||||||||||||||||
Issuance of shares under stock plans
|
-
|
-
|
18
|
-
|
-
|
-
|
108
|
126
|
||||||||||||||||||||||||
Balance, September 30, 2013
|
$
|
65
|
$
|
22,401
|
$
|
57,096
|
$
|
17,396
|
$
|
3,194
|
$
|
(567
|
)
|
$
|
(2,555
|
)
|
$
|
97,030
|
Nine Months Ended
September 30,
|
||||||||
2014
|
2013
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
3,148
|
$
|
9,562
|
||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
||||||||
Amortization of deferred acquisition costs
|
8,060
|
7,862
|
||||||
Acquisition costs deferred
|
(7,543
|
)
|
(9,418
|
)
|
||||
Realized investment gains, net
|
(1,441
|
)
|
(8,415
|
)
|
||||
Gain on purchase of debt securities (Note 3)
|
(750
|
)
|
-
|
|||||
Increase in insurance reserves
|
3,191
|
12,646
|
||||||
Compensation expense related to share awards
|
480
|
137
|
||||||
Depreciation and amortization
|
675
|
450
|
||||||
Deferred income tax expense
|
335
|
28
|
||||||
Increase in receivables, net
|
(5,976
|
)
|
(5,870
|
)
|
||||
(Decrease) increase in other liabilities
|
(1,788
|
)
|
519
|
|||||
Other, net
|
(164
|
)
|
49
|
|||||
Net cash (used in) provided by operating activities
|
(1,773
|
)
|
7,550
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceeds from investments sold, called or matured
|
53,534
|
107,681
|
||||||
Investments purchased
|
(55,051
|
)
|
(95,004
|
)
|
||||
Additions to property and equipment
|
(3,777
|
)
|
(262
|
)
|
||||
Net cash (used in) provided by investing activities
|
(5,294
|
)
|
12,415
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payment for debt securities (Note 3)
|
(6,750
|
)
|
-
|
|||||
Redemption of Series D preferred stock
|
-
|
(500
|
)
|
|||||
Payment of dividends on common stock
|
(422
|
)
|
(423
|
)
|
||||
Proceeds from shares issued under stock plans
|
71
|
126
|
||||||
Purchase of shares for treasury
|
(2,440
|
)
|
(867
|
)
|
||||
Net cash used in financing activities
|
(9,541
|
)
|
(1,664
|
)
|
||||
Net (decrease) increase in cash and cash equivalents
|
(16,608
|
)
|
18,301
|
|||||
Cash and cash equivalents at beginning of period
|
33,102
|
18,951
|
||||||
Cash and cash equivalents at end of period
|
$
|
16,494
|
$
|
37,252
|
||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||
Cash paid for interest
|
$
|
1,296
|
$
|
1,522
|
||||
Cash paid for income taxes
|
$
|
442
|
$
|
486
|
Note 1.
|
Basis of Presentation
|
Note 2.
|
Segment Information
|
Revenues
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
American Southern
|
$
|
14,819
|
$
|
14,994
|
$
|
43,167
|
$
|
40,231
|
||||||||
Bankers Fidelity
|
26,909
|
28,036
|
81,040
|
83,097
|
||||||||||||
Corporate and Other
|
928
|
217
|
1,195
|
1,217
|
||||||||||||
Total revenue
|
$
|
42,656
|
$
|
43,247
|
$
|
125,402
|
$
|
124,545
|
Income Before Income Taxes
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
American Southern
|
$
|
1,500
|
$
|
1,912
|
$
|
3,695
|
$
|
6,531
|
||||||||
Bankers Fidelity
|
1,051
|
2,445
|
3,833
|
7,169
|
||||||||||||
Corporate and Other
|
(964
|
)
|
(1,668
|
)
|
(3,962
|
)
|
(3,937
|
)
|
||||||||
Income before income taxes
|
$
|
1,587
|
$
|
2,689
|
$
|
3,566
|
$
|
9,763
|
Note 3.
|
Junior Subordinated Debentures
|
Atlantic American
Statutory Trust I
|
Atlantic American
Statutory Trust II
|
|||||||
JUNIOR SUBORDINATED DEBENTURES (1) (2)
|
||||||||
Principal amount owed
|
$
|
18,042
|
$
|
23,196
|
||||
Balance September 30, 2014
|
$
|
18,042
|
$
|
23,196
|
||||
Less: Treasury debt (3)
|
-
|
(7,500
|
)
|
|||||
Net balance September 30, 2014
|
$
|
18,042
|
$
|
15,696
|
||||
Net balance December 31, 2013
|
$
|
18,042
|
$
|
23,196
|
||||
Coupon rate
|
LIBOR + 4.00%
|
LIBOR + 4.10%
|
||||||
Interest payable
|
Quarterly
|
Quarterly
|
||||||
Maturity date
|
December 4, 2032
|
May 15, 2033
|
||||||
Redeemable by issuer
|
Yes
|
Yes
|
||||||
TRUST PREFERRED SECURITIES
|
||||||||
Issuance date
|
December 4, 2002
|
May 15, 2003
|
||||||
Securities issued
|
17,500
|
22,500
|
||||||
Liquidation preference per security
|
$
|
1
|
$
|
1
|
||||
Liquidation value
|
17,500
|
22,500
|
||||||
Coupon rate
|
LIBOR + 4.00%
|
LIBOR + 4.10%
|
||||||
Distribution payable
|
Quarterly
|
Quarterly
|
||||||
Distribution guaranteed by (4)
|
Atlantic American Corporation
|
Atlantic American Corporation
|
(1) | For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities. |
(2) | The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries. |
(3) | On August 4, 2014, the Company acquired $7,500 of the Junior Subordinated Debentures. Consideration tendered, upon settlement, was $6,750 plus accrued interest resulting in a gain of $750 recognized in other income on the accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2014. |
(4) | The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation. |
Note 4.
|
Earnings Per Common Share
|
Three Months Ended
September 30, 2014
|
||||||||||||
Income
|
Shares
(In thousands)
|
Per Share Amount
|
||||||||||
Basic and Diluted Earnings Per Common Share:
|
||||||||||||
Net income
|
$
|
1,451
|
20,768
|
|||||||||
Less preferred stock dividends
|
(117
|
)
|
-
|
|||||||||
Net income applicable to common shareholders
|
$
|
1,334
|
20,768
|
$
|
.06
|
Three Months Ended
September 30, 2013
|
||||||||||||
Income
|
Shares
(In thousands)
|
Per Share Amount
|
||||||||||
Basic Earnings Per Common Share:
|
||||||||||||
Net income
|
$
|
2,680
|
21,299
|
|||||||||
Less preferred stock dividends
|
(118
|
)
|
-
|
|||||||||
Net income applicable to common shareholders
|
2,562
|
21,299
|
$
|
.12
|
||||||||
Diluted Earnings Per Common Share:
|
||||||||||||
Effect of Series D preferred stock
|
118
|
1,629
|
||||||||||
Net income applicable to common shareholders
|
$
|
2,680
|
22,928
|
$
|
.12
|
Nine Months Ended
September 30, 2014
|
||||||||||||
Income
|
Shares
(In thousands)
|
Per Share Amount
|
||||||||||
Basic and Diluted Earnings Per Common Share:
|
||||||||||||
Net income
|
$
|
3,148
|
20,885
|
|||||||||
Less preferred stock dividends
|
(353
|
)
|
-
|
|||||||||
Net income applicable to common shareholders
|
$
|
2,795
|
20,885
|
$
|
.13
|
Nine Months Ended
September 30, 2013
|
||||||||||||
Income
|
Shares
(In thousands)
|
Per Share Amount
|
||||||||||
Basic Earnings Per Common Share:
|
||||||||||||
Net income
|
$
|
9,562
|
21,250
|
|||||||||
Less preferred stock dividends
|
(364
|
)
|
-
|
|||||||||
Net income applicable to common shareholders
|
9,198
|
21,250
|
$
|
.43
|
||||||||
Diluted Earnings Per Common Share:
|
||||||||||||
Effect of dilutive stock options
|
-
|
19
|
||||||||||
Effect of Series D preferred stock
|
364
|
1,629
|
||||||||||
Net income applicable to common shareholders
|
$
|
9,562
|
22,898
|
$
|
.42
|
Note 5.
|
Income Taxes
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Federal income tax provision at statutory rate of 35%
|
$
|
555
|
$
|
941
|
$
|
1,248
|
$
|
3,417
|
||||||||
Dividends-received deduction
|
(27
|
)
|
(41
|
)
|
(88
|
)
|
(119
|
)
|
||||||||
Small life insurance company deduction
|
(114
|
)
|
(107
|
)
|
(275
|
)
|
(185
|
)
|
||||||||
Other permanent differences
|
17
|
9
|
36
|
27
|
||||||||||||
Change in asset valuation allowance due to change in judgment relating to realizability of deferred tax assets
|
(365
|
)
|
(799
|
)
|
(573
|
)
|
(2,945
|
)
|
||||||||
Adjustment for prior years’ estimates to actual
|
70
|
6
|
70
|
6
|
||||||||||||
Income tax expense
|
$
|
136
|
$
|
9
|
$
|
418
|
$
|
201
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Current - Federal
|
$
|
(46
|
)
|
$
|
76
|
$
|
83
|
$
|
173
|
|||||||
Deferred - Federal
|
547
|
732
|
908
|
2,973
|
||||||||||||
Change in deferred tax asset valuation allowance
|
(365
|
)
|
(799
|
)
|
(573
|
)
|
(2,945
|
)
|
||||||||
Total
|
$
|
136
|
$
|
9
|
$
|
418
|
$
|
201
|
Note 6.
|
Commitments and Contingencies
|
Note 7.
|
Investments
|
September 30, 2014
|
||||||||||||||||
Carrying
Value
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Amortized Cost
|
|||||||||||||
Fixed maturities:
|
||||||||||||||||
Bonds:
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
33,497
|
$
|
711
|
$
|
104
|
$
|
32,890
|
||||||||
Obligations of states and political subdivisions
|
5,203
|
588
|
-
|
4,615
|
||||||||||||
Corporate securities:
|
||||||||||||||||
Utilities and telecom
|
13,726
|
2,103
|
-
|
11,623
|
||||||||||||
Financial services
|
56,370
|
3,113
|
269
|
53,526
|
||||||||||||
Other business – diversified
|
74,696
|
2,467
|
909
|
73,138
|
||||||||||||
Other consumer – diversified
|
28,811
|
272
|
1,061
|
29,600
|
||||||||||||
Total corporate securities
|
173,603
|
7,955
|
2,239
|
167,887
|
||||||||||||
Redeemable preferred stocks:
|
||||||||||||||||
Financial services
|
605
|
5
|
-
|
600
|
||||||||||||
Other consumer – diversified
|
192
|
-
|
-
|
192
|
||||||||||||
Total redeemable preferred stocks
|
797
|
5
|
-
|
792
|
||||||||||||
Total fixed maturities
|
213,100
|
9,259
|
2,343
|
206,184
|
||||||||||||
Equity securities:
|
||||||||||||||||
Common and non-redeemable preferred stocks:
|
||||||||||||||||
Utilities and telecom
|
1,499
|
535
|
-
|
964
|
||||||||||||
Financial services
|
5,934
|
590
|
-
|
5,344
|
||||||||||||
Other business – diversified
|
207
|
160
|
-
|
47
|
||||||||||||
Other consumer – diversified
|
8,143
|
2,529
|
-
|
5,614
|
||||||||||||
Total equity securities
|
15,783
|
3,814
|
-
|
11,969
|
||||||||||||
Other invested assets
|
3,064
|
-
|
-
|
3,064
|
||||||||||||
Policy loans
|
2,206
|
-
|
-
|
2,206
|
||||||||||||
Real estate
|
38
|
-
|
-
|
38
|
||||||||||||
Investments in unconsolidated trusts
|
1,238
|
-
|
-
|
1,238
|
||||||||||||
Total investments
|
$
|
235,429
|
$
|
13,073
|
$
|
2,343
|
$
|
224,699
|
December 31, 2013
|
||||||||||||||||
Carrying
Value
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Amortized Cost
|
|||||||||||||
Fixed maturities:
|
||||||||||||||||
Bonds:
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
17,240
|
$
|
576
|
$
|
210
|
$
|
16,874
|
||||||||
Obligations of states and political subdivisions
|
7,611
|
402
|
17
|
7,226
|
||||||||||||
Corporate securities:
|
||||||||||||||||
Utilities and telecom
|
16,532
|
1,353
|
7
|
15,186
|
||||||||||||
Financial services
|
50,531
|
1,736
|
320
|
49,115
|
||||||||||||
Other business – diversified
|
70,326
|
870
|
2,906
|
72,362
|
||||||||||||
Other consumer – diversified
|
36,712
|
391
|
1,745
|
38,066
|
||||||||||||
Total corporate securities
|
174,101
|
4,350
|
4,978
|
174,729
|
||||||||||||
Redeemable preferred stocks:
|
||||||||||||||||
Financial services
|
2,159
|
4
|
41
|
2,196
|
||||||||||||
Other consumer – diversified
|
192
|
-
|
-
|
192
|
||||||||||||
Total redeemable preferred stocks
|
2,351
|
4
|
41
|
2,388
|
||||||||||||
Total fixed maturities
|
201,303
|
5,332
|
5,246
|
201,217
|
||||||||||||
Equity securities:
|
||||||||||||||||
Common and non-redeemable preferred stocks:
|
||||||||||||||||
Utilities and telecom
|
1,474
|
510
|
-
|
964
|
||||||||||||
Financial services
|
5,761
|
514
|
560
|
5,807
|
||||||||||||
Other business – diversified
|
178
|
131
|
-
|
47
|
||||||||||||
Other consumer – diversified
|
14,477
|
8,863
|
-
|
5,614
|
||||||||||||
Total equity securities
|
21,890
|
10,018
|
560
|
12,432
|
||||||||||||
Other invested assets
|
2,123
|
-
|
-
|
2,123
|
||||||||||||
Policy loans
|
2,369
|
-
|
-
|
2,369
|
||||||||||||
Real estate
|
38
|
-
|
-
|
38
|
||||||||||||
Investments in unconsolidated trusts
|
1,238
|
-
|
-
|
1,238
|
||||||||||||
Total investments
|
$
|
228,961
|
$
|
15,350
|
$
|
5,806
|
$
|
219,417
|
September 30, 2014
|
||||||||
Carrying
Value
|
Amortized
Cost
|
|||||||
Due in one year or less
|
$
|
1,000
|
$
|
1,001
|
||||
Due after one year through five years
|
15,053
|
14,407
|
||||||
Due after five years through ten years
|
116,074
|
113,310
|
||||||
Due after ten years
|
63,936
|
60,885
|
||||||
Varying maturities
|
17,037
|
16,581
|
||||||
Totals
|
$
|
213,100
|
$
|
206,184
|
September 30, 2014
|
December 31, 2013
|
|||||||||||||||||||||||
Carrying
Value
|
Amortized
Cost
|
Unrealized
Gains
|
Carrying
Value
|
Amortized
Cost
|
Unrealized
Gains (Losses)
|
|||||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
33,497
|
$
|
32,890
|
$
|
607
|
$
|
17,240
|
$
|
16,874
|
$
|
366
|
||||||||||||
Obligations of states and political subdivisions
|
5,203
|
4,615
|
588
|
7,611
|
7,226
|
385
|
||||||||||||||||||
Utilities and telecom
|
15,225
|
12,587
|
2,638
|
18,006
|
16,150
|
1,856
|
||||||||||||||||||
Financial services
|
62,909
|
59,470
|
3,439
|
58,451
|
57,118
|
1,333
|
||||||||||||||||||
Other business – diversified
|
74,903
|
73,185
|
1,718
|
70,504
|
72,409
|
(1,905
|
)
|
|||||||||||||||||
Other consumer – diversified
|
37,146
|
35,406
|
1,740
|
51,381
|
43,872
|
7,509
|
||||||||||||||||||
Other investments
|
6,546
|
6,546
|
-
|
5,768
|
5,768
|
-
|
||||||||||||||||||
Investments
|
$
|
235,429
|
$
|
224,699
|
$
|
10,730
|
$
|
228,961
|
$
|
219,417
|
$
|
9,544
|
September 30, 2014
|
||||||||||||||||||||||||
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair
Value
|
Unrealized Losses
|
|||||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
12,326
|
$
|
62
|
$
|
2,679
|
$
|
42
|
$
|
15,005
|
$
|
104
|
||||||||||||
Corporate securities
|
44,814
|
765
|
18,518
|
1,474
|
63,332
|
2,239
|
||||||||||||||||||
Total temporarily impaired securities
|
$
|
57,140
|
$
|
827
|
$
|
21,197
|
$
|
1,516
|
$
|
78,337
|
$
|
2,343
|
December 31, 2013
|
||||||||||||||||||||||||
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair
Value
|
Unrealized Losses
|
|||||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
8,326
|
$
|
210
|
$
|
-
|
$
|
-
|
$
|
8,326
|
$
|
210
|
||||||||||||
Obligations of states and political subdivisions
|
1,018
|
17
|
-
|
-
|
1,018
|
17
|
||||||||||||||||||
Corporate securities
|
92,049
|
3,714
|
6,938
|
1,264
|
98,987
|
4,978
|
||||||||||||||||||
Redeemable preferred stocks
|
704
|
41
|
-
|
-
|
704
|
41
|
||||||||||||||||||
Common and non-redeemable preferred stocks
|
3,724
|
560
|
-
|
-
|
3,724
|
560
|
||||||||||||||||||
Total temporarily impaired securities
|
$
|
105,821
|
$
|
4,542
|
$
|
6,938
|
$
|
1,264
|
$
|
112,759
|
$
|
5,806
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Common and non-redeemable preferred stocks
|
$
|
196
|
$
|
-
|
$
|
196
|
$
|
-
|
Level 1 | Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks. |
Level 2 | Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include substantially all of its fixed maturities, which consist of U.S. Treasury securities and U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements using Level 2 criteria, the Company utilizes various external pricing sources. |
Level 3 | Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. The Company’s financial instruments valued using Level 3 criteria consist of a limited number of fixed maturities. As of September 30, 2014 and December 31, 2013, the value of the Company’s fixed maturities valued using Level 3 criteria was $2,155 and $1,991, respectively. The use of different criteria or assumptions regarding data may have yielded materially different valuations. |
Quoted Prices in Active Markets
for Identical Assets
|
Significant Other Observable Inputs
|
Significant Unobservable Inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Fixed maturities
|
$
|
-
|
$
|
210,945
|
$
|
2,155
|
$
|
213,100
|
||||||||
Equity securities
|
10,140
|
5,643
|
-
|
15,783
|
||||||||||||
Cash equivalents
|
13,712
|
-
|
-
|
13,712
|
||||||||||||
Total
|
$
|
23,852
|
$
|
216,588
|
$
|
2,155
|
$
|
242,595
|
Quoted Prices in Active Markets
for Identical Assets
|
Significant Other Observable Inputs
|
Significant Unobservable Inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Fixed maturities
|
$
|
-
|
$
|
199,312
|
$
|
1,991
|
$
|
201,303
|
||||||||
Equity securities
|
16,406
|
5,484
|
-
|
21,890
|
||||||||||||
Cash equivalents
|
31,618
|
-
|
-
|
31,618
|
||||||||||||
Total
|
$
|
48,024
|
$
|
204,796
|
$
|
1,991
|
$
|
254,811
|
Fixed Maturities
|
||||
Balance, December 31, 2013
|
$
|
1,991
|
||
Total unrealized gains included in other comprehensive income
|
65
|
|||
Balance, March 31, 2014
|
2,056
|
|||
Total unrealized gains included in other comprehensive income
|
61
|
|||
Balance, June 30, 2014
|
2,117
|
|||
Total unrealized gains included in other comprehensive income
|
38
|
|||
Balance, September 30, 2014
|
$
|
2,155
|
Note 8.
|
Fair Values of Financial Instruments
|
September 30, 2014
|
December 31, 2013
|
|||||||||||||||||||
Level in Fair Value Hierarchy (1)
|
Carrying Amount
|
Estimated Fair Value
|
Carrying Amount
|
Estimated Fair Value
|
||||||||||||||||
Assets:
|
||||||||||||||||||||
Cash and cash equivalents
|
Level 1
|
$
|
16,494
|
$
|
16,494
|
$
|
33,102
|
$
|
33,102
|
|||||||||||
Fixed maturities
|
(1)
|
213,100
|
213,100
|
201,303
|
201,303
|
|||||||||||||||
Equity securities
|
(1)
|
15,783
|
15,783
|
21,890
|
21,890
|
|||||||||||||||
Other invested assets
|
Level 3
|
3,064
|
3,064
|
2,123
|
2,123
|
|||||||||||||||
Policy loans
|
Level 2
|
2,206
|
2,206
|
2,369
|
2,369
|
|||||||||||||||
Real estate
|
Level 2
|
38
|
38
|
38
|
38
|
|||||||||||||||
Investment in unconsolidated trusts
|
Level 2
|
1,238
|
1,238
|
1,238
|
1,238
|
|||||||||||||||
Liabilities:
|
||||||||||||||||||||
Junior subordinated debentures, net
|
Level 2
|
33,738
|
33,738
|
41,238
|
41,238
|
(1) | See Note 7 for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets. |
Note 9.
|
Accumulated Other Comprehensive Income
|
Unrealized Gains
on Available-for-
Sale Securities
|
||||
Balance, December 31, 2013
|
$
|
6,204
|
||
Other comprehensive income before reclassifications
|
1,708
|
|||
Amounts reclassified from accumulated other comprehensive income
|
(937
|
)
|
||
Net current-period other comprehensive income
|
771
|
|||
Balance, September 30, 2014
|
$
|
6,975
|
Note 10.
|
Subsequent Event
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Insurance premiums
|
$
|
38,337
|
$
|
38,385
|
$
|
115,211
|
$
|
107,777
|
||||||||
Investment income
|
2,678
|
2,534
|
7,875
|
8,213
|
||||||||||||
Realized investment gains, net
|
848
|
2,283
|
1,441
|
8,415
|
||||||||||||
Other income
|
793
|
45
|
875
|
140
|
||||||||||||
Total revenue
|
42,656
|
43,247
|
125,402
|
124,545
|
||||||||||||
Insurance benefits and losses incurred
|
27,094
|
26,786
|
80,991
|
75,147
|
||||||||||||
Commissions and underwriting expenses
|
10,238
|
10,396
|
30,219
|
30,081
|
||||||||||||
Other expense
|
3,349
|
2,934
|
9,375
|
8,097
|
||||||||||||
Interest expense
|
388
|
442
|
1,251
|
1,457
|
||||||||||||
Total benefits and expenses
|
41,069
|
40,558
|
121,836
|
114,782
|
||||||||||||
Income before income taxes
|
$
|
1,587
|
$
|
2,689
|
$
|
3,566
|
$
|
9,763
|
||||||||
Net income
|
$
|
1,451
|
$
|
2,680
|
$
|
3,148
|
$
|
9,562
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
Reconciliation of Net Income to non-GAAP Measurement
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
(In thousands)
|
||||||||||||||||
Net income
|
$
|
1,451
|
$
|
2,680
|
$
|
3,148
|
$
|
9,562
|
||||||||
Income tax expense
|
136
|
9
|
418
|
201
|
||||||||||||
Realized investment gains, net
|
(848
|
)
|
(2,283
|
)
|
(1,441
|
)
|
(8,415
|
)
|
||||||||
Gain on purchase of debt securities (1)
|
(750
|
)
|
-
|
(750
|
)
|
-
|
||||||||||
Operating income (loss)
|
$
|
(11
|
)
|
$
|
406
|
$
|
1,375
|
$
|
1,348
|
(1) | Gain from the purchase of $7.5 million of the Company’s junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”). See Note 3 of the accompanying notes to the unaudited condensed consolidated financial statements. |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Gross written premiums
|
$
|
9,293
|
$
|
10,919
|
$
|
43,452
|
$
|
48,009
|
||||||||
Ceded premiums
|
(1,445
|
)
|
(1,856
|
)
|
(4,694
|
)
|
(5,703
|
)
|
||||||||
Net written premiums
|
$
|
7,848
|
$
|
9,063
|
$
|
38,758
|
$
|
42,306
|
||||||||
Net earned premiums
|
$
|
13,191
|
$
|
13,137
|
$
|
39,142
|
$
|
33,418
|
||||||||
Net loss and loss adjustment expenses
|
9,530
|
9,154
|
29,207
|
21,533
|
||||||||||||
Underwriting expenses
|
3,789
|
3,929
|
10,265
|
12,167
|
||||||||||||
Underwriting income (loss)
|
$
|
(128
|
)
|
$
|
54
|
$
|
(330
|
)
|
$
|
(282
|
)
|
|||||
Loss ratio
|
72.3
|
%
|
69.7
|
%
|
74.6
|
%
|
64.4
|
%
|
||||||||
Expense ratio
|
28.7
|
29.9
|
26.2
|
36.4
|
||||||||||||
Combined ratio
|
101.0
|
%
|
99.6
|
%
|
100.8
|
%
|
100.8
|
%
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Commercial automobile
|
$
|
9,486
|
$
|
9,714
|
$
|
28,176
|
$
|
23,711
|
||||||||
General liability
|
940
|
964
|
2,807
|
2,589
|
||||||||||||
Property
|
972
|
742
|
2,700
|
1,941
|
||||||||||||
Surety
|
1,793
|
1,717
|
5,459
|
5,177
|
||||||||||||
Total
|
$
|
13,191
|
$
|
13,137
|
$
|
39,142
|
$
|
33,418
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Medicare supplement
|
$
|
21,218
|
$
|
21,276
|
$
|
64,118
|
$
|
62,340
|
||||||||
Other health products
|
1,183
|
1,174
|
3,556
|
3,484
|
||||||||||||
Life insurance
|
2,745
|
2,798
|
8,395
|
8,535
|
||||||||||||
Total earned premiums
|
25,146
|
25,248
|
76,069
|
74,359
|
||||||||||||
Insurance benefits and losses
|
17,564
|
17,632
|
51,784
|
53,614
|
||||||||||||
Underwriting expenses
|
8,294
|
7,960
|
25,423
|
22,315
|
||||||||||||
Total expenses
|
25,858
|
25,592
|
77,207
|
75,929
|
||||||||||||
Underwriting loss
|
$
|
(712
|
)
|
$
|
(344
|
)
|
$
|
(1,138
|
)
|
$
|
(1,570
|
)
|
||||
Loss ratio
|
69.8
|
%
|
69.8
|
%
|
68.1
|
%
|
72.1
|
%
|
||||||||
Expense ratio
|