amsf-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

Commission file number:

001-12251

 

AMERISAFE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Texas

 

75-2069407

(State of Incorporation)            

 

(I.R.S. Employer Identification Number)

 

 

 

2301 Highway 190 West, DeRidder, Louisiana

 

70634

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (337) 463-9052

 

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of October 24, 2017, there were 19,244,023 shares of the Registrant’s common stock, par value $.01 per share, outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

No.

 

 

 

 

FORWARD-LOOKING STATEMENTS

3

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

4

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

 

Item 4

 

Controls and Procedures

26

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

 

 

Item 6

 

Exhibits

28

 

2


 

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

 

the cyclical nature of the workers’ compensation insurance industry;

 

general economic conditions, including recession, inflation, performance of financial markets, interest rates, unemployment rates and fluctuating asset values;

 

increased competition on the basis of types of insurance offered, premium rates, coverage availability, payment terms, claims management, safety services, policy terms, overall financial strength, financial ratings and reputation;

 

changes in relationships with independent agencies;

 

developments in capital markets that adversely affect the performance of our investments;

 

technology breaches or failures, including those resulting from a malicious cyber attack on the Company or its policyholders and medical providers;

 

decreased level of business activity of our policyholders caused by decreased business activity generally, and in particular in the industries we target;

 

greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

 

adverse developments in economic, competitive, judicial or regulatory conditions within the workers’ compensation insurance industry;

 

loss of the services of any of our senior management or other key employees;

 

changes in regulations, laws, rates, or rating factors applicable to the Company, its policyholders or the agencies that sell its insurance;

 

changes in legal theories of liability under our insurance policies;

 

changes in rating agency policies, practices or ratings;

 

changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all;

 

decreased demand for our insurance;

 

the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and

 

other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report, and under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

 

 

3


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Fixed maturity securities—held-to-maturity, at amortized cost (fair value

   $610,151 and $568,931 in 2017 and 2016, respectively)

 

$

598,658

 

 

$

562,434

 

Fixed maturity securities—available-for-sale, at fair value (cost $462,892 and

   $479,871 in 2017 and 2016, respectively)

 

 

467,256

 

 

 

479,097

 

Equity securities—available-for-sale, at fair value (cost $7,499 and $0 in 2017

   and 2016, respectively)

 

 

7,801

 

 

 

33

 

Short-term investments

 

 

69,526

 

 

 

29,580

 

Other investments

 

 

1,280

 

 

 

13,330

 

Total investments

 

 

1,144,521

 

 

 

1,084,474

 

Cash and cash equivalents

 

 

80,378

 

 

 

58,936

 

Amounts recoverable from reinsurers

 

 

84,958

 

 

 

83,666

 

Premiums receivable, net of allowance

 

 

185,497

 

 

 

183,005

 

Deferred income taxes

 

 

31,572

 

 

 

33,811

 

Accrued interest receivable

 

 

11,235

 

 

 

11,360

 

Property and equipment, net

 

 

6,320

 

 

 

6,636

 

Deferred policy acquisition costs

 

 

20,906

 

 

 

19,300

 

Other assets

 

 

17,861

 

 

 

37,668

 

Total assets

 

$

1,583,248

 

 

$

1,518,856

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Reserves for loss and loss adjustment expenses

 

$

755,026

 

 

$

742,776

 

Unearned premiums

 

 

165,820

 

 

 

162,028

 

Reinsurance premiums payable

 

 

 

 

 

28

 

Amounts held for others

 

 

35,604

 

 

 

31,974

 

Policyholder deposits

 

 

48,003

 

 

 

49,130

 

Insurance-related assessments

 

 

30,293

 

 

 

31,742

 

Federal income tax payable

 

 

1,909

 

 

 

4,017

 

Accounts payable and other liabilities

 

 

41,827

 

 

 

31,510

 

Payable for investments purchased

 

 

9,821

 

 

 

9,501

 

Total liabilities

 

 

1,088,303

 

 

 

1,062,706

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock:  voting—$0.01 par value authorized shares—50,000,000

   in 2017 and 2016; 20,502,273 and 20,488,385 shares issued and 19,244,023

   and 19,230,135  shares outstanding in 2017 and 2016, respectively

 

 

204

 

 

 

204

 

Additional paid-in capital

 

 

209,622

 

 

 

208,390

 

Treasury stock at cost (1,258,250 shares in 2017 and 2016)

 

 

(22,370

)

 

 

(22,370

)

Accumulated earnings

 

 

304,456

 

 

 

270,418

 

Accumulated other comprehensive income (loss), net

 

 

3,033

 

 

 

(492

)

Total shareholders’ equity

 

 

494,945

 

 

 

456,150

 

Total liabilities and shareholders’ equity

 

$

1,583,248

 

 

$

1,518,856

 

 

See accompanying notes.

4


 

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

87,035

 

 

$

88,837

 

 

$

269,152

 

 

$

292,443

 

Ceded premiums written

 

 

(1,992

)

 

 

(2,945

)

 

 

(6,581

)

 

 

(8,046

)

Net premiums written

 

$

85,043

 

 

$

85,892

 

 

$

262,571

 

 

$

284,397

 

Net premiums earned

 

$

85,118

 

 

$

89,918

 

 

$

258,779

 

 

$

276,607

 

Net investment income

 

 

7,788

 

 

 

8,006

 

 

 

21,969

 

 

 

20,251

 

Net realized gains (losses) on investments

 

 

(192

)

 

 

181

 

 

 

(761

)

 

 

974

 

Fee and other income

 

 

90

 

 

 

101

 

 

 

284

 

 

 

272

 

Total revenues

 

 

92,804

 

 

 

98,206

 

 

 

280,271

 

 

 

298,104

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses incurred

 

 

48,394

 

 

 

50,526

 

 

 

151,038

 

 

 

146,413

 

Underwriting and certain other operating costs

 

 

7,218

 

 

 

8,104

 

 

 

23,363

 

 

 

25,325

 

Commissions

 

 

6,030

 

 

 

6,362

 

 

 

18,424

 

 

 

19,731

 

Salaries and benefits

 

 

6,033

 

 

 

6,298

 

 

 

18,899

 

 

 

18,403

 

Policyholder dividends

 

 

1,573

 

 

 

889

 

 

 

4,107

 

 

 

3,195

 

Total expenses

 

 

69,248

 

 

 

72,179

 

 

 

215,831

 

 

 

213,067

 

Income before income taxes

 

 

23,556

 

 

 

26,027

 

 

 

64,440

 

 

 

85,037

 

Income tax expense

 

 

6,979

 

 

 

8,131

 

 

 

18,858

 

 

 

26,245

 

Net income

 

$

16,577

 

 

$

17,896

 

 

$

45,582

 

 

$

58,792

 

Net income available to common shareholders

 

$

16,577

 

 

$

17,896

 

 

$

45,582

 

 

$

58,792

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

 

$

0.94

 

 

$

2.38

 

 

$

3.08

 

Diluted

 

$

0.86

 

 

$

0.93

 

 

$

2.37

 

 

$

3.06

 

Shares used in computing earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,171,912

 

 

 

19,121,947

 

 

 

19,161,529

 

 

 

19,092,298

 

Diluted

 

 

19,236,114

 

 

 

19,190,191

 

 

 

19,235,955

 

 

 

19,186,398

 

Cash dividends declared per common share

 

$

0.20

 

 

$

0.18

 

 

$

0.60

 

 

$

0.54

 

 

See accompanying notes.

 

 

5


 

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

16,577

 

 

$

17,896

 

 

$

45,582

 

 

$

58,792

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities, net of tax

 

 

617

 

 

 

(1,713

)

 

 

3,525

 

 

 

4,009

 

Comprehensive income

 

$

17,194

 

 

$

16,183

 

 

$

49,107

 

 

$

62,801

 

 

See accompanying notes.

 

 

6


 

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Treasury Stock

 

 

Accumulated

Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total

 

 

 

Shares

 

 

Amounts

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

20,488,385

 

 

$

204

 

 

$

208,390

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

270,418

 

 

$

(492

)

 

$

456,150

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,582

 

 

 

3,525

 

 

 

49,107

 

Restricted common stock

   issued

 

 

13,888

 

 

 

 

 

 

396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

396

 

Share-based compensation

 

 

 

 

 

 

 

 

836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

836

 

Dividends to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,544

)

 

 

 

 

 

(11,544

)

Balance at September 30, 2017

 

 

20,502,273

 

 

$

204

 

 

$

209,622

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

304,456

 

 

$

3,033

 

 

$

494,945

 

 

See accompanying notes.

 

 

7


 

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

45,582

 

 

$

58,792

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

760

 

 

 

884

 

Net amortization of investments

 

 

10,815

 

 

 

12,306

 

Deferred income taxes

 

 

342

 

 

 

(532

)

Net realized (gains) losses on investments

 

 

761

 

 

 

(959

)

Net realized losses on disposal of assets

 

 

2

 

 

 

1

 

Share-based compensation

 

 

1,283

 

 

 

1,143

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Premiums receivable, net

 

 

(2,492

)

 

 

(15,623

)

Accrued interest receivable

 

 

125

 

 

 

(263

)

Deferred policy acquisition costs

 

 

(1,606

)

 

 

49

 

Amounts held by others

 

 

27,848

 

 

 

1,016

 

Other assets

 

 

(5,131

)

 

 

(2,929

)

Reserves for loss and loss adjustment expenses

 

 

12,250

 

 

 

18,243

 

Unearned premiums

 

 

3,792

 

 

 

7,790

 

Reinsurance balances

 

 

(1,320

)

 

 

(11,892

)

Amounts held for others and policyholder deposits

 

 

2,503

 

 

 

6,557

 

Accounts payable and other liabilities

 

 

6,813

 

 

 

8,285

 

Net cash provided by operating activities

 

 

102,327

 

 

 

82,868

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of investments held-to-maturity

 

 

(149,981

)

 

 

(102,830

)

Purchases of investments available-for-sale

 

 

(86,615

)

 

 

(161,482

)

Purchases of short-term investments

 

 

(53,789

)

 

 

(12,132

)

Proceeds from maturities of investments held-to-maturity

 

 

112,715

 

 

 

136,896

 

Proceeds from sales and maturities of investments available-for-sale

 

 

82,270

 

 

 

75,470

 

Proceeds from sales and maturities of short-term investments

 

 

17,610

 

 

 

8,033

 

Proceeds from redemptions of other investments

 

 

9,000

 

 

 

 

Purchases of property and equipment

 

 

(446

)

 

 

(1,091

)

Net cash used in investing activities

 

 

(69,236

)

 

 

(57,136

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

 

 

 

837

 

Tax benefit from share-based payments

 

 

 

 

 

976

 

Dividends to shareholders

 

 

(11,649

)

 

 

(10,414

)

Net cash used in financing activities

 

 

(11,649

)

 

 

(8,601

)

Change in cash and cash equivalents

 

 

21,442

 

 

 

17,131

 

Cash and cash equivalents at beginning of period

 

 

58,936

 

 

 

69,481

 

Cash and cash equivalents at end of period

 

$

80,378

 

 

$

86,612

 

 

See accompanying notes.

 

 

8


 

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1. Basis of Presentation

AMERISAFE, Inc. (the “Company”) is an insurance holding company incorporated in the state of Texas. The accompanying unaudited condensed consolidated financial statements include the accounts of AMERISAFE and its subsidiaries: American Interstate Insurance Company (“AIIC”) and its insurance subsidiaries, Silver Oak Casualty, Inc. (“SOCI”) and American Interstate Insurance Company of Texas (“AIICTX”), Amerisafe Risk Services, Inc. (“RISK”) and Amerisafe General Agency, Inc. (“AGAI”). AIIC and SOCI are property and casualty insurance companies organized under the laws of the state of Nebraska. AIICTX is a property and casualty insurance company organized under the laws of the state of Texas. RISK, a wholly owned subsidiary of the Company, is a claims and safety service company currently servicing only affiliated insurance companies. AGAI, a wholly owned subsidiary of the Company, is a general agent for the Company. AGAI sells insurance, which is underwritten by AIIC, SOCI and AIICTX, as well as by nonaffiliated insurance carriers. The assets and operations of AGAI are not significant to that of the Company and its consolidated subsidiaries.

The terms “AMERISAFE,” the “Company,” “we,” “us” or “our” refer to AMERISAFE, Inc. and its consolidated subsidiaries, as the context requires.

The Company provides workers’ compensation insurance for small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber, manufacturing, and agriculture. Assets and revenues of AIIC represent at least 95% of comparable consolidated amounts of the Company for each of 2017 and 2016.

In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, the results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934 and therefore do not include all information and footnotes to be in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Adopted Accounting Guidance

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting.  The new guidance requires that all tax effects related to share-based payments be made through the income statement at the time of settlement as opposed to recognizing excess tax benefits in additional paid-in capital.  It also requires the cash flows resulting from share-based payments to be included as an operating activity.  In addition to the changes, the guidance permits reporting entities to elect to estimate forfeitures related to share-based payments or recognize them as they occur.  The threshold to qualify for equity classification has also been revised to permit withholding up to the maximum statutory tax rates in the applicable jurisdictions.  The adoption of this new guidance in the first quarter of 2017 did not have a material impact on our financial condition and results of operations.

Prospective Accounting Guidance

In May 2014, the FASB Issued ASU 2014-09 (Topic 606): Revenue from Contracts with Customers.  The guidance revises the criteria for revenue recognition and requires that the revenue recognized reflect the transfer of promised goods or services to customers in an amount that represents the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard is effective for us in the first quarter of 2018.  Revenue from insurance contracts is excluded from the scope of the new guidance and as a result, adoption of this guidance is not expected to have a material impact on our financial condition and results of operations.

9


 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This guidance requires fair value measurement for equity investments (not including those that result in consolidation of the investee or use the equity method of accounting) and the recognition of changes in fair value to be presented as a component of net income.  The guidance also revises the disclosure requirements related to fair value changes of liabilities presented in comprehensive income, eliminates disclosure related to the methods and assumptions underlying fair value for financial instruments measured at amortized cost, and simplifies impairment assessments for equity investments without readily determinable fair values.  This standard is effective for us in the first quarter of 2018.  Based on the equity investments currently held by the Company, there would not be a material impact on the Company's financial condition and results of operations if the new guidance were to be adopted in the current accounting period. The impact on the Company's results of operations and financial position at the date of adoption of the updated guidance will be determined by the equity investments held by the Company and the economic conditions at that time.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the contract as a capital lease, are met.  The new guidance requires a lessee to recognize a lease liability and a right of use asset for all leases extending beyond twelve months.  The new guidance is effective for us in the first quarter of 2019.  Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach.  Adoption of the guidance is not expected to have a material effect on the Company’s consolidated financial statements as the Company does not have any significant leases.  

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses.  The new guidance replaces the methodology of credit loss impairment which currently delays the recognition of credit losses until a probable loss has been incurred.  The new guidance requires credit losses for securities measured at amortized cost to be determined using current expected credit loss estimates.  These estimates are to be derived from historical, current and reasonable supporting forecasts, including prepayments and estimates, and will be recorded through a valuation allowance account that will run through the income statement.  The same method will be used for available-for-sale securities, but the valuation allowance will be limited to the amount by which the fair value is below amortized cost.  The standard is effective for us in the first quarter of 2020.  The Company will continue to monitor the impact as the implementation date approaches.

All other issued but not yet effective accounting and reporting standards as of September 30, 2017 are either not applicable to the Company or are not expected to have a material impact on the Company.

 

 

Note 2. Stock Options and Restricted Stock

As of September 30, 2017, the Company has three equity incentive plans: the AMERISAFE 2005 Equity Incentive Plan (the “2005 Incentive Plan”), the AMERISAFE Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) and the AMERISAFE 2012 Equity and Incentive Compensation Plan (the “2012 Incentive Plan”). In connection with the approval of the 2012 Incentive Plan by the Company’s shareholders, no further grants will be made under the 2005 Incentive Plan.  All grants made under the 2005 Incentive plan continue in effect, subject to the terms and conditions of the 2005 Incentive Plan. See Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for additional information regarding the Company’s incentive plans.

During the nine months ended September 30, 2017, the Company granted 7,434 and 6,454 shares of restricted common stock to executive officers and non-employee directors, respectively.  The market value of the restricted shares granted totaled $0.7 million.  During the nine months ended September 30, 2016, the Company granted 27,077 and 5,952 shares of restricted common stock to executive officers and non-employee directors, respectively. The market value of the restricted shares granted totaled $1.9 million.

During the nine months ended September 30, 2017, no options to purchase shares of common stock were exercised. During the nine months ended September 30, 2016, options to purchase 68,879 shares of common stock were exercised. In connection with these exercises, the Company received $0.8 million of stock option proceeds.

The Company recognized share-based compensation expense of $0.3 million in the quarters ended September 30, 2017 and 2016.  The Company recognized share-based compensation expense of $1.3 million in the nine months ended September 30, 2017 and $1.1 million for the same period of 2016.

 

 

10


 

Note 3. Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with FASB Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. The Company has no participating unvested common shares which contain nonforfeitable rights to dividends and applies the treasury stock method in computing basic and diluted earnings per share.

Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period.

The diluted EPS calculation includes potential common shares assumed issued under the treasury stock method, which reflects the potential dilution that would occur if any outstanding options or warrants were exercised or restricted stock becomes vested, and includes the “if converted” method for participating securities if the effect is dilutive.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands, except share and per share amounts)

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders - basic

 

$

16,577

 

 

$

17,896

 

 

$

45,582

 

 

$

58,792

 

Basic weighted average common shares

 

 

19,171,912

 

 

 

19,121,947

 

 

 

19,161,529

 

 

 

19,092,298

 

Basic earnings per common share

 

$

0.86

 

 

$

0.94

 

 

$

2.38

 

 

$

3.08

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders - diluted

 

$

16,577

 

 

$

17,896

 

 

$

45,582

 

 

$

58,792

 

Diluted weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

 

19,171,912

 

 

 

19,121,947

 

 

 

19,161,529

 

 

 

19,092,298

 

Stock options and restricted stock

 

 

64,202

 

 

 

68,244

 

 

 

74,426

 

 

 

94,100

 

Diluted weighted average common shares

 

 

19,236,114

 

 

 

19,190,191

 

 

 

19,235,955

 

 

 

19,186,398

 

Diluted earnings per common share

 

$

0.86

 

 

$

0.93

 

 

$

2.37

 

 

$

3.06

 

 

 

Note 4. Investments

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at September 30, 2017 are summarized as follows:

 

 

 

Amortized Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

States and political subdivisions

 

$

430,470

 

 

$

10,348

 

 

$

(573

)

 

$

440,245

 

Corporate bonds

 

 

121,942

 

 

 

498

 

 

 

(192

)

 

 

122,248

 

U.S. agency-based mortgage-backed securities

 

 

10,928

 

 

 

750

 

 

 

(2

)

 

 

11,676

 

U.S. Treasury securities and obligations of U.S.

   government agencies

 

 

33,672

 

 

 

642

 

 

 

(94

)

 

 

34,220

 

Asset-backed securities

 

 

1,646

 

 

 

132

 

 

 

(16

)

 

 

1,762

 

Totals

 

$

598,658

 

 

$

12,370

 

 

$

(877

)

 

$

610,151

 

 

11


 

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at September 30, 2017 are summarized as follows:

 

 

 

Cost or

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(in thousands)

 

Fixed maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

236,666

 

 

$

6,229

 

 

$

(1,243

)

 

$

241,652

 

Corporate bonds

 

 

151,339

 

 

 

699

 

 

 

(54

)

 

 

151,984

 

U.S. agency-based mortgage-backed securities

 

 

13,408

 

 

 

8

 

 

 

(748

)

 

 

12,668

 

U.S. Treasury securities and obligations of U.S.

     government agencies

 

 

61,479

 

 

 

71

 

 

 

(598

)

 

 

60,952

 

Total fixed maturity

 

 

462,892

 

 

 

7,007

 

 

 

(2,643

)

 

 

467,256

 

Equity securities

 

 

7,499

 

 

 

302

 

 

 

 

 

 

7,801

 

Other investments

 

 

1,000

 

 

 

280

 

 

 

 

 

 

1,280

 

Totals

 

$

471,391

 

 

$

7,589

 

 

$

(2,643

)

 

$

476,337

 

 

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2016 are summarized as follows:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(in thousands)

 

States and political subdivisions

 

$

394,875

 

 

$

7,622

 

 

$

(3,014

)

 

$

399,483

 

Corporate bonds

 

 

143,858

 

 

 

423

 

 

 

(265

)

 

 

144,016

 

Commercial mortgage-backed securities

 

 

70

 

 

 

 

 

 

 

 

 

70

 

U.S. agency-based mortgage-backed securities

 

 

9,967

 

 

 

948

 

 

 

 

 

 

10,915

 

U.S. Treasury securities and obligations

   of U.S. government agencies

 

 

11,737

 

 

 

746

 

 

 

(67

)

 

 

12,416

 

Asset-backed securities

 

 

1,927

 

 

 

163

 

 

 

(59

)

 

 

2,031

 

Totals

 

$

562,434

 

 

$

9,902

 

 

$

(3,405

)

 

$

568,931

 

 

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2016 are summarized as follows:

 

 

 

Cost or

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(in thousands)

 

Fixed maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

231,168

 

 

$

4,340

 

 

$

(3,215

)

 

$

232,293

 

Corporate bonds

 

 

182,350

 

 

 

436

 

 

 

(271

)

 

 

182,515

 

U.S. agency-based mortgage-backed securities

 

 

10,428

 

 

 

17

 

 

 

(1,103

)

 

 

9,342

 

U.S. Treasury securities and obligations

   of U.S. government agencies

 

 

55,925

 

 

 

 

 

 

(978

)

 

 

54,947

 

Total fixed maturity

 

 

479,871

 

 

 

4,793

 

 

 

(5,567

)

 

 

479,097

 

Equity securities

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Other investments

 

 

10,000

 

 

 

3,330