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EX-32.1 - EXHIBIT 32.1 - Investors Heritage Capital Corpex_100033.htm
EX-31.2 - EXHIBIT 31.2 - Investors Heritage Capital Corpex_100032.htm
EX-31.1 - EXHIBIT 31.1 - Investors Heritage Capital Corpex_100031.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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

 


 

000-01999

(Commission file number)

 

INVESTORS HERITAGE CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

KENTUCKY

 

61-6030333

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

200 Capital Avenue,

Frankfort, Kentucky 40602

(Address of principal executive offices)

 

(502) 223-2361

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 (Section 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, 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.

 

  Large accelerated filer   

Accelerated filer   ☐

  Non-accelerated filer (Do not check if a smaller reporting company)

Smaller reporting company   ☒

       

Emerging growth company   ☐

 

1

 

 

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 ☒

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Capital Stock par value $1.00 per share

(Title of Class)

 

Number of outstanding shares as of November 14, 2017 - 1,111,015.345

 

2

 

 

CONTENTS

 

 

PART I – FINANCIAL INFORMATION

   

Page

ITEM 1.

Condensed Consolidated Financial Statements

4

ITEM 2.

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

28

ITEM 4.

Controls and Procedures

40

     
     
     

PART II – OTHER INFORMATION

     

ITEM 1.

Legal Proceedings

41

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

ITEM 3.

Defaults Upon Senior Securities

41

ITEM 4.

Mine Safety Disclosures

41

ITEM 5.

Other Information

41

ITEM 6.

Exhibits

42

     
     

SIGNATURES

 

42

     

EXHIBIT 31.1

 

 

EXHIBIT 31.2

 

 

EXHIBIT 32

 

 

 

3

 

 

 

PART I – FINANCIAL INFORMATION

 

 

ITEM 1. Condensed Consolidated Financial Statements

 

INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Balance Sheets

 

   

(Unaudited)

         
   

September 30,

   

December 31,

 

 

 

2017

   

2016

 

ASSETS

           

Investments:

               

Securities available-for-sale, at fair value:

               

Fixed maturities (amortized cost: $355,672,429 and $350,196,848)

  $ 374,330,586     $ 365,949,349  

Equity securities (cost: $9,081,785 and $8,080,073)

    10,681,755       9,154,718  

Mortgage loans on real estate

    39,216,439       41,302,392  

Policy loans

    6,386,451       6,336,277  

State-guaranteed receivables

    11,367,127       11,584,681  

Investments in convertible options

    1,323,070       983,950  

Other invested assets

    957,262       1,951,830  

Total investments

    444,262,690       437,263,197  

Cash and cash equivalents

    2,574,709       3,297,917  

Accrued investment income

    4,066,419       4,433,680  

Due premiums

    2,798,969       2,768,774  

Deferred acquisition costs

    15,100,954       15,712,181  

Value of business acquired

    109,535       155,264  

Leased property under capital leases

    51,285       75,841  

Property and equipment, net

    971,505       915,494  

Cash value of company-owned life insurance

    14,587,713       13,855,560  

Other assets

    2,469,489       2,435,867  

Amounts recoverable from reinsurers

    93,008,718       98,444,173  

Total assets

  $ 580,001,986     $ 579,357,948  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES

               

Policy liabilities:

               

Benefit reserves

  $ 487,920,368     $ 492,963,963  

Unearned premium reserves

    7,840,825       8,100,042  

Policy claims

    2,207,664       2,637,220  

Liability for deposit-type contracts

    3,344,562       3,351,107  

Reserves for dividends and endowments and other

    368,361       384,401  

Total policy liabilities

    501,681,780       507,436,733  

Deferred federal income tax liability

    4,718,218       3,256,943  

Obligations under capital leases

    45,595       72,209  

Notes payable

    317,508       971,851  

Accrued pension liability

    5,699,728       6,021,264  

Deferred revenue on reinsurance ceded

    1,315,759       1,431,647  

Other liabilities

    7,071,897       3,982,356  

Total liabilities

    520,850,485       523,173,003  
                 

STOCKHOLDERS' EQUITY

               

Common stock (shares issued: 1,109,666 and 1,106,351)

    1,109,666       1,106,351  

Paid-in surplus

    8,913,360       8,913,360  

Accumulated other comprehensive income

    8,074,349       5,493,892  

Retained earnings

    41,054,126       40,671,342  

Total stockholders' equity

    59,151,501       56,184,945  

Total liabilities and stockholders' equity

  $ 580,001,986     $ 579,357,948  

 

See notes to condensed consolidated financial statements.

 

4

 

  

INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Income Statements (Unaudited)

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

REVENUE

                               

Premiums and other considerations

  $ 12,531,336     $ 13,836,244     $ 38,210,867     $ 39,545,191  

Premiums ceded

    (2,646,279 )     (2,935,363 )     (7,429,219 )     (8,195,013 )

Net premiums

    9,885,057       10,900,881       30,781,648       31,350,178  
                                 

Investment income, net of expenses

    5,003,475       5,330,853       14,989,671       16,330,658  

Net realized gains (losses) on investments:

                               

Total other-than-temporary impairment losses

    -       (118,267 )     -       (118,267 )

Other net realized investment gains

    424,795       1,046,183       673,483       1,620,472  

Total net realized gains on investments

    424,795       927,916       673,483       1,502,205  

Other income

    605,538       409,186       1,730,672       1,142,095  

Total revenue

    15,918,865       17,568,836       48,175,474       50,325,136  
                                 

BENEFITS AND EXPENSES

                               

Death and other benefits

    10,988,211       10,363,008       35,577,458       32,324,120  

Guaranteed annual endowments

    88,966       91,569       294,174       304,657  

Dividends to policyholders

    69,040       73,603       226,465       230,792  

Increase in benefit reserves and unearned premiums

    312,181       1,652,885       122,245       3,550,345  

Acquisition costs deferred

    (1,159,772 )     (1,256,830 )     (3,454,821 )     (3,621,389 )

Amortization of deferred acquisition costs

    1,416,947       1,497,933       4,037,243       4,410,013  

Commissions

    756,128       829,201       2,391,201       2,356,672  

Other general and administrative expenses

    2,438,558       2,658,821       8,094,348       8,407,300  

Total benefits and expenses

    14,910,259       15,910,190       47,288,313       47,962,510  
                                 

INCOME BEFORE FEDERAL INCOME TAXES

    1,008,606       1,658,646       887,161       2,362,626  
                                 

PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES

                               

Current

    12,745       347,532       89,843       544,151  

Deferred

    239,407       (287,264 )     131,948       (307,888 )

Total federal income taxes

    252,152       60,268       221,791       236,263  
                                 

NET INCOME

  $ 756,454     $ 1,598,378     $ 665,370     $ 2,126,363  
                                 

BASIC AND DILUTED NET INCOME PER SHARE

  $ 0.68     $ 1.44     $ 0.60     $ 1.91  
                                 

DIVIDENDS PER SHARE

  $ -     $ -     $ 0.25     $ 0.21  

 

See notes to condensed consolidated financial statements.

 

5

 

 

INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

NET INCOME

  $ 756,454     $ 1,598,378     $ 665,370     $ 2,126,363  
                                 

OTHER COMPREHENSIVE INCOME (LOSS):

                               

Change in net unrealized gains (losses) on available-for-sale securities:

                               

Unrealized holding gains (losses) arising during period

    (62,820 )     1,565,397       3,965,776       21,823,115  

Reclassification adjustment for gains included in income

    (412,924 )     (927,916 )     (534,795 )     (1,492,973 )

Adjustment for effects of deferred acquisition costs

    61,873       (87,465 )     (28,804 )     (586,423 )

Net unrealized gains (losses) on investments

    (413,871 )     550,016       3,402,177       19,743,719  

Change in defined benefit pension plan:

                               

Amortization of actuarial net loss in net periodic pension cost

    169,202       184,293       507,607       552,880  
                                 

Other comprehensive income (loss) before income taxes

    (244,669 )     734,309       3,909,784       20,296,599  
                                 

Income tax expense (benefit)

    (83,186 )     249,666       1,329,327       6,900,844  
                                 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES

    (161,483 )     484,643       2,580,457       13,395,755  
                                 

COMPREHENSIVE INCOME

  $ 594,971     $ 2,083,021     $ 3,245,827     $ 15,522,118  

 

See notes to condensed consolidated financial statements.

 

6

 

 

INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

 

                   

Accumulated

                 
                   

Other

           

Total

 
   

Common

   

Paid-in

   

Comprehensive

   

Retained

   

Stockholders'

 
   

Stock

   

Surplus

   

Income

   

Earnings

   

Equity

 
                                         

BALANCE, JANUARY 1, 2016

  $ 1,117,647     $ 8,913,360     $ 757,161     $ 38,462,834     $ 49,251,002  
                                         

Net income

    -       -       -       2,126,363       2,126,363  

Other comprehensive income, net

    -       -       13,395,755       -       13,395,755  

Cash dividends

    -       -       -       (234,706 )     (234,706 )

Repurchases of common stock, net

    (10,941 )     -       -       (211,162 )     (222,103 )

BALANCE, SEPTEMBER 30, 2016

  $ 1,106,706     $ 8,913,360     $ 14,152,916     $ 40,143,329     $ 64,316,311  
                                         

BALANCE, JANUARY 1, 2017

  $ 1,106,351     $ 8,913,360     $ 5,493,892     $ 40,671,342     $ 56,184,945  
                                         

Net income

    -       -       -       665,370       665,370  

Other comprehensive income, net

    -       -       2,580,457       -       2,580,457  

Cash dividends

    -       -       -       (279,271 )     (279,271 )

Issuances of common stock, net

    3,315       -       -       (3,315 )     -  

BALANCE, SEPTEMBER 30, 2017

  $ 1,109,666     $ 8,913,360     $ 8,074,349     $ 41,054,126     $ 59,151,501  

 

See notes to condensed consolidated financial statements.

 

7

 

 

INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   

Nine Months Ended September 30,

 
   

2017

   

2016

 
                 
                 

NET CASH PROVIDED BY OPERATING ACTIVITIES

  $ 825,486     $ 3,916,385  
                 

INVESTING ACTIVITIES

               

Purchases of available-for-sale securities

    (33,336,816 )     (19,875,700 )

Sales of available-for-sale securities

    6,300,505       55,563,518  

Maturities of available-for-sale securities

    21,182,849       17,111,207  

Acquisitions of mortgage loans on real estate

    (6,934,650 )     (17,126,902 )

Payments of mortgage loans on real estate

    8,898,402       9,875,929  

Purchases of state-guaranteed receivables

    -       (2,753,509 )

Payments of state-guaranteed receivables

    793,530       629,530  

Purchases of convertible options

    (278,631 )     (62,185 )

Sales and exchanges of convertible options

    324,557       10,536  

Net change in payable (receivable) for securities

    1,778,840       20,541  

Net reductions of other investments

    944,394       644,141  

Net additions to property and equipment

    (156,887 )     (40,459 )
                 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

    (483,907 )     43,996,647  

FINANCING ACTIVITIES

               

Policyholder account deposits

    1,755,599       3,428,616  

Policyholder account withdrawals

    (1,886,772 )     (6,318,742 )

Payments on notes payable

    (2,398,673 )     (2,065,106 )

Proceeds from notes payable

    1,744,330       1,790,974  

Dividends paid

    (279,271 )     (234,706 )

Repurchases of common stock, net

    -       (222,103 )
                 

NET CASH USED IN FINANCING ACTIVITIES

    (1,064,787 )     (3,621,067 )

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    (723,208 )     44,291,965  

Cash and cash equivalents at beginning of period

    3,297,917       3,619,663  

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 2,574,709     $ 47,911,628  

 

See notes to condensed consolidated financial statements.

 

8

 

 

INVESTORS HERITAGE CAPITAL CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

 

NOTE 1 - Nature of Operations

Investors Heritage Capital Corporation is the holding company of Investors Heritage Life Insurance Company; Investors Heritage Printing, Inc., a printing company; Investors Heritage Financial Services Group, Inc., an insurance marketing company; is the sole member of At Need Funding, LLC, a limited liability company that provides advance funding of funerals in exchange for the irrevocable assignment of life insurance policies from other nonaffiliated companies; and is the sole member of Heritage Funding, LLC, a limited liability company that invests in various business ventures. These entities are collectively hereinafter referred to as the “Company”. In excess of 99% of Investors Heritage Capital’s consolidated revenue is generated by Investors Heritage Life.

 

Our principal operations involve the sale and administration of various insurance and annuity products, including, but not limited to, participating and non-participating whole life, limited pay life, universal life, annuity contracts, credit life, credit accident and health and group insurance policies. Investors Heritage Life is currently licensed in 37 states. The principal markets for the Company’s products are in Kentucky, North Carolina, Tennessee, Georgia, Ohio, Virginia, Indiana, Michigan, Texas, South Carolina, Pennsylvania and Illinois.

 

NOTE 2 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2016, as included in our Annual Report on Form 10-K.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Certain reclassifications have been made to the prior period financial statements and footnotes shown herein to conform to current period presentation. These reclassifications had no effect on previously reported net income or stockholders’ equity.

 

Management has evaluated all events subsequent to September 30, 2017 through the date that these financial statements have been issued.

 

NOTE 3 – New Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board (“the FASB”) issued new guidance shortening the amortization period for the premium component of callable debt securities purchased at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. The guidance will be effective for us on January 1, 2019, with early adoption permitted. We are in process of evaluating the impact the guidance may have on the Company’s consolidated financial statements.

 

9

 

 

In March 2017, the FASB issued updated guidance to improve the presentation of net periodic pension cost and net periodic postretirement cost. This guidance requires that an employer disaggregate the service cost component from the other components of net benefit cost. This guidance also provides explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The guidance will be effective for us on January 1, 2018, with early adoption permitted. We are in process of evaluating the impact the guidance will have on the Company’s consolidated financial statements.

 

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent to the Company at this time or were not expected to have a material impact to the consolidated financial statements. Refer to the footnotes to the consolidated financial statements for the year ended December 31, 2016, as included in our Annual Report on Form 10-K, for previously issued standards that have not yet been adopted that are considered applicable to the Company’s current operations.

 

10

 

 

NOTE 4 – Investments

Investments in available-for-sale securities are summarized as follows:

 

September 30, 2017

 

Amortized

   

Gross

Unrealized

   

Gross

Unrealized

   

Fair

 
   

Cost

    Gains     Losses    

Value

 

Available-for-sale securities:

                               

Fixed maturities:

                               

U.S. government obligations

  $ 21,299,421     $ 297,174     $ -     $ 21,596,595  

States and political subdivisions

    30,679,646       4,596,685       -       35,276,331  

Corporate

    209,814,274       10,237,411       612,544       219,439,141  

Foreign

    56,017,357       2,738,389       11,441       58,744,305  

Mortgage-backed securities (MBS):

                               

Commercial MBS

    8,699,078       230,007       -       8,929,085  

Residential MBS

    28,694,355       1,283,880       37,385       29,940,850  

Corporate redeemable preferred stock

    468,298       44,694       108,713       404,279  

Total fixed maturity securities

    355,672,429       19,428,240       770,083       374,330,586  

Equity securities:

                               

U.S. agencies

    707,900       -       -       707,900  

Mutual funds

    318,284       71,255       -       389,539  

Corporate common stock

    7,667,125       1,805,888       329,222       9,143,791  

Corporate nonredeemable preferred stock

    388,476       52,049       -       440,525  

Total equity securities

    9,081,785       1,929,192       329,222       10,681,755  

Total

  $ 364,754,214     $ 21,357,432     $ 1,099,305     $ 385,012,341  

 

December 31, 2016

 

Amortized

   

Gross

Unrealized

   

Gross

Unrealized

   

Fair

 
   

Cost

    Gains     Losses    

Value

 

Available-for-sale securities:

                               

Fixed maturities:

                               

U.S. government obligations

  $ 21,882,312     $ 360,723     $ 9,416     $ 22,233,619  

States and political subdivisions

    35,403,214       4,153,294       31,260       39,525,248  

Corporate

    202,578,595       9,355,481       953,527       210,980,549  

Foreign

    51,081,850       1,731,092       283,363       52,529,579  

Mortgage-backed securities (MBS):

                               

Commercial MBS

    6,717,214       198,857       -       6,916,071  

Residential MBS

    32,065,365       1,314,373       72,741       33,306,997  

Corporate redeemable preferred stock

    468,298       14,140       25,152       457,286  

Total fixed maturity securities

    350,196,848       17,127,960       1,375,459       365,949,349  

Equity securities:

                               

U.S. agencies

    707,900       -       -       707,900  

Mutual funds

    318,284       28,840       -       347,124  

Corporate common stock

    6,665,413       1,370,651       335,020       7,701,044  

Corporate nonredeemable preferred stock

    388,476       10,174       -       398,650  

Total equity securities

    8,080,073       1,409,665       335,020       9,154,718  

Total

  $ 358,276,921     $ 18,537,625     $ 1,710,479     $ 375,104,067  

 

11

 

 

The following table summarizes, for all securities in an unrealized loss position as of the balance sheet dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.

 

   

September 30, 2017

   

December 31, 2016

 
           

Gross

   

Number

           

Gross

   

Number

 
   

Estimated

   

Unrealized

   

of

   

Estimated

   

Unrealized

   

of

 
   

Fair Value

   

Loss

   

Securities

   

Fair Value

   

Loss

   

Securities

 

Fixed maturities:

                                               

Less than 12 months:

                                               

U.S. government obligations

  $ -     $ -       -     $ 7,892,992     $ 9,416       2  

States and political subdivisions

    -       -       -       968,740       31,260       1  

Corporate

    20,841,110       560,459       17       30,370,227       753,570       27  

Foreign

    1,141,012       11,441       5       10,215,322       283,355       11  

Residential MBS

    2,785,924       37,385       3       3,003,214       72,741       2  

Corporate redeemable preferred stock

    -       -       -       17,488       493       1  

Greater than 12 months:

                                               

Corporate

    3,091,141       52,085       4       2,997,784       199,957       2  

Foreign

    -       -       -       197,700       8       1  

Corporate redeemable preferred stock

    139,349       108,713       1       205,423       24,659       1  

Total fixed maturities

    27,998,536       770,083       30       55,868,890       1,375,459       48  
                                                 

Equity securities:

                                               

Less than 12 months:

                                               

Corporate common stock

    1,259,585       285,763       10       1,004,821       136,117       6  

Greater than 12 months:

                                               

Corporate common stock

    150,285       43,459       2       873,083       198,903       7  

Total equities

    1,409,870       329,222       12       1,877,904       335,020       13  
                                                 

Total

  $ 29,408,406     $ 1,099,305       42     $ 57,746,794     $ 1,710,479       61  

 

At September 30, 2017, 99.9% of the fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80%, and 98.1% of the equity securities portfolio had a fair value to cost ratio of greater than 80%. At December 31, 2016, 100% of the fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80%, and 94.3% of the equity securities portfolio had a fair value to cost ratio of greater than 80%.

 

The Company’s decision to record an impairment loss is primarily based on whether the security’s fair value is likely to remain significantly below its book value in light of all the factors considered. Factors that are considered include the length of time the security’s fair value has been below its carrying amount, the severity of the decline in value, the credit worthiness of the issuer, and the coupon and/or dividend payment history of the issuer. The Company also assesses whether it intends to sell or whether it is more likely than not that it may be required to sell the security prior to its recovery in value. For any fixed maturity securities that are other-than-temporarily impaired, the Company determines the portion of the other-than-temporary impairment that is credit-related and the portion that is related to other factors. The credit-related portion is the difference between the expected future cash flows and the amortized cost basis of the fixed maturity security, and that difference is charged to earnings. The non-credit-related portion representing the remaining difference to fair value is recognized in other comprehensive income (loss). Only in the case of a credit-related impairment where management has the intent to sell the security, or it is more likely than not that it will be required to sell the security before recovery of its cost basis, is a fixed maturity security adjusted to fair value and the resulting losses recognized in realized gains/losses in the consolidated statements of income. Any other-than-temporary impairments on equity securities are recorded in the consolidated statements of income in the periods incurred as the difference between fair value and cost.

 

12

 

 

Based on our review, the Company experienced no other-than-temporary impairments during the quarter or nine months ended September 30, 2017. During the quarter ended September 30, 2016, the Company recognized an other-than-temporary impairment on one real estate common stock totaling $118,267. This stock was sold during the quarter ended September 30, 2017 resulting in a realized gain of $21,679. The Company experienced no additional other-than-temporary impairments during the quarter or nine months ended September 30, 2016.

 

Management believes that the Company will fully recover its cost basis in the securities held at September 30, 2017, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate and economic environment rather than credit factors that would imply other-than-temporary impairment.

 

Net unrealized gains for investments classified as available-for-sale are presented below, net of the effect on deferred income taxes and deferred acquisition costs assuming that the appreciation had been realized.

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Net unrealized appreciation on available-for sale securities

  $ 20,258,127     $ 16,827,146  

Adjustment to deferred acquisition costs

    (489,888 )     (461,084 )

Deferred income taxes

    (6,721,202 )     (5,564,461 )

Net unrealized appreciation on available-for sale securities

  $ 13,047,037     $ 10,801,601  

 

 

The amortized cost and fair value of fixed maturity securities at September 30, 2017, by contractual maturity, are presented below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   

Available-for-Sale

 
   

Amortized

   

Fair

 
   

Cost

   

Value

 

Due in one year or less

  $ 16,406,735     $ 16,718,204  

Due after one year through five years

    103,138,732       108,767,451  

Due after five years through ten years

    134,265,906       139,780,380  

Due after ten years

    45,023,343       50,648,429  

Due at multiple maturity dates

    56,369,415       58,011,843  

Corporate redeemable preferred stock

    468,298       404,279  

Total

  $ 355,672,429     $ 374,330,586  

 

 

Proceeds from sales and maturities of investments in available-for-sale securities, as well as gross gains and gross losses realized, are presented below.

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Proceeds from sales and maturities

  $ 9,352,441     $ 45,275,073     $ 27,483,354     $ 72,674,725  

Gross realized gains

    464,170       1,772,703       594,355       2,345,537  

Gross realized losses

    (51,246 )     (844,787 )     (59,560 )     (852,564 )

 

13

 

 

The table below shows the change in net unrealized investment gains (losses) and the amount of realized investment gains (losses) on fixed maturities and equity securities in addition to realized investment gains on mortgage loans.

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Change in net unrealized investment gains (losses):

                               

Securities available-for-sale:

                               

Fixed maturities

  $ (246,776 )   $ 670,151     $ 2,905,656     $ 19,459,568  

Equity securities

    (228,968 )     (32,670 )     525,325       870,574  

Net realized investment gains (losses):

                               

Securities available-for-sale:

                               

Fixed maturities

  $ (6,332 )   $ 880,055     $ 102,508     $ 1,445,112  

Equity securities

    419,256       47,861       432,287       47,861  

Investments in convertible options

    11,871       -       138,688       9,232  

 

 

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At September 30, 2017 and December 31, 2016, these required deposits had a total fair value of $20,459,290 and $22,724,783, respectively.

 

The Company also engages in commercial and residential mortgage lending. As of September 30, 2017, investments in commercial and residential properties comprised 25.5% and 74.5%, respectively, of the Company’s mortgage portfolio. At December 31, 2016, investments in commercial and residential properties comprised 26.2% and 73.8%, respectively, of the Company’s mortgage portfolio.

 

All commercial mortgage loans are either originated in-house or through two mortgage brokers, are secured by first mortgages on the real estate and generally carry personal guarantees by the borrowers. Loan-to-value ratios of 80% or less and debt service coverage from existing cash flows of 115% or higher are generally required. We minimize credit risk in our mortgage loan portfolio through various methods, including stringently underwriting the loan request, maintaining small average loan balances, and reviewing larger mortgage loans on an annual basis.

 

The Company purchases single family residential mortgage loans through the secondary market. Each mortgage loan opportunity is reviewed individually, considering both the value of the underlying property and the credit worthiness of the borrower. We utilize third party servicers to administer these loans.

 

At September 30, 2017 and December 31, 2016, there were no non-performing loans, loans past due by more than 90 days, loans on nonaccrual status, loans in process of foreclosure, or restructured loans. The Company experienced no mortgage loan defaults during the quarters or nine months ended September 30, 2017 and 2016.

 

14

 

 

The Company’s investments in mortgage loans, by state, are as follows:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Ohio

  $ 8,175,611     $ 3,083,440  

Texas

    4,306,175       5,191,186  

Florida

    4,226,742       5,253,110  

Illinois

    3,955,293       4,787,454  

Missouri

    3,388,345       3,107,289  

California

    3,253,601       3,591,584  

Georgia

    3,147,841       3,487,991  

Kentucky

    2,095,494       2,402,800  

Arizona

    921,290       1,490,538  

New Jersey

    723,839       1,196,156  

North Carolina

    691,257       757,004  

Virginia

    665,092       800,635  

Tennessee

    650,725       1,048,452  

Indiana

    643,813       893,431  

Nevada

    474,417       479,182  

Pennsylvania

    464,273       479,720  

Colorado

    446,489       1,190,873  

Michigan

    222,939       126,750  

West Virginia

    194,091       225,578  

Utah

    158,094       343,533  

Massachusetts

    147,601       169,681  

Kansas

    133,590       134,396  

Idaho

    129,827       142,745  

Oregon

    -       487,824  

Washington

    -       231,939  

South Carolina

    -       199,101  

Total

  $ 39,216,439     $ 41,302,392  

 

 

The Company owns certain investments in state-guaranteed receivables. These investments represent an assignment of the future rights to cash flows from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries and guaranteed by the states. The state-guaranteed receivables are carried at their amortized cost basis on the balance sheet. At September 30, 2017, the amortized cost and estimated fair value of state-guaranteed receivables, by contractual maturity, are summarized as follows:

 

 

   

Amortized

   

Fair

 
   

Cost

   

Value

 

Due in one year or less

  $ 1,022,946     $ 1,035,816  

Due after one year through five years

    4,355,471       4,766,148  

Due after five years through ten years

    4,255,579       5,207,903  

Due after ten years

    1,733,131       2,834,198  

Total

  $ 11,367,127     $ 13,844,065  

 

15

 

 

The amortized cost of state-guaranteed receivables, by state, is summarized as follows:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

New York

  $ 3,273,829     $ 3,446,349  

Massachusetts

    3,206,661       3,126,011  

Georgia

    1,984,941       2,012,845  

Ohio

    1,044,953       1,177,425  

Washington

    681,865       653,235  

Indiana

    433,728       417,811  

Pennsylvania

    316,429       318,019  

Texas

    275,425       261,396  

California

    149,296       171,590  

Total

  $ 11,367,127     $ 11,584,681  

 

 

The Company holds certain investments in convertible fixed maturity and equity securities. Convertible securities feature an option allowing for a portion of the security to be converted into a common equity position of the underlying issuer in exchange for a lower coupon or preferred dividend rate. In accordance with FASB accounting guidance, this convertible feature must be bifurcated and reported separately on the balance sheet at fair value, with adjustments in fair value recognized in the income statement. Accordingly, the convertible options within our portfolio are reported as investments in convertible options on the balance sheet, and the mark-to-market adjustment associated with the changes in fair value of the convertible options are reported as gains (losses) on investments in convertible options as a component of net investment income. At September 30, 2017 and December 31, 2016, the total fair value of our investments in convertible options was $1,323,070 and $983,950, respectively. For the quarter and nine months ended September 30, 2017, we recognized a gain on our investments in convertible options of $152,936 and $246,358, respectively, relative to the mark-to-market adjustment. For the quarter and nine months ended September 30, 2016, we recognized a gain (loss) on our investments in convertible options of $99,192 and ($44,184), respectively, relative to the mark-to-market adjustment.

 

Major categories of net investment income are summarized as follows:

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Fixed maturities

  $ 4,031,648     $ 4,387,984     $ 12,254,682     $ 13,928,873  

Equity securities

    93,937       111,063       286,048       242,713  

Mortgage loans on real estate

    652,453       642,705       1,917,596       1,966,079  

Policy loans

    117,997       121,616       348,683       365,071  

State-guaranteed receivables

    188,546       172,946       575,976       480,469  

Gain (loss) on investments in convertible options

    152,936       99,192       246,358       (44,184 )

Other

    28,967       53,360       149,352       165,674  

Gross investment income

    5,266,484       5,588,866       15,778,695       17,104,695  

Investment expenses

    263,009       258,013       789,024       774,037  

Net investment income

  $ 5,003,475     $ 5,330,853     $ 14,989,671     $ 16,330,658  

 

 

NOTE 5 – Fair Values of Financial Instruments

The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in an orderly transaction between knowledgeable, unrelated, willing parties, i.e., not in a forced transaction.  The estimated fair value of a financial instrument may differ from the amount that could be realized if the security was sold in an immediate sale, e.g., a forced transaction.  Additionally, the valuation of investments is more subjective when markets are less liquid due to the lack of market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur.

 

16

 

 

The Company holds fixed maturities and equity securities that are measured and reported at fair market value on the balance sheet. The Company is also required to disclose fair value estimates for other financial instruments not required to be carried at market value on the balance sheet. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

 

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

 

Valuation of Investments Reported at Fair Value in Financial Statements

 

The Company’s Level 1 investments include equity securities that are traded in an active exchange market, as well as one U.S. agency equity security whose value is set by government statute.

 

The Company’s Level 2 investments include fixed maturities with quoted prices that are traded less frequently than exchange-traded instruments or instruments whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes the majority of our fixed maturities and preferred stocks, where fair values are obtained from a nationally recognized, third-party pricing service as well as our investments in convertible options. These options are bifurcated from the underlying fixed maturity investments and are also valued using observable market data obtained from a nationally recognized, third-party pricing service.

 

The Company’s Level 3 investments include financial instruments whose value cannot be obtained through a pricing service and must be determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category currently includes one private equity investment where independent pricing inputs were not able to be obtained. For fixed maturities that may fall within this level, the Company utilizes the assistance of its third-party investment advisor to estimate the fair value based on non-binding broker quotes and internal models using unobservable assumptions about market participants. For the private equity investment, the Company establishes fair value based on the most recent trading activity as well as a review of the underlying financial statements of the entity.

 

17

 

 

The following table presents the Company’s fair value hierarchy for those financial instruments measured and reported at fair value on a recurring basis.

 

   

September 30, 2017

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturities:

                               

U.S. government obligations

  $ -     $ 21,596,595     $ -     $ 21,596,595  

States and political subdivisions

    -       35,276,331       -       35,276,331  

Corporate

    -       219,439,141       -       219,439,141  

Foreign

    -       58,744,305       -       58,744,305  

Mortgage-backed securities:

                               

Commercial MBS

    -       8,929,085       -       8,929,085  

Residential MBS

    -       29,940,850       -       29,940,850  

Corporate redeemable preferred stock

    -       404,279       -       404,279  

Total fixed maturities

  $ -     $ 374,330,586     $ -     $ 374,330,586  
                                 

Equity securities:

                               

U.S. agencies

  $ 707,900     $ -     $ -     $ 707,900  

Mutual funds

    389,539       -       -       389,539  

Corporate common stock

    8,679,791       -       464,000       9,143,791  

Corporate nonredeemable preferred stock

    -       440,525       -       440,525  

Total equity securities

  $ 9,777,230     $ 440,525     $ 464,000     $ 10,681,755  
                                 

Investments in convertible options

  $ -     $ 1,323,070     $ -     $ 1,323,070  

 

   

December 31, 2016

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturities:

                               

U.S. government obligations

  $ -     $ 22,233,619     $ -     $ 22,233,619  

States and political subdivisions

    -       39,525,248       -       39,525,248  

Corporate

    -       210,980,549       -       210,980,549  

Foreign

    -       52,529,579       -       52,529,579  

Mortgage-backed securities:

                               

Commercial MBS

    -       6,916,071       -       6,916,071  

Residential MBS

    -       33,306,997       -       33,306,997  

Corporate redeemable preferred stock

    -       457,286       -       457,286  

Total fixed maturities

  $ -     $ 365,949,349     $ -     $ 365,949,349  
                                 

Equity securities:

                               

U.S. agencies

  $ 707,900     $ -     $ -     $ 707,900  

Mutual funds

    347,124       -       -       347,124  

Corporate common stock

    7,253,044       -       448,000       7,701,044  

Corporate nonredeemable preferred stock

    -       398,650       -       398,650  

Total equity securities

  $ 8,308,068     $ 398,650     $ 448,000     $ 9,154,718  
                                 

Investments in convertible options

  $ -     $ 983,950     $ -     $ 983,950  

 

18

 

 

The following table provides a summary of changes in fair value of our Level 3 financial instruments reported at fair value.

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Corporate common stock:

                               

Beginning balance

  $ 464,000     $ 448,000     $ 448,000     $ 352,000  

Transfers into Level 3

    -       -       -       -  

Transfers out of Level 3

    -       -       -       -  

Purchases

    -       -       -       -  

Sales

    -       -       -       -  

Total gains or losses:

                               

Included in earnings

    -       -       -       -  

Included in other comprehensive income

    -       -       16,000       96,000  

Ending balance

  $ 464,000     $ 448,000     $ 464,000     $ 448,000  

 

 

The Company experienced no transfers between Level 1 and Level 2 during the quarters or nine months ended September 30, 2017 or 2016. The Company experienced no transfers between Level 2 and Level 3 during the quarters or nine months ended September 30, 2017 or 2016. Transfers in and/or out of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs.

 

The unrealized gains on Level 3 investments are recorded as a component of accumulated other comprehensive income, net of tax, in accordance with required accounting for our available-for-sale portfolio.

 

19

 

 

Financial Instruments Disclosed, but not Carried, at Fair Value

 

The following disclosure presents the carrying values and estimated fair values of the Company’s financial instruments disclosed, but not carried, at fair value and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis. The fair values for insurance contracts other than investment-type contracts are not required to be disclosed. The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to interpret market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.

 

   

September 30, 2017

 
   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                                       

Mortgage loans on real estate:

                                       

Commercial

  $ 10,008,415     $ 10,132,174     $ -     $ -     $ 10,132,174  

Residential

    29,208,024       32,406,602       -       -       32,406,602  

Policy loans

    6,386,451       6,386,451       -       -       6,386,451  

State-guaranteed receivables

    11,367,127       13,844,065       -       13,844,065       -  

Other invested assets

    957,262       957,262       -       -       957,262  

Cash and cash equivalents

    2,574,709       2,574,709       2,574,709       -       -  

Accrued investment income

    4,066,419       4,066,419       -       -       4,066,419  

Cash value of company-owned life insurance

    14,587,713       14,587,713       -       -       14,587,713  
                                         

Liabilities:

                                       

Policyholder deposits (Investment-type contracts)

    50,025,946       49,441,522       -       -       49,441,522  

Policy claims

    2,207,664       2,207,664       -       -       2,207,664  

Obligations under capital leases

    45,595       45,595       -       -       45,595  

Notes payable

    317,508       317,508       -       -       317,508  

 

   

December 31, 2016

 
   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                                       

Mortgage loans on real estate:

                                       

Commercial

  $ 10,819,996     $ 11,084,097     $ -     $ -     $ 11,084,097  

Residential

    30,482,396       33,992,592       -       -       33,992,592  

Policy loans

    6,336,277       6,336,277       -       -       6,336,277  

State-guaranteed receivables

    11,584,681       13,938,824       -       13,938,824       -  

Other invested assets

    1,951,830       1,951,830       -       -       1,951,830  

Cash and cash equivalents

    3,297,917       3,297,917       3,297,917       -       -  

Accrued investment income

    4,433,680       4,433,680       -       -       4,433,680  

Cash value of company-owned life insurance

    13,855,560       13,855,560       -       -       13,855,560  
                                         

Liabilities:

                                       

Policyholder deposits (Investment-type contracts)

    51,870,288       51,304,889       -       -       51,304,889  

Policy claims

    2,637,220       2,637,220       -       -       2,637,220  

Obligations under capital leases

    72,209       72,209       -       -       72,209  

Notes payable

    971,851       971,851       -       -       971,851  

 

20

 

 

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying financial statements and notes thereto:

 

Mortgage loans on real estate: The fair values for mortgage loans are estimated using discounted cash flow analyses. For commercial mortgage loans, the discount rate was assumed to be the interest rate of the last commercial mortgage acquired by the Company. For residential mortgage loans, the discount rate was assumed to be the average yield on recent purchases less an expense factor.

 

State-guaranteed receivables: The fair values for state-guaranteed receivables are estimated using discounted cash flow analyses, using the average Citigroup Pension Liability Index in effect at the end of each period.

 

Cash and cash equivalents: The carrying amounts reported for these financial instruments approximate their fair values given the highly liquid nature of the instruments.

 

Cash value of company-owned life insurance: The carrying values and fair values for these policies are based on the current cash surrender values of the policies.

 

Investment-type contracts: The fair value for liabilities under investment-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

 

Notes payable: The fair values for notes payable with floating interest rates and promissory notes approximate the unpaid principal balances on such notes.

 

Policy loans, other invested assets, accrued investment income, policy claims and obligations under capital leases: The carrying values of these instruments approximate their fair values and are disclosed in Level 3 of the hierarchy.

 

NOTE 6 - Earnings per Share

Earnings per share of common stock were computed based on the weighted average number of common shares outstanding during each period. The weighted average number of shares outstanding for the quarters ended September 30, 2017 and 2016 were 1,109,666 and 1,106,710, respectively. The weighted average number of shares outstanding for the nine months ended September 30, 2017 and 2016 were 1,107,845 and 1,113,337, respectively.

 

21

 

 

NOTE 7 - Segment Data

The Company operates in four segments as shown in the following table. All segments include both individual and group insurance. Identifiable revenues, expenses and assets are assigned directly to the applicable segment. Net investment income, realized gains and losses, and invested assets are generally allocated to the insurance and the corporate segments in proportion to policy liabilities and stockholders' equity, respectively. Certain assets, such as property and equipment and leased property under capital leases, are allocated between the administrative and financial services segment and the corporate and other segment. Investors Heritage Financial revenue and income associated with credit administrative services is assigned to the administrative and financial services segment, along with fees relative to third party administrative services. Any remaining revenue and income is assigned to the corporate and other segment. Results for the parent company, Investors Heritage Printing, At Need Funding and Heritage Funding, after elimination of intercompany amounts, are allocated to the corporate and other segment.

 

   

Quarter Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenue:

                               

Preneed and burial products

  $ 12,673,559     $ 14,280,983     $ 38,950,962     $ 40,136,824  

Traditional and universal life products

    2,400,392       2,641,376       7,020,879       8,601,946  

Administrative and financial services

    496,321       364,967       1,373,296       1,045,289  

Corporate and other

    348,593       281,510       830,337       541,077  

Total revenue

  $ 15,918,865     $ 17,568,836     $ 48,175,474     $ 50,325,136  
                                 

Pre-tax income (loss) from operations:

                               

Preneed and burial products

  $ 409,870     $ 1,189,337     $ (11,498 )   $ 1,526,801  

Traditional and universal life products

    362,493       184,732       660,378       564,699  

Administrative and financial services

    127,293       142,640       346,183       267,796  

Corporate and other

    108,950       141,937       (107,902 )     3,330  

Total pre-tax income

  $ 1,008,606     $ 1,658,646     $ 887,161     $ 2,362,626  

 

 

NOTE 8 – Federal Income Taxes

The provision for federal income taxes is based on the estimated effective annual tax rate. Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Income before federal income taxes differs from taxable income principally due to the dividends-received deduction; the 404(k) dividend deduction; the small life insurance company tax deduction; nondeductible travel and entertainment expenses; amortization of deferred revenue on reinsurance ceded which was previously taxed at inception of the reinsurance agreement; and non-taxable effects of company-owned life insurance premiums, cash value growth, and death benefit proceeds.

 

We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Our 2014 through 2016 U.S. federal tax years remain subject to income tax examination by tax authorities. We have no known uncertain tax benefits within our provision for income taxes. In addition, we do not believe the Company will be subject to any penalties or interest relative to any open tax years and, therefore, have not accrued any such amounts. However, should such a circumstance arise, it is our policy to classify any interest and penalties (if applicable) as income tax expense in the consolidated financial statements.

 

22

 

 

NOTE 9Other Comprehensive Income (Loss)

The following tables present the pretax components of the Company’s other comprehensive income (loss), and the related income tax expense (benefit) for each component.

 

   

Quarter Ended September 30, 2017

 
           

Income Tax

         
           

Expense

         
   

Pretax

   

(Benefit)

   

Net of Tax

 

Other comprehensive income (loss):

                       

Change in net unrealized losses on available-for-sale securities:

                       

Unrealized holding losses arising during period

  $ (62,820 )   $ (21,358 )   $ (41,462 )

Reclassification adjustment for gains included in income

    (412,924 )     (140,394 )     (272,530 )

Adjustment for effect of deferred acquisition costs

    61,873       21,037       40,836  

Net unrealized losses on investments

    (413,871 )     (140,715 )     (273,156 )

Change in defined benefit pension plan:

                       

Amortization of actuarial net loss in net periodic pension cost

    169,202       57,529       111,673  
                         

Total other comprehensive loss

  $ (244,669 )   $ (83,186 )   $ (161,483 )

 

   

Quarter Ended September 30, 2016

 
           

Income Tax

         
           

Expense

         
   

Pretax

   

(Benefit)

   

Net of Tax

 

Other comprehensive income:

                       

Change in net unrealized gains on available-for-sale securities:

                       

Unrealized holding gains arising during period

  $ 1,565,397     $ 532,235     $ 1,033,162  

Reclassification adjustment for gains included in income

    (927,916 )     (315,492 )     (612,424 )

Adjustment for effect of deferred acquisition costs

    (87,465 )     (29,737 )     (57,728 )

Net unrealized gains on investments

    550,016       187,006       363,010  

Change in defined benefit pension plan:

                       

Amortization of actuarial net loss in net periodic pension cost

    184,293       62,660       121,633  
                         

Total other comprehensive income

  $ 734,309     $ 249,666     $ 484,643  

 

23

 

 

   

Nine Months Ended September 30, 2017

 
           

Income Tax

         
           

Expense

         
   

Pretax

   

(Benefit)

   

Net of Tax

 

Other comprehensive income:

                       

Change in net unrealized gains on available-for-sale securities:

                       

Unrealized holding gains arising during period

  $ 3,965,776     $ 1,348,364     $ 2,617,412  

Reclassification adjustment for gains included in income

    (534,795 )     (181,830 )     (352,965 )

Adjustment for effect of deferred acquisition costs

    (28,804 )     (9,793 )     (19,011 )

Net unrealized gains on investments

    3,402,177