UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q/A
Amendment No. 1
_______________________________
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from to .
Commission File Number: 001-38046
ICC Holdings, Inc.
(Exact name of registrant as specified in its charter)
_______________________________
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Pennsylvania
(State or other jurisdiction of
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81-3359409
(I.R.S. Employer
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225 20th Street, Rock Island, Illinois (Address of principal executive offices)
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61201 (Zip Code)
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(309) 793-1700
(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 (§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):
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☒ |
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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 ☒
The number of shares of the registrant’s common stock outstanding as of August 9, 2018 was 3,500,000.
Explanatory Note
As previously disclosed, on October 26, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”) of ICC Holdings, Inc. (the “Company”) concluded that the unaudited financial statements contained in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2018 (the “Q2 Form 10-Q”), filed with the United States Securities and Exchange Commission (the “SEC”) on August 14, 2018, should no longer be relied upon due to an error in estimating the contingent commissions.
Accordingly, within this report, we have included restated unaudited quarterly financial statements for the second quarter of 2018, which we refer to as the “Restatement.”
This Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Form 10-Q/A”) amends our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 previously filed on August 14, 2018 (the “Original Filing”). We are filing this Form 10-Q/A to restate our unaudited consolidated financial statements, financial data and related disclosures as of and for the three-month and six-month periods ended June 30, 2018 to give effect to the Restatement. In Note 2 - Restatement of Previously Issued Consolidated Financial Statements, we have included information regarding the Restatement and specific changes to our previously issued unaudited quarterly financial statements, including details of the adjustments to the previously issued unaudited quarterly financial statements as a result of the Restatement.
BACKGROUND OF THE RESTATEMENT
The restatement of our unaudited quarterly financial statements and related disclosures primarily relates to the correction of an error in our unaudited quarterly financial statement for the period ended June 30, 2018. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, management assessed the materiality of these errors and concluded that they were material to the Company’s previously issued financial statements. The error principally relates to certain contingent commission data inadvertently not being compiled. This resulted in an understatement of contingent commissions by $316,000, thereby changing the Company’s reported net earnings for the three and six months ended June 30, 2018 to a net loss of $208,539 (from net earnings of $39,200) and net earnings of $467,288 (from $715,027), respectively.
The impact of the Restatement on the Condensed Consolidated Balance Sheets resulted in an increase of federal income taxes, other assets, and accrued expenses, as well as a decrease to retained earnings. The impact of the Restatement on the Condensed Consolidated Statements of Earnings resulted in increased policy acquisition and other operating expenses, increased acquisition costs and other underwriting expenses, increased other expense which ultimately resulted in decreases to net earnings in both the three and six months ended June 30, 2018 (ultimately generating a loss for the three months ended June 30, 2018). The impact of the Restatement had a zero net impact on the total net cash provided by operating operating activities, net cash used in investing activities, net cash used in financial financing activities and a zero impact on the net decrease in cash and cash equivalents.
This Form 10-Q/A amends and restates Items 1, 2, and 4 of Part I and Item 6 of Part II of the Original Filing and no other information included in the Original Filing is amended hereby. Generally, no attempt has been made in this Form 10-Q/A to modify or update the foregoing items, except as required to reflect the effects of the Restatement. Information not affected by the Restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the Original Filing.
In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.
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Page |
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PART I |
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Item 1. |
4 | |
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Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 |
4 |
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5 | |
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6 | |
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7 | |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
45 | |
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Item 4. |
46 | |
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PART II |
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Item 1. |
47 | |
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Item 1A. |
47 | |
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Item 2. |
47 | |
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Item 3. |
48 | |
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Item 4. |
48 | |
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Item 5. |
48 | |
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Item 6. |
49 | |
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~ 3 ~
PART I — FINANCIAL INFORMATION
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
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As of |
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June 30, |
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December 31, |
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2018 |
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2017 |
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(Unaudited) |
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Assets |
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Investments and cash: |
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Available for sale securities, at fair value |
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Fixed maturity securities (amortized cost - $89,975,510 at |
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$ |
89,694,843 |
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$ |
89,605,073 |
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6/30/2018 and $87,773,047 at 12/31/2017) |
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Common stocks¹ (cost - $13,100,640 at |
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12,907,136 |
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8,534,109 |
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6/30/2018 and $7,631,180 at 12/31/2017) |
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Preferred stocks (cost - $66,675 at |
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65,650 |
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3,867,429 |
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6/30/2018 and $3,783,311 at 12/31/2017) |
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Other invested assets |
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139,200 |
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— |
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Property held for investment, at cost, net of accumulated depreciation of |
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3,112,608 |
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3,126,566 |
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$172,791 at 6/30/2018 and $50,948 at 12/31/2017 |
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Cash and cash equivalents |
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4,055,577 |
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6,876,519 |
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Total investments and cash |
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109,975,014 |
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112,009,696 |
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Accrued investment income |
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668,230 |
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687,453 |
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Premiums and reinsurance balances receivable, net of allowances for |
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21,433,743 |
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19,013,262 |
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uncollectible amounts of $50,000 at 6/30/2018 and 12/31/2017 |
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Ceded unearned premiums |
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685,736 |
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274,972 |
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Reinsurance balances recoverable on unpaid losses and settlement expenses, |
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8,287,587 |
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10,029,834 |
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net of allowances for uncollectible amounts of $0 at 6/30/2018 and 12/31/2017 |
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Federal income taxes |
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1,552,037 |
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922,405 |
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Deferred policy acquisition costs, net |
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5,090,527 |
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4,592,415 |
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Property and equipment, at cost, net of accumulated depreciation of |
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3,474,335 |
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3,503,904 |
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$4,815,812 at 6/30/2018 and $4,896,042 at 12/31/2017 |
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Other assets |
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1,298,764 |
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1,301,420 |
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Total assets |
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$ |
152,465,973 |
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$ |
152,335,361 |
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Liabilities and Equity |
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Liabilities: |
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Unpaid losses and settlement expenses |
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$ |
51,387,881 |
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$ |
51,074,126 |
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Unearned premiums |
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29,298,437 |
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26,555,582 |
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Reinsurance balances payable |
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943,686 |
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327,483 |
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Corporate debt |
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3,489,056 |
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4,339,208 |
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Accrued expenses |
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3,256,084 |
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4,274,002 |
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Other liabilities |
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1,922,410 |
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1,663,415 |
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Total liabilities |
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90,297,554 |
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88,233,816 |
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Equity: |
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Common stock2 |
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35,000 |
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35,000 |
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Additional paid-in capital |
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32,418,807 |
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32,333,290 |
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Accumulated other comprehensive (loss) earnings, net of tax |
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(375,404) |
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2,227,069 |
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Retained earnings |
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33,254,695 |
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32,787,406 |
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Less: Unearned Employee Stock Ownership Plan shares at cost3 |
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(3,164,679) |
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(3,281,220) |
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Total equity |
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62,168,419 |
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64,101,545 |
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Total liabilities and equity |
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$ |
152,465,973 |
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$ |
152,335,361 |
1At June 30, 2018, common stock securities consist entirely of individual common stocks. At December 31, 2017, common stock consisted of exchange trade funds (ETF) made up primarily of Dividends Select and the S&P 500.
2Par value $0.01; authorized: 2018 - 10,000,000 shares and 2017 – 10,000,000 shares; issued: 2018 - 3,500,000 shares and 2017 – 3,500,000 shares; outstanding: 2018 - 3,183,532 and 2017 - 3,171,878 shares.
32018 –316,468 shares and 2017 – 328,122 shares
See accompanying notes to consolidated financial statements.
~ 4 ~
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
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For the Three-Months Ended |
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June 30, |
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2018 |
2017 |
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(As restated) |
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Net premiums earned |
$ |
11,485,071 |
$ |
10,710,758 | ||
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Net investment income |
685,492 | 688,963 | ||||
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Net realized investment losses |
(29,930) | (3) | ||||
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Other-than-temporary impairment losses |
— |
(57,316) | ||||
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Other (loss) income |
(507) | 64,722 | ||||
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Consolidated revenues |
12,140,126 | 11,407,124 | ||||
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Losses and settlement expenses |
7,790,587 | 6,864,258 | ||||
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Policy acquisition costs and other operating expenses |
4,476,071 | 4,720,298 | ||||
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Interest expense on debt |
27,621 | 57,229 | ||||
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General corporate expenses |
133,806 | 128,905 | ||||
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Total expenses |
12,428,085 | 11,770,690 | ||||
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Earnings (loss) before income taxes |
(287,959) | (363,566) | ||||
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Total income tax benefit |
(79,420) | (128,443) | ||||
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Net loss |
$ |
(208,539) |
$ |
(235,123) | ||
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Other comprehensive (loss) earnings, net of tax |
(35,396) | 542,427 | ||||
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Comprehensive (loss) earnings |
$ |
(243,935) |
$ |
307,304 | ||
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Earnings (loss) per share: |
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Basic: |
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Basic net loss per share |
$ |
(0.07) |
$ |
(0.07) | ||
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Diluted: |
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Diluted net loss per share |
$ |
(0.07) |
$ |
(0.07) | ||
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Weighted average number of common shares outstanding: |
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Basic |
3,179,669 | 3,153,876 | ||||
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Diluted |
3,180,679 | 3,153,876 | ||||
See accompanying notes to consolidated financial statements.
~ 5 ~
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
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For the Six-Months Ended |
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June 30, |
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2018 |
2017 |
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(As restated) |
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Net premiums earned |
$ |
22,782,015 |
$ |
21,548,864 | ||
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Net investment income |
1,388,376 | 1,161,287 | ||||
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Net realized investment gains |
1,072,200 | 444,778 | ||||
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Other-than-temporary impairment losses |
— |
(57,316) | ||||
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Other income |
56,171 | 148,980 | ||||
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Consolidated revenues |
25,298,762 | 23,246,593 | ||||
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Losses and settlement expenses |
15,786,436 | 13,463,642 | ||||
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Policy acquisition costs and other operating expenses |
8,613,422 | 8,454,950 | ||||
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Interest expense on debt |
75,782 | 109,539 | ||||
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General corporate expenses |
270,056 | 268,120 | ||||
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Total expenses |
24,745,696 | 22,296,251 | ||||
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Earnings before income taxes |
553,066 | 950,342 | ||||
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Total income tax expense |
85,778 | 336,421 | ||||
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Net earnings |
$ |
467,288 |
$ |
613,921 | ||
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Other comprehensive (loss) earnings, net of tax |
(2,602,473) | 596,908 | ||||
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Comprehensive (loss) earnings |
$ |
(2,135,185) |
$ |
1,210,829 | ||
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Earnings per share: |
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Basic: |
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Basic net earnings per share |
$ |
0.15 |
$ |
0.19 | ||
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Diluted: |
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Diluted net earnings per share |
$ |
0.15 |
$ |
0.19 | ||
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Weighted average number of common shares outstanding: |
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Basic |
3,174,324 | 3,151,946 | ||||
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Diluted |
3,175,334 | 3,151,946 | ||||
See accompanying notes to consolidated financial statements.
~ 6 ~
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
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Six-Month Periods Ended June 30, |
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2018 |
2017 |
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(As restated) |
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Cash flows from operating activities: |
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Net earnings |
$ |
467,288 |
$ |
613,921 | |
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Adjustments to reconcile net earnings to net cash |
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used in operating activities |
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Net realized investment gains |
(1,072,200) | (444,778) | |||
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Other-than-temporary impairment losses |
— |
57,316 | |||
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Depreciation |
310,857 | 428,161 | |||
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Deferred income tax |
(37,143) | 190,257 | |||
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Amortization of bond premium and discount |
158,743 | 135,265 | |||
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Stock-based compensation expense |
202,058 |
— |
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Change in: |
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Accrued investment income |
19,223 | (122,970) | |||
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Premiums and reinsurance balances receivable, (net) |
(2,420,481) | (361,761) | |||
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Ceded unearned premiums |
(410,764) | (25,457) | |||
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Reinsurance balances payable |
616,203 | 20,431 | |||
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Reinsurance balances recoverable |
1,742,247 | 2,364,744 | |||
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Deferred policy acquisition costs |
(498,112) | (139,961) | |||
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Unpaid losses and settlement expenses |
313,755 | (3,125,882) | |||
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Unearned premiums |
2,742,855 | 1,022,675 | |||
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Accrued expenses |
(1,017,918) | (1,645,086) | |||
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Current federal income tax |
99,307 | (483,608) | |||
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Other |
261,651 | 102,915 | |||
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Net cash provided by (used in) operating activities |
1,477,569 | (1,413,818) | |||
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Cash flows from investing activities: |
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Purchases of: |
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Fixed maturity securities, available-for-sale |
(9,003,061) | (22,821,724) | |||
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Common stocks, available-for-sale |
(13,363,215) | (5,216,872) | |||
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Preferred stocks, available-for-sale |
(140,925) | (638,922) | |||
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Other invested assets |
(39,200) |
— |
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Property held for investment |
(31,673) | (677,714) | |||
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Property and equipment |
(300,484) | (333,887) | |||
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Proceeds from sales, maturities and calls of: |
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Fixed maturity securities, available-for-sale |
6,669,276 | 4,414,597 | |||
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Common stocks, available-for-sale |
8,834,375 | 1,955,715 | |||
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Preferred stocks, available-for-sale |
3,861,722 |
— |
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Property and equipment |
64,826 | 967 | |||
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Net cash used in investing activities |
(3,448,359) | (23,317,840) | |||
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Cash flows from financing activities: |
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Net proceeds received from issuance of shares of common stock |
— |
29,253,588 | |||
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Proceeds from loans |
— |
3,499,149 | |||
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Repayments of borrowed funds |
(850,152) | (2,294,961) | |||
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Net cash (used in) provided by financing activities |
(850,152) | 30,457,776 | |||
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Net (decrease) increase in cash and cash equivalents |
(2,820,942) | 5,726,118 | |||
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Cash and cash equivalents at beginning of year |
6,876,519 | 4,376,847 | |||
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Cash and cash equivalents at end of period |
$ |
4,055,577 |
$ |
10,102,965 | |
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Supplemental information: |
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Federal income tax paid |
$ |
— |
$ |
600,000 | |
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Interest paid |
108,336 | 109,451 | |||
See accompanying notes to consolidated financial statements.
~ 7 ~
Notes to Unaudited Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
ICC Holdings, Inc. is a Pennsylvania corporation that was organized in 2016. As used in this Form 10-Q, references to “the Company,” “we,” “us,” and “our” refer to the consolidated group for the period after the completion of the stock conversion and refer to Illinois Casualty Company (ICC) and its subsidiaries for the period prior to the stock conversion. On a stand-alone basis ICC Holdings, Inc. is referred to as the “Parent Company.” The consolidated group consists of the holding company, ICC Holdings, Inc.; ICC Realty, LLC, a real estate services and holding company; Beverage Insurance Agency, Inc., an inactive insurance agency; Estrella Innovative Solutions, Inc., an outsourcing company; and ICC, an operating insurance company. ICC is an Illinois domiciled company.
ICC Holdings, Inc. was formed so that it could acquire all of the capital stock of ICC in a mutual-to-stock conversion. The plan of conversion was approved by ICC policyholders at a special meeting on March 17, 2017. Simultaneously, surplus notes totaling $1.65 million were converted into 165,000 shares of the Company’s common stock. The Company’s offering closed on March 24, 2017, and our Employee Stock Ownership Plan (ESOP) purchased 350,000 of the shares in the offering. On March 28, 2017, the Company’s stock began trading on the NASDAQ Capital Market under the “ICCH” ticker. The Company paid $1.0 million of underwriting fees to Griffin Financial Group, LLC. Proceeds received from the offering, net of offering costs and underwriting fees, was $28.7 million.
Prior to the conversion on March 24, 2017, ICC Holdings, Inc. did not engage in any operations. Since the conversion, ICC Holdings, Inc’s primary assets are the outstanding equity of ICC, ICC Realty, LLC, Estrella Innovative Solutions, Inc., Beverage Insurance Agency, Inc., and a portion of the net proceeds from the stock offering completed in connection with the mutual-to-stock conversion. On the effective date of the conversion, ICC became a wholly owned subsidiary of ICC Holdings, Inc. The mutual-to-stock conversion was accounted for as a change in corporate form with the historic basis of ICC’s assets, liabilities, and equity unchanged as a result.
We are a specialty insurance carrier primarily underwriting commercial multi-peril, liquor liability, workers’ compensation, and umbrella liability coverages for the food and beverage industry through our subsidiary insurance company, ICC. ICC writes business in Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Ohio, and Wisconsin and markets through independent agents. Approximately 28.8% and 36.5% of the premium is written in Illinois for the three months ended June 30, 2018 and 2017, respectively. For the six months ended, June 30, 2018 and 2017, approximately 30.9% and 36.2% of the premium is written in Illinois, respectively. ICC sold its two wholly-owned subsidiaries, Beverage Insurance Agency, Inc. and Estrella Innovative Solutions, Inc. to ICC Holdings during the second quarter of 2018. ICC sold all of its real estate holdings held by ICC Realty, LLC to its parent, ICC Holdings, Inc.; via the sale of all of the outstanding equity of ICC Realty, LLC to ICC Holdings, Inc. during the fourth quarter of 2017. The Company operates as a single segment.
B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 10-K”). Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at June 30, 2018, and the results of operations of the Company and its subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year.
The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements, and the reported amounts of revenue and expenses during the period. These amounts are inherently subject to change and actual results could differ significantly from these estimates.
C. SIGNIFICANT ACCOUNTING POLICIES
The Company reported significant accounting policies in the 2017 10-K. The following are new or revised disclosures.
~ 8 ~
STOCK-BASED COMPENSATION
We have compensation plans under which stock-based awards may be granted to our employees as described in Note 9 – Employee Benefits. The Company recognizes the fair value of stock-based compensation ratably during each year through a charge to compensation expense and a corresponding entry to equity based on vesting criteria and other pertinent terms of the awards. Stock-based awards are accounted for as equity awards in instances where the awards’ vesting are linked to market, performance, or service condition. The Company granted Restricted Stock Units (RSUs) for the first time in February of 2018. Upon vesting of any outstanding RSUs, the Company has the option to elect to pay cash or part cash and part Common Stock in lieu of delivering on shares of Common Stock for vested units. The Company’s intention is to settle vested units in Common Stock, and therefore the RSUs are accounted for as equity awards. Equity awards to employees are generally expensed based on the grant date fair value.
EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) are calculated by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. The denominator for basic and diluted EPS includes ESOP shares committed to be released. Dilutive earnings per share includes the effect of all potentially dilutive instruments, such as restricted stock units (RSUs), outstanding during the period.
D. PROSPECTIVE ACCOUNTING STANDARDS
For information regarding accounting standards that the Company has not yet adopted, see the “Prospective Accounting Standards” in Note 1 – Summary of Significant Accounting Policies in the 2017 10-K. The Company maintains its status as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We have taken advantage of the extended transition period provided by Section 107 of the JOBS Act. We decided to comply with the effective dates for financial accounting standards applicable to emerging growth companies at a later date in compliance with the requirements in Sections 107(b)(2) and (3) of the JOBS Act. Such decision is irrevocable.
E. PROPERTY AND EQUIPMENT
Annually, the Company reviews the major asset classes of property and equipment held for impairment. For the periods ended June 30, 2018 and 2017, the Company recognized no impairments. Property and equipment are summarized as follows:
|
|
As of |
|||||
|
|
June 30, |
December 31, |
||||
|
|
2018 |
2017 |
||||
|
Automobiles |
$ |
567,291 |
$ |
794,959 | ||
|
Furniture and fixtures |
427,453 | 425,825 | ||||
|
Computer equipment and software |
3,453,042 | 3,404,975 | ||||
|
Home office |
3,842,361 | 3,774,187 | ||||
|
Total cost |
8,290,147 | 8,399,946 | ||||
|
Accumulated depreciation |
(4,815,812) | (4,896,042) | ||||
|
Net property and equipment |
$ |
3,474,335 |
$ |
3,503,904 | ||
F. COMPREHENSIVE EARNINGS
Comprehensive earnings (loss) include net earnings (loss) plus the change in unrealized gains and losses on available-for-sale investment securities, net of tax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, the Company used a 21% and a 34% tax rate for the periods ending June 30, 2018 and 2017, respectively.
~ 9 ~
The following table illustrates the components of other comprehensive earnings for each period presented in the condensed consolidated interim financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended June 30, |
||||||||||||||||
|
|
|
2018 |
|
2017 |
||||||||||||||
|
|
|
Pre-tax |
|
Tax |
|
After-tax |
|
Pre-tax |
|
Tax |
|
After-tax |
||||||
|
Other comprehensive earnings (loss), |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains |
|
$ |
(74,733) |
|
$ |
15,692 |
|
$ |
(59,041) |
|
$ |
764,541 |
|
$ |
(259,944) |
|
$ |
504,597 |
|
Reclassification adjustment for (gains) losses included in net earnings |
|
|
29,930 |
|
|
(6,285) |
|
|
23,645 |
|
|
57,319 |
|
|
(19,489) |
|
|
37,830 |
|
Total other comprehensive (loss) earnings |
|
$ |
(44,803) |
|
$ |
9,407 |
|
$ |
(35,396) |
|
$ |
821,860 |
|
$ |
(279,433) |
|
$ |
542,427 |
|
|
Six-Month Periods Ended June 30, |
|||||||||||||||||
|
|
2018 |
2017 |
||||||||||||||||
|
|
Pre-tax |
Tax |
After-tax |
Pre-tax |
Tax |
After-tax |
||||||||||||
|
Other comprehensive earnings (loss), |
||||||||||||||||||
|
Unrealized gains and losses on investments: |
||||||||||||||||||
|
Unrealized holding (losses) gains |
$ |
(2,222,069) |
$ |
466,634 |
$ |
(1,755,435) |
$ |
1,291,868 |
$ |
(439,235) |
$ |
852,633 | ||||||
|
Reclassification adjustment for |
(1,072,200) | 225,162 | (847,038) | (387,462) | 131,737 | (255,725) | ||||||||||||
|
Total other comprehensive (loss) earnings |
$ |
(3,294,269) |
$ |
691,796 |
$ |
(2,602,473) |
$ |
904,406 |
$ |
(307,498) |
$ |
596,908 | ||||||
The following table provides the reclassifications from accumulated other comprehensive earnings for the periods presented:
|
|
||||||||||||||
|
Amounts Reclassified from |
||||||||||||||
|
Accumulated Other Comprehensive Earnings |
||||||||||||||
|
Details about Accumulated Other |
Three-Month Periods Ended June 30, |
Six-Month Periods Ended June 30, |
Affected Line Item in the Statement |
|||||||||||
|
Comprehensive Earnings Component |
2018 |
2017 |
2018 |
2017 |
where Net Earnings is Presented |
|||||||||
|
Unrealized gains (losses) on AFS investments: |
||||||||||||||
|
|
$ |
29,930 |
$ |
3 |
$ |
(1,072,200) |
$ |
(444,778) |
Net realized invesment losses (gains) |
|||||
|
|
— |
57,316 |
— |
57,316 |
Other-than-temporary impairment losses |
|||||||||
|
|
(6,285) | (19,489) | 225,162 | 131,737 |
Income tax (benefit) expense |
|||||||||
|
Total reclassification adjustment, net of tax |
$ |
23,645 |
$ |
37,830 |
$ |
(847,038) |
$ |
(255,725) | ||||||
~ 10 ~
2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the preparation and review of the Company's consolidated financial statements required to be included in the Quarterly Report on Form 10-Q for the period ended September 30, 2018, management identified certain errors in the Company's previously filed Form 10-Q for the period ended June 30, 2018. As a result, the Company concluded that its previously issued consolidated financial statements for the second quarter of 2018 needed to be restated. Within this report, the Company has included restated unaudited interim consolidated financials statements as of and for the three and six months ended June 30, 2018. This Note 2 to the unaudited interim consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the three and six months ended June 30, 2018.
The restatement corrects an error primarily related to some contingent commission data inadvertently not being compiled.
ADJUSTMENTS NEEDED TO CORRECT ERROR
|
|
|
|
(1) |
Accrual of contingent commissions – The contingent commission accrual was inadvertently missing certain data that was not being aggregated correctly. This resulted in an understatement of contingent commission by $316,000 thereby changing the Company’s reported net earnings for the three and six months ended June 30, 2018 to a net loss of $208,539 (from net earnings of $39,200) and net earnings of $467,288 (from $715,027), respectively. |
|
|
|
|
(2) |
Income taxes – Change in income taxes related to the error described in (1) above were also corrected and impacted the unaudited interim Consolidated Balance Sheets, Consolidated Statements of Earnings and Comprehensive Earnings, and the Consolidated Statement of Cash Flows for the three and six months ended June 30, 2018. |
~ 11 ~
The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Earnings and Comprehensive Earnings and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2018:
Consolidated Balance Sheet (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|||||||
|
|
|
June 30, 2018 |
|||||||
|
|
|
As previously reported |
|
Adjustments |
|
As restated |
|||
|
Assets |
|
|
|
|
|
|
|
|
|
|
Investments and cash: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities, at fair value |
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities (amortized cost - $89,975,510 at |
|
$ |
89,694,843 |
|
$ |
— |
|
$ |
89,694,843 |
|
6/30/2018 and $87,773,047 at 12/31/2017) |
|
|
|
|
|
|
|
|
|
|
Common stocks¹ (cost - $13,100,640 at |
|
|
12,907,136 |
|
|
— |
|
|
12,907,136 |
|
6/30/2018 and $7,631,180 at 12/31/2017) |
|
|
|
|
|
|
|
|
|
|
Short-term investments, at cost which approximates fair value |
|
|
— |
|
|
— |
|
|
— |
|
Preferred stocks (cost - $66,675 at |
|
|
65,650 |
|
|
— |
|
|
65,650 |
|
6/30/2018 and $3,783,311 at 12/31/2017) |
|
|
|
|
|
|
|
|
|
|
Other invested assets |
|
|
139,200 |
|
|
— |
|
|
139,200 |
|
Property held for investment, at cost, net of accumulated depreciation of $172,791 at 6/30/2018 and $50,948 at 12/31/2017 |
|
|
3,112,608 |
|
|
— |
|
|
3,112,608 |
|
Cash and cash equivalents |
|
|
4,055,577 |
|
|
— |
|
|
4,055,577 |
|
Total investments and cash |
|
|
109,975,014 |
|
|
— |
|
|
109,975,014 |
|
Accrued investment income |
|
|
668,230 |
|
|
— |
|
|
668,230 |
|
Premiums and reinsurance balances receivable, net of allowances for |
|
|
21,433,743 |
|
|
— |
|
|
21,433,743 |
|
uncollectible amounts of $50,000 at 6/30/2018 and 12/31/2017 |
|
|
|
|
|
|
|
|
|
|
Ceded unearned premiums |
|
|
685,736 |
|
|
— |
|
|
685,736 |
|
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $0 at 6/30/2018 and 12/31/2017 |
|
|
8,287,587 |
|
|
— |
|
|
8,287,587 |
|
Federal income taxes |
|
|
1,492,828 |
|
|
59,209 |
|
|
1,552,037 |
|
Deferred policy acquisition costs, net |
|
|
5,090,527 |
|
|
— |
|
|
5,090,527 |
|
Property and equipment, at cost, net of accumulated depreciation of |
|
|
3,474,335 |
|
|
— |
|
|
3,474,335 |
|
$4,815,812 at 6/30/2018 and $4,896,042 at 12/31/2017 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
1,289,712 |
|
|
9,052 |
|
|
1,298,764 |
|
Total assets |
|
$ |
152,397,712 |
|
$ |
68,261 |
|
$ |
152,465,973 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Unpaid losses and settlement expenses |
|
$ |
51,387,881 |
|
$ |
— |
|
$ |
51,387,881 |
|
Unearned premiums |
|
|
29,298,437 |
|
|
— |
|
|
29,298,437 |
|
Reinsurance balances payable |
|
|
943,686 |
|
|
— |
|
|
943,686 |
|
Corporate debt |
|
|
3,489,056 |
|
|
— |
|
|
3,489,056 |
|
Accrued expenses |
|
|
2,940,084 |
|
|
316,000 |
|
|
3,256,084 |
|
Bank overdraft |
|
|
— |
|
|
— |
|
|
— |
|
Other liabilities |
|
|
1,922,410 |
|
|
— |
|
|
1,922,410 |
|
Total liabilities |
|
|
89,981,554 |
|
|
316,000 |
|
|
90,297,554 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
|
Common stock2 |
|
|
35,000 |
|
|
— |
|
|
35,000 |
|
Additional paid-in capital |
|
|
32,418,807 |
|
|
— |
|
|
32,418,807 |
|
Accumulated other comprehensive (loss) earnings, net of tax |
|
|
(375,404) |
|
|
— |
|
|
(375,404) |
|
Retained earnings |
|
|
33,502,434 |
|
|
(247,739) |
|
|
33,254,695 |
|
Less: Unearned Employee Stock Ownership Plan shares at cost3 |
|
|
(3,164,679) |
|
|
— |
|
|
(3,164,679) |
|
Total equity |
|
|
62,416,158 |
|
|
(247,739) |
|
|
62,168,419 |
|
Total liabilities and equity |
|
$ |
152,397,712 |
|
$ |
68,261 |
|
$ |
152,465,973 |
1At June 30, 2018, common stock securities consist entirely of individual common stocks. At December 31, 2017, common stock consisted of exchange trade funds (ETF) made up primarily of Dividends Select and the S&P 500.
2Par value $0.01; authorized: 2018 - 10,000,000 shares and 2017 – 10,000,000 shares; issued: 2018 - 3,500,000 shares and 2017 – 3,500,000 shares; outstanding: 2018 - 3,183,532 and 2017 - 3,171,878 shares.
32018 –316,468 shares and 2017 – 328,122 shares
~ 12 ~
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Months Ended |
|||||||
|
|
|
June 30, 2018 |
|||||||
|
|
|
As previously reported |
|
Adjustments |
|
As restated |
|||
|
Net premiums earned |
|
$ |
11,485,071 |
|
$ |
— |
|
$ |
11,485,071 |
|
Net investment income |
|
|
685,492 |
|
|
— |
|
|
685,492 |
|
Net realized investment losses |
|
|
(29,930) |
|
|
— |
|
|
(29,930) |
|
Other-than-temporary impairment losses |
|
|
— |
|
|
— |
|
|
— |
|
Other (loss) income |
|
|
(507) |
|
|
— |
|
|
(507) |
|
Consolidated revenues |
|
|
12,140,126 |
|
|
— |
|
|
12,140,126 |
|
Losses and settlement expenses |
|
|
7,790,587 |
|
|
— |
|
|
7,790,587 |
|
Policy acquisition costs and other operating expenses |
|
|
4,160,071 |
|
|
316,000 |
|
|
4,476,071 |
|
Interest expense on debt |
|
|
27,621 |
|
|
— |
|
|
27,621 |
|
General corporate expenses |
|
|
133,806 |
|
|
— |
|
|
133,806 |
|
Total expenses |
|
|
12,112,085 |
|
|
316,000 |
|
|
12,428,085 |
|
Earnings (loss) before income taxes |
|
|
28,041 |
|
|
(316,000) |
|
|
(287,959) |
|
Total income tax benefit |
|
|
(11,159) |
|
|
(68,261) |
|
|
(79,420) |
|
Net earnings (loss) |
|
$ |
39,200 |
|
$ |
(247,739) |
|
$ |
(208,539) |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) earnings, net of tax |
|
|
(35,396) |
|
|
— |
|
|
(35,396) |
|
Comprehensive earnings |
|
$ |
3,804 |
|
$ |
(247,739) |
|
$ |
(243,935) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.08) |
|
$ |
(0.07) |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.08) |
|
$ |
(0.07) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,179,669 |
|
|
— |
|
|
3,179,669 |
|
Diluted |
|
|
3,180,679 |
|
|
— |
|
|
3,180,679 |
~ 13 ~
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Months Ended |
|||||||
|
|
|
June 30, 2018 |
|||||||
|
|
|
As previously reported |
|
Adjustments |
|
As restated |
|||
|
Net premiums earned |
|
$ |
22,782,015 |
|
$ |
— |
|
$ |
22,782,015 |
|
Net investment income |
|
|
1,388,376 |
|
|
— |
|
|
1,388,376 |
|
Net realized investment losses |
|
|
1,072,200 |
|
|
— |
|
|
1,072,200 |
|
Other-than-temporary impairment losses |
|
|
— |
|
|
— |
|
|
— |
|
Other (loss) income |
|
|
56,171 |
|
|
— |
|
|
56,171 |
|
Consolidated revenues |
|
|
25,298,762 |
|
|
— |
|
|
25,298,762 |
|
Losses and settlement expenses |
|
|
15,786,436 |
|
|
— |
|
|
15,786,436 |
|
Policy acquisition costs and other operating expenses |
|
|
8,297,422 |
|
|
316,000 |
|
|
8,613,422 |
|
Interest expense on debt |
|
|
75,782 |
|
|
— |
|
|
75,782 |
|
General corporate expenses |
|
|
270,056 |
|
|
— |
|
|
270,056 |
|
Total expenses |
|
|
24,429,696 |
|
|
316,000 |
|
|
24,745,696 |
|
Earnings (loss) before income taxes |
|
|
869,066 |
|
|
(316,000) |
|
|
553,066 |
|
Total income tax benefit |
|
|
154,039 |
|
|
(68,261) |
|
|
85,778 |
|
Net earnings (loss) |
|
$ |
715,027 |
|
$ |
(247,739) |
|
$ |
467,288 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) earnings, net of tax |
|
|
(2,602,473) |
|
|
— |
|
|
(2,602,473) |
|
Comprehensive earnings |
|
$ |
(1,887,446) |
|
$ |
(247,739) |
|
$ |
(2,135,185) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss) per share |
|
$ |
0.23 |
|
$ |
(0.08) |
|
$ |
0.15 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per share |
|
$ |
0.23 |
|
$ |
(0.08) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,174,324 |
|
|
— |
|
|
3,174,324 |
|
Diluted |
|
|
3,175,334 |
|
|
— |
|
|
3,175,334 |
<