Quarterly Report (10-q)

Date : 11/13/2018 @ 8:27PM
Source : Edgar (US Regulatory)
Stock : Atlantic American Corporation (AAME)
Quote : 1.5  0.0 (0.00%) @ 3:11PM

Quarterly Report (10-q)


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, 2018
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-3722

ATLANTIC AMERICAN CORPORATION
( Exact name of registrant as specified in its charter)

Georgia
 
58-1027114
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

4370 Peachtree Road, N.E.,
Atlanta, Georgia

30319
(Address of principal executive offices)
 
(Zip Code)

(404) 266-5500
(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 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 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 ☐

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 total number of shares of the registrant's Common Stock, $1 par value, outstanding on November 2, 2018 was 20,199,314.



ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS

Part I.      Financial Information
Page No.
   
Item 1.
Financial Statements:  
   
 
2
 

 
3
 

 
4
 

 
5
 

 
6
   
 
7
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
   
Item 4.
Controls and Procedures
29
     
Part II. Other Information
 
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
     
Item 6.
Exhibits
30
   
31

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

ASSETS
 
   
Unaudited
September 30,
   
December 31,
 
   
2018
   
2017
 
Cash and cash equivalents
 
$
10,038
   
$
24,547
 
Investments:
               
Fixed maturities, available-for-sale (cost: $215,698 and $212,544)
   
207,138
     
215,108
 
Equity securities (cost: $10,515 and $10,918)
   
23,705
     
23,355
 
Other invested assets
   
10,817
     
5,626
 
Policy loans
   
2,084
     
2,146
 
Real estate
   
38
     
38
 
Investment in unconsolidated trusts
   
1,238
     
1,238
 
Total investments
   
245,020
     
247,511
 
Receivables:
               
Reinsurance
   
24,022
     
17,613
 
Insurance premiums and other (net of allowance for doubtful accounts: $216 and $209)
   
14,972
     
13,241
 
Deferred income taxes, net
   
3,077
     
-
 
Deferred acquisition costs
   
34,934
     
32,694
 
Other assets
   
4,942
     
5,089
 
Intangibles
   
2,544
     
2,544
 
Total assets
 
$
339,549
   
$
343,239
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Insurance reserves and policyholder funds:
               
Future policy benefits
 
$
88,437
   
$
82,435
 
Unearned premiums
   
26,272
     
23,449
 
Losses and claims
   
71,816
     
65,689
 
Other policy liabilities
   
1,288
     
2,010
 
Total insurance reserves and policyholder funds
   
187,813
     
173,583
 
Accounts payable and accrued expenses
   
15,880
     
22,342
 
Deferred income taxes, net
   
-
     
593
 
Junior subordinated debenture obligations, net
   
33,738
     
33,738
 
Total liabilities
   
237,431
     
230,256
 
                 
Commitments and contingencies (Note 9)
               
Shareholders’ equity:
               
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value
   
55
     
55
 
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,218,836 and 20,449,531
   
22,401
     
22,401
 
Additional paid-in capital
   
57,419
     
57,495
 
Retained earnings
   
37,107
     
30,993
 
Accumulated other comprehensive income (loss)
   
(6,762
)
   
9,751
 
Unearned stock grant compensation
   
(252
)
   
(579
)
Treasury stock, at cost: 2,182,058 and 1,951,363 shares
   
(7,850
)
   
(7,133
)
Total shareholders’ equity
   
102,118
     
112,983
 
Total liabilities and shareholders’ equity
 
$
339,549
   
$
343,239
 

The accompanying notes are an integral part of these consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except per share data)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenue:
                       
Insurance premiums
 
$
42,557
   
$
42,094
   
$
127,604
   
$
122,996
 
Net investment income
   
2,215
     
2,136
     
7,111
     
6,380
 
Realized investment gains, net
   
484
     
539
     
797
     
2,818
 
Unrealized gains on equity securities, net
   
1,083
     
-
     
753
     
-
 
Other income
   
31
     
29
     
88
     
95
 
Total revenue
   
46,370
     
44,798
     
136,353
     
132,289
 
                                 
Benefits and expenses:
                               
Insurance benefits and losses incurred
   
33,087
     
30,417
     
98,478
     
87,446
 
Commissions and underwriting expenses
   
8,722
     
10,176
     
28,456
     
31,800
 
Interest expense
   
529
     
440
     
1,497
     
1,273
 
Other expense
   
2,960
     
3,134
     
9,168
     
9,301
 
Total benefits and expenses
   
45,298
     
44,167
     
137,599
     
129,820
 
Income (loss) before income taxes
   
1,072
     
631
     
(1,246
)
   
2,469
 
Income tax expense (benefit)
   
138
     
(116
)
   
(341
)
   
483
 
Net income (loss)
   
934
     
747
     
(905
)
   
1,986
 
Preferred stock dividends
   
(100
)
   
(100
)
   
(299
)
   
(299
)
Net income (loss) applicable to common shareholders
 
$
834
   
$
647
   
$
(1,204
)
 
$
1,687
 
                                 
Earnings (loss) per common share (basic and diluted)
 
$
.04
   
$
.03
   
$
(.06
)
 
$
.08
 
Dividends per common share
 
$
-
   
$
-
   
$
.02
   
$
.02
 

The accompanying notes are an integral part of these consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; Dollars in thousands)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net income (loss)
 
$
934
   
$
747
   
$
(905
)
 
$
1,986
 
Other comprehensive income (loss):
                               
Available-for-sale securities:
                               
Gross unrealized holding gain (loss) arising in the period
   
63
     
2,852
     
(10,327
)
   
7,271
 
Related income tax effect
   
(13
)
   
(997
)
   
2,169
     
(2,544
)
Subtotal
   
50
     
1,855
     
(8,158
)
   
4,727
 
Less: reclassification adjustment for net realized losses included in net income (loss)
   
(484
)
   
(539
)
   
(797
)
   
(2,818
)
Related income tax effect
   
101
     
188
     
167
     
986
 
Subtotal
   
(383
)
   
(351
)
   
(630
)
   
(1,832
)
Total other comprehensive income (loss), net of tax
   
(333
)
   
1,504
     
(8,788
)
   
2,895
 
Total comprehensive income (loss)
 
$
601
   
$
2,251
   
$
(9,693
)
 
$
4,881
 

The accompanying notes are an integral part of these consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited; Dollars in thousands)

 
 
Nine Months Ended September 30, 2018
 
Preferred
Stock
   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Unearned
Stock Grant
Compensation
   
Treasury
Stock
   
Total
 
Balance, December 31, 2017
 
$
55
   
$
22,401
   
$
57,495
   
$
30,993
   
$
9,751
   
$
(579
)
 
$
(7,133
)
 
$
112,983
 
Cumulative effect of adoption of accounting guidance for equity financial instruments at January 1, 2018
   
-
     
-
     
-
     
9,825
     
(9,825
)
   
-
     
-
     
-
 
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
   
-
     
-
     
-
     
(2,100
)
   
2,100
     
-
     
-
     
-
 
Net loss
   
-
     
-
     
-
     
(905
)
   
-
     
-
     
-
     
(905
)
Other comprehensive loss, net of tax
   
-
     
-
     
-
     
-
     
(8,788
)
   
-
     
-
     
(8,788
)
Dividends on common stock
   
-
     
-
     
-
     
(407
)
   
-
     
-
     
-
     
(407
)
Dividends accrued on preferred stock
   
-
     
-
     
-
     
(299
)
   
-
     
-
     
-
     
(299
)
Restricted stock grants, net
   
-
     
-
     
(88
)
   
-
     
-
     
135
     
(47
)
   
-
 
Amortization of unearned compensation
   
-
     
-
     
-
     
-
     
-
     
192
     
-
     
192
 
Purchase of shares for treasury
   
-
     
-
     
-
     
-
     
-
     
-
     
(463
)
   
(463
)
Net shares acquired related to employee share-based compensation plans
   
-
     
-
     
-
     
-
     
-
     
-
     
(223
)
   
(223
)
Issuance of shares under stock plans
   
-
     
-
     
12
     
-
     
-
     
-
     
16
     
28
 
Balance, September 30, 2018
 
$
55
   
$
22,401
   
$
57,419
   
$
37,107
   
$
(6,762
)
 
$
(252
)
 
$
(7,850
)
 
$
102,118
 
                                                                 
Nine Months Ended September 30, 2017
                                                               
Balance, December 31, 2016
 
$
55
   
$
22,401
   
$
57,114
   
$
27,272
   
$
5,830
   
$
(428
)
 
$
(6,738
)
 
$
105,506
 
Net income
   
-
     
-
     
-
     
1,986
     
-
     
-
     
-
     
1,986
 
Other comprehensive income, net of tax
   
-
     
-
     
-
     
-
     
2,895
     
-
     
-
     
2,895
 
Dividends on common stock
   
-
     
-
     
-
     
(408
)
   
-
     
-
     
-
     
(408
)
Dividends accrued on preferred stock
   
-
     
-
     
-
     
(299
)
   
-
     
-
     
-
     
(299
)
Restricted stock grants
   
-
     
-
     
293
     
-
     
-
     
(522
)
   
229
     
-
 
Amortization of unearned compensation
   
-
     
-
     
-
     
-
     
-
     
363
     
-
     
363
 
Purchase of shares for treasury
   
-
     
-
     
-
     
-
     
-
     
-
     
(546
)
   
(546
)
Issuance of shares under stock plans
   
-
     
-
     
13
     
-
     
-
     
-
     
10
     
23
 
Balance,   September  30, 2017
 
$
55
   
$
22,401
   
$
57,420
   
$
28,551
   
$
8,725
   
$
(587
)
 
$
(7,045
)
 
$
109,520
 

The accompanying notes are an integral part of these consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)

   
Nine Months Ended
September 30,
 
   
2018
   
2017
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net (loss) income
 
$
(905
)
 
$
1,986
 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
               
Amortization of deferred acquisition costs
   
8,986
     
8,696
 
Acquisition costs deferred
   
(11,226
)
   
(11,880
)
Realized investment gains, net
   
(797
)
   
(2,818
)
Unrealized losses on equity securities, net
   
(753
)
   
-
 
Distributions received from equity method investees
   
725
     
58
 
Compensation expense related to share awards
   
192
     
363
 
Depreciation and amortization
   
783
     
1,149
 
Deferred income tax benefit
   
(1,335
)
   
(423
)
Increase in receivables, net
   
(7,882
)
   
(8,289
)
Increase in insurance reserves
   
14,230
     
12,513
 
Decrease in other liabilities
   
(6,760
)
   
(2,096
)
Other, net
   
(377
)
   
(344
)
Net cash used in operating activities
   
(5,119
)
   
(1,085
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from investments sold
   
28,177
     
52,702
 
Proceeds from investments matured, called or redeemed
   
4,577
     
8,982
 
Investments purchased
   
(40,827
)
   
(63,346
)
Additions to property and equipment
   
(252
)
   
(101
)
Net cash used in investing activities
   
(8,325
)
   
(1,763
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payment of dividends on common stock
   
(407
)
   
(408
)
Proceeds from shares issued under stock plans
   
28
     
23
 
Treasury stock acquired — share repurchase authorization
   
(463
)
   
(546
)
Treasury stock acquired — net employee share-based compensation
   
(223
)
   
-
 
Net cash used in financing activities
   
(1,065
)
   
(931
)
                 
Net decrease in cash and cash equivalents
   
(14,509
)
   
(3,779
)
Cash and cash equivalents at beginning of period
   
24,547
     
13,252
 
Cash and cash equivalents at end of period
 
$
10,038
   
$
9,473
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for interest
 
$
1,471
   
$
1,263
 
Cash paid for income taxes
 
$
1,892
   
$
1,400
 

The accompanying notes are an integral part of these consolidated financial statements.

  ATLANTIC AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited; Dollars in thousands, except per share amounts)

Note 1.
Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”).  The Parent’s primary operating subsidiaries, American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), operate in two principal business units.  American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for audited annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  The unaudited consolidated financial statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”).  The Company’s financial condition and results of operations and cash flows as of and for the three month and nine month periods ended September 30, 2018 are not necessarily indicative of the financial condition or results of operations and cash flows that may be expected for the year ending December 31, 2018 or for any other future period.

The Company’s significant accounting policies have not changed materially from those set out in the Company’s 2017 Annual Report, except as noted below for the adoption of new accounting standards.

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

Note 2.
Recently Issued Accounting Standards

Adoption of New Accounting Standards

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”).  The FASB issued this guidance for the effect on deferred tax assets and liabilities related to items recorded in accumulated other comprehensive income ("AOCI") resulting from legislated tax reform enacted on December 22, 2017. The tax reform reduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment. The Company recorded the total effect of the change in enacted tax rates on deferred tax balances in the income tax expense component of net income. ASU 2018-02 permits the Company to reclassify out of AOCI and into retained earnings the “stranded” tax effects that resulted from recording the tax effects of unrealized investment gains at a 35% tax rate because the 14% reduction in tax rate was recognized in net income instead of other comprehensive income. The Company adopted ASU 2018-02 as of January 1, 2018. As a result, on January 1, 2018, the Company reclassified $2,100 of stranded tax effects related to continuing operations which increased AOCI and reduced retained earnings.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).  ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The issues addressed in ASU 2016-15 are:  1) debt prepayment or debt extinguishment costs, 2) settlement of zero-coupon debt instruments, 3) contingent consideration payments made after a business combination,  4) proceeds from the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions and 8) separately identifiable cash flows and application of the predominance principle.  The Company adopted ASU 2016-15 as of January 1, 2018, which impacted the classification of distributions from equity method investees. The Company made the election to use the nature of distributions approach.  For the nine month period ended September 30, 2018,  the Company classified distributions from equity method investees of $725 as cash flows from operating activities and reclassified $58 as cash flows from investing activities to cash flows from operating activities for the nine month period ended September 30, 2017, in its consolidated statements of cash flows.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU 2016-01”).  ASU 2016-01 provides updated guidance for the recognition and measurement of financial instruments. The guidance requires investments in equity securities to be measured at fair value with any changes in valuation reported in net income except for investments that are consolidated or are accounted for under the equity method of accounting. The guidance also requires a deferred tax asset resulting from net unrealized losses on available-for-sale (AFS) fixed maturities that are recognized in AOCI to be evaluated for recoverability in combination with the Company’s other deferred tax assets. Under previous guidance, the Company measured investments in equity securities at fair value with any changes in fair value reported in other comprehensive income. The Company adopted ASU 2016-01 as of January 1, 2018.  The adoption of this guidance resulted in the recognition of $9,825 of net after tax unrealized gains on equity securities as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased AOCI by the same amount.  The Company elected to report changes in the fair value of equity securities in a separate line item on the Company’s consolidated statements of operations.  At December 31, 2017, equity securities were classified as AFS in the Company’s consolidated balance sheets. However, upon adoption, the updated guidance eliminated the AFS balance sheet classification for equity securities.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).  ASU 2014-09, as modified, provides guidance for recognizing revenue which excludes insurance contracts and financial instruments. Revenue is to be recognized when, or as, goods or services are transferred to customers in an amount that reflects the consideration that an entity is expected to be entitled in exchange for those goods or services.  The Company adopted ASU No. 2014-09 as of January 1, 2018. For the nine months ended September 30, 2018, approximately $88, or less than one-tenth of 1% of the Company's total revenues, were within the scope of this updated guidance.  The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

Future Adoption of New Accounting Standards

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This guidance removes the following disclosure requirements from Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements.  This disclosure also includes the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.  ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although earlier adoption is permitted.  The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-12, Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”).   This guidance (1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplifies the amortization of deferred acquisition costs, and (4) improves the effectiveness of the required disclosures.  ASU 2018-12 is effective for interim and annual reporting periods beginning after December 15, 2020, although earlier adoption is permitted.  The Company has not yet determined the method or timing for adoption or estimated the impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”).  This guidance was issued to clarify the comparative reporting requirements for initial adoption and to provide an additional and optional transition method to adopt the new lease standard. The Company has not yet made an election on the optional transition method.  See Note 1 – Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2017 Annual Report for more information on the future adoption of the new lease accounting standard.  The Company does not expect the adoption of the new lease standard to have a material impact on its consolidated financial statements; however, it is expected that assets and liabilities will increase based on the present value of remaining lease payments for the minor number of leases which will be in place at the adoption date.

Note 3.
Investments

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of September 30, 2018 and December 31, 2017.

Fixed maturities were comprised of the following:

   
September 30, 2018
 
   
Estimated
Fair Value
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Cost or
Amortized
Cost
 
Fixed maturities:
                       
Bonds:
                       
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
26,240
   
$
7
   
$
1,449
   
$
27,682
 
Obligations of states and political subdivisions
   
8,224
     
259
     
135
     
8,100
 
Corporate securities:
                               
Utilities and telecom
   
18,891
     
855
     
756
     
18,792
 
Financial services
   
51,517
     
1,031
     
2,142
     
52,628
 
Other business – diversified
   
47,267
     
240
     
2,668
     
49,695
 
Other consumer – diversified
   
54,807
     
87
     
3,889
     
58,609
 
Total corporate securities
   
172,482
     
2,213
     
9,455
     
179,724
 
Redeemable preferred stocks:
                               
Other consumer – diversified
   
192
     
-
     
-
     
192
 
Total redeemable preferred stocks
   
192
     
-
     
-
     
192
 
Total fixed maturities
 
$
207,138
   
$
2,479
   
$
11,039
   
$
215,698
 

   
December 31, 2017
 
   
Estimated
Fair Value
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Cost or
Amortized
Cost
 
Fixed maturities:
                       
Bonds:
                       
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
31,155
   
$
149
   
$
511
   
$
31,517
 
Obligations of states and political subdivisions
   
10,809
     
630
     
1
     
10,180
 
Corporate securities:
                               
Utilities and telecom
   
21,882
     
1,709
     
130
     
20,303
 
Financial services
   
53,686
     
2,049
     
453
     
52,090
 
Other business – diversified
   
44,184
     
1,024
     
1,349
     
44,509
 
Other consumer – diversified
   
53,200
     
924
     
1,477
     
53,753
 
Total corporate securities
   
172,952
     
5,706
     
3,409
     
170,655
 
Redeemable preferred stocks:
                               
Other consumer – diversified
   
192
     
-
     
-
     
192
 
Total redeemable preferred stocks
   
192
     
-
     
-
     
192
 
Total fixed maturities
 
$
215,108
   
$
6,485
   
$
3,921
   
$
212,544
 

Bonds having an amortized cost of $9,896 and $11,178 and included in the tables above were on deposit with insurance regulatory authorities as of September 30, 2018 and December 31, 2017, respectively, in accordance with statutory requirements.

Equity securities were comprised of the following:

   
September 30, 2018
 
   
Estimated
Fair Value
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Cost
 
Equity securities:
                       
Common and non-redeemable preferred stocks:
                       
Utilities and telecom
 
$
1,602
   
$
637
   
$
-
   
$
965
 
Financial services
   
4,770
     
390
     
-
     
4,380
 
Other business – diversified
   
320
     
273
     
-
     
47
 
Other consumer – diversified
   
17,013
     
11,890
     
-
     
5,123
 
Total equity securities
 
$
23,705
   
$
13,190
   
$
-
   
$
10,515
 

   
December 31, 2017
 
   
Estimated
Fair Value
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Cost
 
Equity securities:
                       
Common and non-redeemable preferred stocks:
                       
Utilities and telecom
 
$
1,588
   
$
624
   
$
-
   
$
964
 
Financial services
   
5,634
     
851
     
-
     
4,783
 
Other business – diversified
   
297
     
250
     
-
     
47
 
Other consumer – diversified
   
15,836
     
10,712
     
-
     
5,124
 
Total equity securities
 
$
23,355
   
$
12,437
   
$
-
   
$
10,918
 

The carrying value and amortized cost of the Company’s investments in fixed maturities at September 30, 2018 and December 31, 2017 by contractual maturity were as follows.  Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

   
September 30, 2018
   
December 31, 2017
 
   
Carrying
Value
   
Amortized
Cost
   
Carrying
Value
   
Amortized
Cost
 
Due in one year or less
 
$
3,148
   
$
3,150
   
$
1,653
   
$
1,655
 
Due after one year through five years
   
19,055
     
19,408
     
13,738
     
14,056
 
Due after five years through ten years
   
126,581
     
131,961
     
112,847
     
112,116
 
Due after ten years
   
42,251
     
43,970
     
67,328
     
64,928
 
Varying maturities
   
16,103
     
17,209
     
19,542
     
19,789
 
Totals
 
$
207,138
   
$
215,698
   
$
215,108
   
$
212,544
 

The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of September 30, 2018 and December 31, 2017.

   
September 30, 2018
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
3,923
   
$
178
   
$
20,812
   
$
1,271
   
$
24,735
   
$
1,449
 
Obligations of states and political subdivisions
   
4,402
     
135
     
-
     
-
     
4,402
     
135
 
Corporate securities
   
90,396
     
4,116
     
50,934
     
5,339
     
141,330
     
9,455
 
Total temporarily impaired securities
 
$
98,721
   
$
4,429
   
$
71,746
   
$
6,610
   
$
170,467
   
$
11,039
 

   
December 31, 2017
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
12,175
   
$
162
   
$
12,737
   
$
349
   
$
24,912
   
$
511
 
Obligations of states and political subdivisions
   
999
     
1
     
-
     
-
     
999
     
1
 
Corporate securities
   
40,108
     
653
     
32,667
     
2,756
     
72,775
     
3,409
 
Total temporarily impaired securities
 
$
53,282
   
$
816
   
$
45,404
   
$
3,105
   
$
98,686
   
$
3,921
 

The evaluation for an other than temporary impairment is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status.

As of September 30, 2018 and December 31, 2017, there were one hundred thirty-three and sixty-nine securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the financial services, other diversified business and other diversified consumer sectors. The increase in the number and value of securities in an unrealized loss position during the nine month period ended September 30, 2018, was primarily attributable to the rising interest rate environment.  The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of September 30, 2018.

The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.

Level 1
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks.

Level 2
Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly all of its fixed maturities, which consist of U.S. Treasury securities and U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers.  Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize a matrix pricing concept, which is a mathematical technique used widely in the industry to value debt securities based on various relationships to other benchmark quoted prices.

Level 3
Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk).  Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. The Company’s financial instruments valued using Level 3 criteria consist of a limited number of fixed maturities. As of September 30, 2018 and December 31, 2017, the value of the Company’s fixed maturities valued using Level 3 criteria was $1,018 and $1,369, respectively. The use of different criteria or assumptions regarding data may have yielded materially different valuations.

As of September 30, 2018, financial instruments carried at fair value were measured on a recurring basis as summarized below:

   
Quoted Prices
in Active
Markets
for Identical
Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
   
 
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Assets:
                       
Fixed maturities
 
$
-
   
$
206,120
   
$
1,018
(1)  
 
$
207,138
 
Equity securities
   
19,155
     
4,550
(1)  
   
-
     
23,705
 
Cash equivalents
   
8,653
     
-
     
-
     
8,653
 
Total
 
$
27,808
   
$
210,670
   
$
1,018
   
$
239,496
 


(1)
All underlying securities are financial service industry related.

As of December 31, 2017, financial instruments carried at fair value were measured on a recurring basis as summarized below:

   
Quoted Prices
in Active
Markets
for Identical
Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Assets:
                       
Fixed maturities
 
$
-
   
$
213,739
   
$
1,369
(1)  
 
$
215,108
 
Equity securities
   
17,973
     
5,382
(1)  
   
-
     
23,355
 
Cash equivalents
   
13,855
     
-
     
-
     
13,855
 
Total
 
$
31,828
   
$
219,121
   
$
1,369
   
$
252,318
 


(1)
All underlying securities are financial service industry related.

The following tables provide a roll-forward of the Company’s financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month and nine month periods ended September 30, 2018 and 2017.

   
Fixed
Maturities
 
Balance, December 31, 2017
 
$
1,369
 
Total unrealized losses included in other comprehensive loss
   
(30
)
Balance, March 31, 2018
   
1,339
 
Total unrealized gains included in other comprehensive loss
   
7
 
Balance, June 30, 2018
   
1,346
 
Total realized gains included in earnings
   
208
 
Total unrealized losses included in other comprehensive loss
   
(53
)
Settlements
   
(483
)
Balance, September 30, 2018
 
$
1,018
 

   
Fixed
Maturities
 
Balance, December 31, 2016
 
$
1,264
 
Total unrealized gains included in other comprehensive income
   
38
 
Balance, March 31, 2017
   
1,302
 
Total unrealized gains included in other comprehensive income
   
30
 
Balance, June 30, 2017
   
1,332
 
Total unrealized gains included in other comprehensive income
   
19
 
Balance, September 30, 2017
 
$
1,351
 

The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies that are not actively traded.  There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal.  Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable.

The following table is a summary of realized investment gains (losses) for the three month and nine month periods ended September 30, 2018 and 2017.

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Gross gains
 
$
484
   
$
539
   
$
1,101
   
$
2,879
 
Gross losses
   
-
     
-
     
(304
)
   
(61
)
Realized investment gains, net
 
$
484
   
$
539
   
$
797
   
$
2,818
 

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month and nine month periods ended September 30, 2018 and 2017.

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net gains recognized during the period on equity securities
 
$
1,355
   
$
-
   
$
1,025
   
$
-
 
Less: Net losses recognized during the period on equity securities sold during the period
   
(272
)
   
-
     
(272
)
   
-
 
Net unrealized gains recognized during the reporting period on equity securities still held at the reporting date
 
$
1,083
   
$
-
   
$
753
   
$
-
 

Note 4.
Fair Values of Financial Instruments

The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates.  However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2018 and December 31, 2017.

   
   
September 30, 2018
   
December 31, 2017
 
   
  Level in Fair
Value
Hierarchy (1)
   
Carrying
Amount
   
Estimated
Fair Value
   
Carrying
Amount
   
Estimated
Fair Value
 
Assets:
                             
Cash and cash equivalents
 
Level 1
   
$
10,038
   
$
10,038
   
$
24,547
   
$
24,547
 
Fixed maturities
   
(1)

   
207,138
     
207,138
     
215,108
     
215,108
 
Equity securities
   
(1)

   
23,705
     
23,705
     
23,355
     
23,355
 
Other invested assets
 
Level 3
     
10,817
     
10,817
     
5,626
     
5,626
 
Policy loans
 
Level 2
     
2,084
     
2,084
     
2,146
     
2,146
 
Real estate
 
Level 2
     
38
     
38
     
38
     
38
 
Investment in unconsolidated trusts
 
Level 2
     
1,238
     
1,238
     
1,238
     
1,238
 
                                       
Liabilities:
                                       
Junior subordinated debentures, net
 
Level 2
     
33,738
     
33,738
     
33,738
     
33,738
 


(1)
See Note 3 for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.

There have not been any transfers between Level 1, Level 2 and Level 3 during the periods presented in these consolidated financial statements.

Note 5.
Liabilities for Unpaid Losses, Claims and Loss Adjustment Expenses

The roll-forward of liabilities for unpaid losses, claims and loss adjustment expenses, by major product, is as follows:

Property and Casualty Insurance Products
 
Nine Months Ended
September 30,
 
   
2018
   
2017
 
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
47,997
   
$
49,556
 
Less: Reinsurance recoverable on unpaid losses
   
(7,220
)
   
(9,806
)
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net
   
40,777
     
39,750
 
                 
Incurred related to:
               
Current accident year
   
30,339
     
27,359
 
Prior accident year development (1)
   
(1,795
)
   
(1,480
)
Total incurred
   
28,544
     
25,879
 
                 
Paid related to:
               
Current accident year
   
10,716
     
9,858
 
Prior accident years
   
15,693
     
13,720
 
Total paid
   
26,409
     
23,578
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, net
   
42,912
     
42,051
 
Plus: Reinsurance recoverable on unpaid losses
   
6,928
     
9,455
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
49,840
   
$
51,506
 


(1)
In establishing property and casualty reserves, the Company initially reserves for losses at the higher end of the reasonable range if no other value within the range is determined to be more probable.  Selection of such an initial loss estimate is an attempt by management to give recognition that initial claims information received generally is not conclusive with respect to legal liability, is generally not comprehensive with respect to magnitude of loss and generally, based on historical experience, will develop more adversely as time passes and more information becomes available.  Accordingly, the Company generally experiences reserve redundancies when analyzing the development of prior year losses in a current period.

Medicare Supplement Insurance Products
 
Nine Months Ended
September 30,
 
   
2018
   
2017
 
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
15,859
   
$
11,263
 
Less: Reinsurance recoverable on unpaid losses
   
(4,748
)
   
(990
)
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net
   
11,111
     
10,273
 
                 
Incurred related to:
               
Current accident year
   
59,356
     
50,733
 
Prior accident year development
   
817
     
720
 
Total incurred
   
60,173
     
51,453
 
                 
Paid related to:
               
Current accident year
   
46,734
     
40,801
 
Prior accident years
   
11,594
     
10,445
 
Total paid
   
58,328
     
51,246
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, net
   
12,956
     
10,480
 
Plus: Reinsurance recoverable on unpaid losses
   
7,340
     
3,640
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
20,296
   
$
14,120
 

Other Life and Health Insurance Products
 
Nine Months Ended
September 30,
 
   
2018
   
2017
 
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
1,833
   
$
1,743
 
Less: Reinsurance recoverable on unpaid losses
   
-
     
-
 
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net
   
1,833
     
1,743
 
                 
Incurred related to:
               
Current accident year
   
6,729
     
6,226
 
Prior accident year development
   
(71
)
   
(104
)
Total incurred
   
6,658
     
6,122
 
                 
Paid related to:
               
Current accident year
   
5,148
     
4,807
 
Prior accident years
   
1,663
     
1,500
 
Total paid
   
6,811
     
6,307
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, net
   
1,680
     
1,558
 
Plus: Reinsurance recoverable on unpaid losses
   
-
     
-
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross
 
$
1,680
   
$
1,558
 

Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred:

   
Nine Months Ended
September 30,
 
   
2018
   
2017
 
Total incurred losses
 
$
95,375
   
$
83,454
 
Cash surrender value and matured endowments
   
1,057
     
1,167
 
Benefit reserve changes
   
2,046
     
2,825
 
Total insurance benefits and losses incurred
 
$
98,478
   
$
87,446
 

Note 6.
Junior Subordinated Debentures

The Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of: (i) issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic American; and (iii) engaging in those activities necessary or incidental thereto.

The financial structure of each of Atlantic American Statutory Trust I and II as of September 30, 2018 was as follows:

   
Atlantic American
Statutory Trust I
   
Atlantic American
Statutory Trust II
 
JUNIOR SUBORDINATED DEBENTURES (1) (2)
           
Principal amount owed September 30, 2018
 
$
18,042
   
$
23,196
 
Less: Treasury debt (3)
   
-
     
(7,500
)
Net balance September 30, 2018
 
$
18,042
   
$
15,696
 
Net balance December 31, 2017
 
$
18,042
   
$
15,696
 
Coupon rate
 
LIBOR + 4.00%
   
LIBOR + 4.10%
 
Interest payable
 
Quarterly
   
Quarterly
 
Maturity date
 
December 4, 2032
   
May 15, 2033
 
Redeemable by issuer
 
Yes
   
Yes
 
TRUST PREFERRED SECURITIES
               
Issuance date
 
December 4, 2002
   
May 15, 2003
 
Securities issued
   
17,500
     
22,500
 
Liquidation preference per security
 
$
1
   
$
1
 
Liquidation value
 
$
17,500
   
$
22,500
 
Coupon rate
 
LIBOR + 4.00%
   
LIBOR + 4.10%
 
Distribution payable
 
Quarterly
   
Quarterly
 
Distribution guaranteed by (4)
 
Atlantic American Corporation
   
Atlantic American Corporation
 


(1)
For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates.  During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures.  The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities.


(2)
The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries.


(3)
On August 4, 2014, the Company acquired $7,500 of the Junior Subordinated Debentures.


(4)
The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation.

Note 7.
Earnings (Loss) Per Common Share

A reconciliation of the numerator and denominator used in the earnings (loss) per common share calculations is as follows:

   
Three Months Ended
September 30, 2018
 
   
Income
   
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:
                 
Net income
 
$
934
     
20,420
       
Less: preferred stock dividends
   
(100
)
   
-
       
Net income applicable to common shareholders
 
$
834
     
20,420
  $ .04  

   
Three Months Ended
September 30, 2017
 
   
Income
   
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:
                   
Net income
 
$
747
     
20,440
       
Less: preferred stock dividends
   
(100
)
   
-
       
Net income applicable to common shareholders
 
$
647
     
20,440
 
$
.03  

   
Nine Months Ended
September 30, 2018
 
   
Income
   
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:
                   
Net loss
 
$
(905
)
   
20,314
       
Less: preferred stock dividends
   
(299
)
   
-
       
Net loss applicable to common shareholders
 
$
(1,204
)
   
20,314
 
$
(.06)  

   
Nine Months Ended
September 30, 2017
 
   
Income
   
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:
                   
Net income
 
$
1,986
     
20,428
       
Less: preferred stock dividends
   
(299
)
   
-
       
Net income applicable to common shareholders
 
$
1,687
     
20,428
 
$
.08  

The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings per common share calculation for all periods presented since its impact would have been antidilutive.

Note 8.
Income Taxes

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and income tax expense (benefit) is as follows:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Federal income tax provision at statutory rate of 21% and 35% for 2018 and 2017, respectively
 
$
225
   
$
221
   
$
(262
)
 
$
864
 
Dividends-received deduction
   
(10
)
   
(23
)
   
(30
)
   
(71
)
Small life insurance company deduction
   
-
     
(313
)
   
-
     
(343
)
Other permanent differences
   
22
     
18
     
50
     
52
 
Adjustment for prior years’ estimates to actual
   
(99
)
   
(19
)
   
(99
)
   
(19
)
Income tax expense (benefit)
 
$
138
   
$
(116
)
 
$
(341
)
 
$
483
 

The components of income tax expense (benefit) were:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Current - Federal
 
$
255
   
$
(157
)
 
$
994
   
$
906
 
Deferred - Federal