NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
1.
|
Organization and Basis of Presentation
|
Federal Life Group, Inc. (“FLG”, “we”, “us”, “our” or the “Company”) is a Pennsylvania corporation organized to be the stock holding company for Federal Life Mutual Holding Company and its subsidiaries (the “Predecessor”) following the 2018 conversion of Federal Life Mutual Holding Company from mutual to stock form (the “Conversion”). Federal Life Mutual Holding Company was subsequently renamed Federal Life Holding Company after the Conversion. Prior to the Conversion, FLG was not engaged in any significant operations and did not have any assets or liabilities. After the Conversion, which was completed on December 11, 2018, when FLG issued 3,530,150 shares at $10.00 per share for gross proceeds of $35.3 million, FLG’s primary assets are the outstanding capital stock of the Predecessor and a portion of the net proceeds of the Company’s initial public offering (“IPO”), which was completed on December 11, 2018. Prior to the Conversion, FLG was a direct, wholly-owned subsidiary of the Predecessor. Following the Conversion, the Company reorganized its corporate structure so that the Predecessor is a direct, wholly owned subsidiary of FLG. FLG now contains the accounts of its Predecessor and those accounts are now consolidated with those of FLG within the accompanying financial statements. The reorganization is considered a transaction between entities that are under common control. As a result, the consolidated financial statements prior to the IPO and the reorganization have been presented at their historical amounts.
The accompanying consolidated financial statements include the accounts of FLG and its subsidiaries, Federal Life Holding Company; FEDHO Holding Company (“FEDHO”); Federal Life Insurance Company (“Federal Life”); FED Mutual Financial Services, Inc. (“FED Mutual”); and Americana Realty Company (“Americana”). Additionally, the IPO described above resulted in a change in control according to Business Combinations (Topic 805), however, the Company elected not to apply push down accounting. Accordingly, the consolidated financial statements are presented at the Company’s historical carrying amounts. All intercompany transactions and balances have been eliminated in consolidation.
Federal Life, a subsidiary of Federal Life Holding Company, completed a reorganization in 2016 in which it converted from a mutual to a stock insurance company within a newly created mutual holding company structure. As part of this reorganization, Federal Life Mutual Holding Company was formed as an Illinois mutual insurance holding company and Federal Life continued its existence as an Illinois stock life insurance company. All of the shares of Federal Life were issued to FEDHO, an intermediate holding company that, in turn, is a wholly-owned subsidiary of the Federal Life Holding Company. Federal Life has two wholly-owned non-insurance subsidiaries, Americana and FED Mutual, discussed further below.
Federal Life’s in force business is primarily comprised of traditional life policies (term insurance, whole life insurance, non-medical health insurance, and group life insurance), interest sensitive contracts, and fixed deferred annuity contracts. Federal Life primarily sells its interest sensitive life, whole life, term life, fixed and indexed annuities through a network of independent agents. Federal Life is licensed to sell new business in the District of Columbia and all states except Maine, Massachusetts, New Hampshire, New York and Vermont. Although Federal Life is licensed to sell products in 45 states, its primary markets are Illinois, Michigan, Ohio, California, Florida, Texas, and Wisconsin.
Americana owns mineral rights in Arkansas, Georgia, Oklahoma and Texas. Americana earns royalty revenues from energy producers that are under agreement to drill for and produce oil and gas products on properties where Americana owns mineral rights.
FED Mutual is a FINRA licensed broker/dealer that was established to distribute Federal Life’s variable annuity products.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. The December 31, 2018 consolidated balance sheet data was derived from audited consolidated financial statements for the year ended December 31, 2018, which include all disclosures required by GAAP.
5
Table of Contents
For further information related to a description of areas of judgement and estimates and other information necessary to understand
our financial position and results of operations, refer to the audited consolidated fi
nancial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018
(the “2018 10-K”).
Investor Information
Investor related information, including periodic reports filed on Forms 10-K, 10-Q and 8-K and any amendments may be found on our website at ir.federallife.com as soon as reasonably practicable after such reports are filed with the SEC. In addition, we have available on our website our: (i) compliance reporting policy; (ii) code of ethics; (iii) audit committee charter; (iv) compensation committee charter and (v) nominating committee charter. The information incorporated herein by reference is also electronically accessible from the SEC's website at
www.sec.gov
.
2.
|
Summary of Significant Accounting Policies
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most significant estimates include those used in determining the capitalization and amortization of deferred policy acquisition costs (“DAC”), the valuation of investments, future policy benefits (traditional life contracts, immediate annuities, supplemental contracts with life contingencies, and accident and health), the fair value of stock-based compensation awards, and the provision for income taxes. Actual results could differ from those estimates.
Emerging Growth Company
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”). As an emerging growth company, the Company utilizes the extended transition period provided in the Securities Act of 1933 for complying with new or revised accounting standards. Under this accommodation, the Company may early adopt a new or revised accounting standard only if early adoption is permitted by the standard. Changes in accounting principles issued but not yet adopted described below reflect the Company’s status as an Emerging Growth Company and the extended adoption period allowed for such companies.
Smaller Reporting Company
Additionally, the Company qualifies as a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K. In some instances, this permits the Company to provide scaled disclosures under Regulation S-K and Regulation S-X.
Investments
Realized capital gains and losses on sales of investments include fixed maturity securities with calls and prepayments and are determined on the basis of specific security identification.
Equity securities are carried at fair value. Beginning with the adoption of Accounting Standards Update (“ASU”) No. 2016-01 on January 1, 2019, changes in the fair value of equity securities are recognized through net income. Prior to January 1, 2019, unrealized gains or losses were recorded in accumulated other comprehensive income (loss) (“AOCI”). Additionally, in connection with the adoption of ASU No. 2016-01, effective January 1, 2019, the Company has reclassified its investment in Federal Home Loan Bank (“FHLB”) common stock from equity securities to other invested assets. These investments are carried at redemption value. The carrying value of these investments at December 31, 2018 was $10,000.
3.
|
Recent Accounting Pronouncements
|
Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-09, “Compensation - Stock Compensation”: Improvements to Employee Shared-Based Payment Accounting. The aspects of accounting guidance affected by this ASU are income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU was effective for annual reporting periods beginning after December 15, 2017. The Company adopted this ASU in the fourth quarter of fiscal 2018 upon the issuance of restricted stock and stock options to our employees. The adoption of the ASU did not have an impact on our financial statements as we did not previously have stock compensation. The Company has elected to account for forfeitures when they occur.
6
Table of Contents
In February 2018, the FASB issue
d ASU No. 2018-02,
“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U
.S. federal corporate income tax rate described in the “Income Tax Reform” section below is recorded. ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018 and should be applied either in the period of adoption or retrospectively
to each period in which the effect of the change in the Tax Act is recognized. The
Company
early adopted ASU No. 2018-02 effective December 31, 2017 using the portfolio method, which resulted in the reclassification of $805,000 of stranded tax effects from
AOCI to retained earnings within the
Company
’s consolidated financial statements.
In May 2014, the FASB issued an ASU 2014-09 “Revenue from Contracts with Customers,” related to revenue arising from contracts with customers. This ASU, which replaces most current revenue recognition guidance, including industry specific guidance, prescribes that an entity should recognize revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this ASU on January 1, 2019. The adoption of this ASU had no impact on our consolidated financial statements as revenues related to insurance contracts and investment contracts are excluded from its scope.
In January 2016, the FASB issued ASU No. 2016-01 “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which revises an entity’s accounting related to the classification and measurement of certain equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for non-public companies for annual periods beginning after December 15, 2018. We adopted this guidance effective January 1, 2019 with no material impact to our consolidated financial statements. Changes in fair value of equity securities, previously recognized through other comprehensive income (loss), are now recognized in net investment gains. We also recorded a cumulative effect adjustment to increase retained earnings by $1,160,000, net of tax, as of January 1, 2019 for unrealized gains previously recognized in AOCI. For additional information, please see Note 7.
Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02 “Leases”, that will require recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements, This ASU affects accounting and disclosure more dramatically for lessees as accounting for lessors is mainly unchanged. This ASU is effective January 1, 2020. At this time, we do not believe the adoption of ASU No. 2016-02 will have an impact on the Company’s consolidated financial statements, as we do not have any material leases.
In August 2018, the FASB issued ASU No. 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts,” which revises certain aspects of the measurement models and disclosure requirements for long duration insurance and investment contracts. The FASB’s objective in issuing this ASU is to improve, simplify, and enhance the accounting for long-duration contracts. The revisions include updating cash flow assumptions in the calculation of the liability for traditional life products, introducing the term ‘market risk benefit’ (“MRB”) and requiring all contract features meeting the definition of an MRB to be measured at fair value, simplifying the method used to amortize DAC and deferred sales inducement costs (“DSIC”) to a constant basis over the expected term of the related contracts rather than based on gross profits and enhancing disclosure requirements. ASU is effective on January 1, 2022, the transition date (the remeasurement date) is January 1, 2020. Early adoption of this ASU is permitted. The Company is currently assessing the impact of the guidance on its consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities,” which changes the recognition and presentation requirements of hedge accounting. ASU No. 2017-12 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The adoption of ASU No. 2017- 12 is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs: Premium Amortization of Purchased Callable Debt Securities,” which requires that certain premiums on callable debt securities be amortized to the earliest call date. ASU No. 2017-08 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.
7
Table of Contents
In June 2016, the FASB issued
ASU No. 2016-13
“Financial Instruments – Credit Losses: Measurement of Credit Losses of Financial Instruments,” which provides a new current expected credit loss model to account for credit losses on certain financial assets and off-balance sheet exposure. The model requ
ires an entity to estimate lifetime credit losses related to such assets and exposure based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The g
uidance also modifies the current other-than- temporary impairment guidance for available-for-sale debt securities to require the use of an allowance rather than a direct write down of the investment and replaces existing guidance for purchased credit dete
riorated loans and debt securities. ASU
No. 2016-13 is effective for annual reporting periods beginning after December 15, 2020 with early adoption permitted for annual periods beginning after December 15, 2018. The Company is currently assessing the impac
t of the guidance on its consolidated financial statements.
4.
Investments a
nd Related Income
The Company’s principal investments are in fixed income securities, equity securities, and policy loans.
The following table presents the amortized cost, gross unrealized gains (losses) and fair value of the Company’s fixed maturity securities as of March 31, 2019 and December 31, 2018. Equity securities were removed from this table upon adoption of ASU No. 2016-01 at January 1, 2019.
|
|
March 31, 2019
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
U.S. government
|
|
$
|
4,060
|
|
|
$
|
136
|
|
|
$
|
(92
|
)
|
|
$
|
4,104
|
|
States, political subdivisions, other
|
|
|
33,699
|
|
|
|
778
|
|
|
|
(90
|
)
|
|
|
34,387
|
|
Corporate
|
|
|
109,523
|
|
|
|
2,211
|
|
|
|
(749
|
)
|
|
|
110,985
|
|
Residential mortgage-backed securities
|
|
|
39,703
|
|
|
|
990
|
|
|
|
(92
|
)
|
|
|
40,601
|
|
Commercial mortgage-backed securities
|
|
|
5,588
|
|
|
|
137
|
|
|
|
(49
|
)
|
|
|
5,676
|
|
Total fixed maturity securities
|
|
$
|
192,573
|
|
|
$
|
4,252
|
|
|
$
|
(1,072
|
)
|
|
$
|
195,753
|
|
|
|
December 31, 2018
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
U.S. government
|
|
$
|
4,063
|
|
|
$
|
142
|
|
|
$
|
(148
|
)
|
|
$
|
4,057
|
|
States, political subdivisions, other
|
|
|
30,881
|
|
|
|
472
|
|
|
|
(364
|
)
|
|
|
30,989
|
|
Corporate
|
|
|
108,664
|
|
|
|
617
|
|
|
|
(2,995
|
)
|
|
|
106,286
|
|
Residential mortgage-backed securities
|
|
|
37,755
|
|
|
|
455
|
|
|
|
(688
|
)
|
|
|
37,522
|
|
Commercial mortgage-backed securities
|
|
|
5,672
|
|
|
|
73
|
|
|
|
(124
|
)
|
|
|
5,621
|
|
Total fixed maturity securities
|
|
|
187,035
|
|
|
|
1,759
|
|
|
|
(4,319
|
)
|
|
|
184,475
|
|
Equity securities
|
|
|
4,514
|
|
|
|
1,528
|
|
|
|
(38
|
)
|
|
|
6,004
|
|
Total fixed maturity and equity securities
|
|
$
|
191,549
|
|
|
$
|
3,287
|
|
|
$
|
(4,357
|
)
|
|
$
|
190,479
|
|
The scheduled maturities for fixed income securities as of March 31, 2019 and December 31, 2018 are as follows:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Due in one year or less
|
|
$
|
6,699
|
|
|
$
|
6,795
|
|
|
$
|
5,998
|
|
|
$
|
6,041
|
|
Due after one year through five years
|
|
|
34,683
|
|
|
|
35,506
|
|
|
|
37,917
|
|
|
|
38,032
|
|
Due after five years through ten years
|
|
|
77,014
|
|
|
|
77,945
|
|
|
|
74,274
|
|
|
|
72,209
|
|
Due after ten years
|
|
|
28,886
|
|
|
|
29,230
|
|
|
|
25,419
|
|
|
|
25,050
|
|
Mortgage-backed securities
|
|
|
45,291
|
|
|
|
46,277
|
|
|
|
43,427
|
|
|
|
43,143
|
|
Total
|
|
$
|
192,573
|
|
|
$
|
195,753
|
|
|
$
|
187,035
|
|
|
$
|
184,475
|
|
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.
8
Table of Contents
The following table presents the sources of
investment
proceeds and the related gross
realized
investment gains (losses) for the three
month perio
ds
ended
March 31
, 201
9
and
March 31
, 201
8
, respectively:
|
|
Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
|
Fixed
|
|
|
Equity
|
|
|
Derivative
|
|
|
|
Maturities
|
|
|
Securities
|
|
|
Instruments
|
|
|
|
(Dollars in thousands)
|
|
Proceeds from sales or maturities
|
|
$
|
3,768
|
|
|
$
|
2,827
|
|
|
$
|
77
|
|
Gross gains from sales or maturities
|
|
|
11
|
|
|
|
715
|
|
|
|
107
|
|
Gross losses from sales or maturities
|
|
|
(2
|
)
|
|
|
(12
|
)
|
|
|
(140
|
)
|
|
|
Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
|
Fixed
|
|
|
Equity
|
|
|
Derivative
|
|
|
|
Maturities
|
|
|
Securities
|
|
|
Instruments
|
|
|
|
(Dollars in thousands)
|
|
Proceeds from sales or maturities
|
|
$
|
5,614
|
|
|
$
|
–
|
|
|
$
|
128
|
|
Gross gains from sales or maturities
|
|
|
48
|
|
|
|
–
|
|
|
|
226
|
|
Gross losses from sales or maturities
|
|
|
(33
|
)
|
|
|
–
|
|
|
|
(151
|
)
|
For the three month period ended March 31, 2019, the Company also recognized $105,000 of unrealized losses on equity securities in net investment gains in accordance with the adoption of ASU 2016-01.
For the three month periods ended March 31, 2019 and March 31, 2018 the Company did not recognize any impairment losses.
The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made a decision to sell or whether it is probable that the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets any of these criteria, the security’s decline in fair value is deemed other than temporary and is recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not that the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates if it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security by comparing the estimated recovery value calculated by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, with the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss deemed to be related to other factors and recognized in AOCI.
The Company’s portfolio monitoring process includes a quarterly review of all securities through a screening process which identifies instances where the fair value compared to amortized cost for fixed income securities and cost for equity securities is below established thresholds, and also includes the monitoring of other criteria such as ratings, ratings downgrades or payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition of the issue or issuer and its future earnings potential. Some of the factors considered in evaluating whether a decline in fair value is other than temporary are: 1) the length of time and extent to which the fair value has been less than amortized cost for fixed income securities, or cost for equity securities; 2) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; and 3) the specific reasons that a security is in a significant unrealized loss position, including overall market conditions which could affect liquidity.
9
Table of Contents
The following table shows the fair value and gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at
March 31
, 201
9
and December 31, 201
8
.
Equity securities were removed from this table upon adoption of ASU No. 2016-01 at January 1, 201
9
.
March 31, 2019
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(Dollars in thousands)
|
|
U.S. government
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,960
|
|
|
$
|
(92
|
)
|
|
$
|
2,960
|
|
|
$
|
(92
|
)
|
States, political subdivisions, other
|
|
|
3,045
|
|
|
|
(8
|
)
|
|
|
5,619
|
|
|
|
(82
|
)
|
|
|
8,664
|
|
|
|
(90
|
)
|
Corporate
|
|
|
4,990
|
|
|
|
(46
|
)
|
|
|
25,724
|
|
|
|
(703
|
)
|
|
|
30,714
|
|
|
|
(749
|
)
|
Residential mortgage-backed
securities
|
|
|
–
|
|
|
|
–
|
|
|
|
10,164
|
|
|
|
(92
|
)
|
|
|
10,164
|
|
|
|
(92
|
)
|
Commercial mortgage-backed
securities
|
|
|
50
|
|
|
|
(2
|
)
|
|
|
2,474
|
|
|
|
(47
|
)
|
|
|
2,524
|
|
|
|
(49
|
)
|
Total
|
|
$
|
8,085
|
|
|
$
|
(56
|
)
|
|
$
|
46,941
|
|
|
$
|
(1,016
|
)
|
|
$
|
55,026
|
|
|
$
|
(1,072
|
)
|
December 31, 2018
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(Dollars in thousands)
|
|
U.S. government
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,907
|
|
|
$
|
(148
|
)
|
|
$
|
2,907
|
|
|
$
|
(148
|
)
|
States, political subdivisions, other
|
|
|
6,106
|
|
|
|
(103
|
)
|
|
|
9,339
|
|
|
|
(261
|
)
|
|
|
15,445
|
|
|
|
(364
|
)
|
Corporate
|
|
|
49,193
|
|
|
|
(1,886
|
)
|
|
|
14,228
|
|
|
|
(1,109
|
)
|
|
|
63,421
|
|
|
|
(2,995
|
)
|
Residential mortgage-backed
securities
|
|
|
9,401
|
|
|
|
(158
|
)
|
|
|
13,065
|
|
|
|
(530
|
)
|
|
|
22,466
|
|
|
|
(688
|
)
|
Commercial mortgage-backed
securities
|
|
|
2,003
|
|
|
|
(45
|
)
|
|
|
1,502
|
|
|
|
(79
|
)
|
|
|
3,505
|
|
|
|
(124
|
)
|
Equity securities
|
|
|
379
|
|
|
|
(38
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
379
|
|
|
|
(38
|
)
|
Total
|
|
$
|
67,082
|
|
|
$
|
(2,230
|
)
|
|
$
|
41,041
|
|
|
$
|
(2,127
|
)
|
|
$
|
108,123
|
|
|
$
|
(4,357
|
)
|
It is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost bases, which may be maturity.
Net Investment Income
Net investment income for the three month periods ended March 31, 2019 and March 31, 2018, respectively, is as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Fixed maturity securities
|
|
$
|
1,835
|
|
|
$
|
1,869
|
|
Equity securities
|
|
|
31
|
|
|
|
37
|
|
Real estate
|
|
|
26
|
|
|
|
37
|
|
Cash equivalents
|
|
|
153
|
|
|
|
8
|
|
Policy loans
|
|
|
174
|
|
|
|
176
|
|
Other
|
|
|
128
|
|
|
|
140
|
|
Subtotal
|
|
|
2,347
|
|
|
|
2,267
|
|
Investment expense
|
|
|
(146
|
)
|
|
|
(160
|
)
|
Net investment income
|
|
$
|
2,201
|
|
|
$
|
2,107
|
|
10
Table of Contents
Unrealized Capital Gains (Losses)
The following table shows the unrealized net capital gains and losses included in AOCI at March 31, 2019 and December 31, 2018. Equity securities were removed from this table upon adoption of ASU No. 2016-01 at January 1, 2019.
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Fair
|
|
|
Gross Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Gain (Loss)
|
|
|
|
(Dollars in thousands)
|
|
Fixed income securities
|
|
$
|
195,753
|
|
|
$
|
4,252
|
|
|
$
|
(1,072
|
)
|
|
$
|
3,180
|
|
Net unrealized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,180
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Fair
|
|
|
Gross Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Gain (Loss)
|
|
|
|
(Dollars in thousands)
|
|
Fixed income securities
|
|
$
|
184,475
|
|
|
$
|
1,759
|
|
|
$
|
(4,319
|
)
|
|
$
|
(2,560
|
)
|
Equity securities
|
|
|
6,004
|
|
|
|
1,528
|
|
|
|
(38
|
)
|
|
|
1,490
|
|
Net unrealized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,070
|
)
|
At March 31, 2019 and December 31, 2018, securities with a market value of approximately $4.6 million and $4.5 million, respectively, were on deposit with governmental agencies as required by State Insurance Departments.
Credit Risk
The Company generally strives to maintain a diversified invested asset portfolio but is exposed to credit and other types of risks related to its holding in fixed income and equity securities. Such risk may be related to individual companies, sectors, or entire asset classes. The Company manages this risk by holding a diversified portfolio of securities and sectors and by limiting the amount of exposure to a single issuer of credit. For March 31, 2019 and December 31, 2018, approximately 24% and 23%, respectively, of the Company’s investments in fixed maturities were invested in commercial and residential mortgage-backed securities and approximately 56% and 57% in corporate bonds. Approximately 5% of the fixed income maturities were rated below investment grade. There is certain concentration risk from investments in companies that are engaged in similar activities and have similar economic characteristics. The largest corporate bond sector exposures at March 31, 2019 are consumer non-cyclical consisting of 10% of the total fixed income portfolio, banks 6%, communications 5%, real estate 5%, and energy 5%. The largest corporate bond sector exposures at December 31, 2018 were consumer non-cyclical consisting of 11% of the total fixed income portfolio, banks 6%,
communications 6%, energy 5%, and real estate 5%. The Company uses equity index options to fully hedge its equity market exposure to index annuity products. These are exchange-traded options and there is no credit risk.
5.
|
Derivative Instruments
|
The Company uses derivatives to hedge its equity market exposure to index annuity products which are contracts that earn a return based on the change in the value of the S&P 500 index between annual index point dates. The Company buys and sells listed equity and index call options and call option spreads and there is no credit risk. The net premium is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair market value on the Company’s balance sheet. At March 31, 2019 and December 31, 2018, these derivative hedges had a net market value of $0.5 million and $0.2 million, with notional amounts of $13.2 million and $12.7 million on call options purchased and $9.1 million and $8.8 million on call options written, respectively. Derivative instruments are included in other invested assets on the consolidated balance sheets.
6.
|
Fair Value of Financial Instruments
|
Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale, at one time, the Company’s entire holding of a particular financial instrument. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could significantly affect estimates.
Fair value estimates are determined for existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and certain liabilities that are not considered financial instruments. Accordingly, the aggregate fair value estimates presented do not represent the underlying value of the Company.
11
Table of Contents
The Company has
procedures in place to validate the fair values received from the independent pricing service. The Company assesses whether prices received represent a reasonable estimate of fair value through various controls designed to ensure that valuations represent
a fair price, including calculation of portfolio returns, comparison of returns to corresponding benchmark returns, analysis of periodic changes in market prices, evaluation of corresponding market yields and spread levels, and comparing prices from multip
le pricing sources. On an ongoing basis, the Company monitors the pricing service valuation methods and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy.
In addition, tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Fixed maturity and equity securities:
Fair values were determined by an independent pricing service and are downloaded from Clearwater Analytics. The Company does not own any securities for which a fair value was not provided by the pricing service or a custody statement.
If a fair value had not been provided for a security, the Company would use a fair value estimated from yield data relating to instruments or securities with similar characteristics or as determined in good faith by the Company’s investment advisor, DWS.
Policy loans:
The carrying value of policy loans approximates fair value.
Other invested assets:
Fair values of derivative instruments were determined by an independent pricing service and are downloaded from Clearwater Analytics. FHLB common stock is held at redemption value (see Note 2).
Cash and cash equivalents:
The carrying value approximates fair value.
Separate account asset/liability:
Fair values are based on net asset values provided daily by fund managers.
Policyholder account balance:
For deposit liabilities, the carrying value was based on the amount payable on demand at the reporting date and approximates fair value.
Dividend accumulations and other:
The carrying value approximates fair value.
Amounts related to the Company’s financial instruments as of March 31, 2019 and December 31, 2018 are as follows:
|
|
Carrying/Fair
Value
March 31, 2019
|
|
|
Carrying/Fair
Value
December 31, 2018
|
|
|
|
(Dollars in thousands)
|
|
Financial instruments recorded as assets:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
195,753
|
|
|
$
|
184,475
|
|
Equity securities
|
|
|
3,806
|
|
|
|
6,004
|
|
Policy loans
|
|
|
9,488
|
|
|
|
9,581
|
|
Other invested assets
|
|
|
536
|
|
|
|
202
|
|
Cash and cash equivalents
|
|
|
29,842
|
|
|
|
33,252
|
|
Separate account
|
|
|
22,922
|
|
|
|
20,819
|
|
Financial instruments recorded as liabilities:
|
|
|
|
|
|
|
|
|
Policyholder account balance:
|
|
|
|
|
|
|
|
|
Interest sensitive life contracts
|
|
|
41,718
|
|
|
|
41,478
|
|
Annuities
|
|
|
76,277
|
|
|
|
74,820
|
|
Dividend accumulations and other
(1)
|
|
|
6,661
|
|
|
|
6,705
|
|
Separate account
|
|
|
22,922
|
|
|
|
20,819
|
|
|
(1)
|
included within Reserve for deposit type funds in the consolidated balance sheet
|
12
Table of Contents
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservabl
e inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the
valuation techniques as follows:
Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.
Level 2 – Assets and liabilities whose values are based on the following:
|
(a)
|
Quoted prices for similar assets or liabilities in active markets;
|
|
(b)
|
Quoted prices for identical or similar assets or liabilities in markets that are not active; or
|
|
(c)
|
Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.
|
Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.
Summary of significant valuation techniques and inputs for assets and liabilities measured at fair value on a recurring basis:
Level 1 measurements:
Fixed maturity securities: Comprised of U.S. Treasury and GNMA agency securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.
Equities: Comprised of actively traded, exchange-listed equities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.
Other invested assets: Comprised of actively traded, exchange-listed derivative instruments. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.
Cash Equivalents: Comprised of money market funds. Market values for the money market funds are obtained daily from the fund managers.
Separate account assets: Comprised of actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Market values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.
Level 2 measurements:
Fixed maturity securities: States, political subdivisions, and corporate securities: As valuation technique the pricing vendor employs multi-dimensional relational application model which uses standard inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The pricing vendor also monitors market indicators, and industry and economic events. For high yield corporate securities, observations of equity and credit default swap curves are also used.
Residential mortgage-backed securities: As valuation technique the pricing vendor employs option-adjusted spread (“OAS”) model and prepayment model as well as volatility driven, multi-dimensional spread tables using standard inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications plus new issue data, monthly prepayment information, and collateral performance. The pricing vendor also monitors market indicators, and industry and economic events.
Commercial mortgage-backed securities: As valuation technique the pricing vendor employs multi-dimensional spread table and price tables using standard inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications plus new issue data, monthly prepayment information, collateral performance, and real estate analysis from third party. The pricing vendor also monitors market indicators, and industry and economic events.
13
Table of Contents
Level 3 measurements:
Equities: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields, collateral performance, credit spreads, and other estimates including custody statements.
The following table presents the Company’s securities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:
|
|
Recurring Fair Value Measurements
|
|
|
|
at March 31, 2019 Using:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Fair Values
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
4,104
|
|
|
$
|
4,104
|
|
|
$
|
–
|
|
|
$
|
–
|
|
States, political subdivisions, other
|
|
|
34,387
|
|
|
|
–
|
|
|
|
34,387
|
|
|
|
–
|
|
Corporate
|
|
|
110,985
|
|
|
|
–
|
|
|
|
110,985
|
|
|
|
–
|
|
Residential mortgage-backed securities
|
|
|
40,601
|
|
|
|
–
|
|
|
|
40,601
|
|
|
|
–
|
|
Commercial mortgage-backed securities
|
|
|
5,676
|
|
|
|
–
|
|
|
|
5,676
|
|
|
|
–
|
|
Total fixed maturities
|
|
|
195,753
|
|
|
|
4,104
|
|
|
|
191,649
|
|
|
|
–
|
|
Equities
(1)
|
|
|
1,551
|
|
|
|
1,551
|
|
|
|
–
|
|
|
|
–
|
|
Other invested assets
(2)
|
|
|
526
|
|
|
|
526
|
|
|
|
–
|
|
|
|
–
|
|
Cash equivalents
(3)
|
|
|
29,842
|
|
|
|
29,842
|
|
|
|
–
|
|
|
|
–
|
|
Separate accounts
(4)
|
|
|
22,922
|
|
|
|
22,922
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
250,594
|
|
|
$
|
58,945
|
|
|
$
|
191,649
|
|
|
$
|
–
|
|
|
|
Recurring Fair Value Measurements
|
|
|
|
at December 31, 2018 Using:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Fair Values
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
4,057
|
|
|
$
|
4,057
|
|
|
$
|
–
|
|
|
$
|
–
|
|
States, political subdivisions, other
|
|
|
30,989
|
|
|
|
–
|
|
|
|
30,989
|
|
|
|
–
|
|
Corporate
|
|
|
106,286
|
|
|
|
–
|
|
|
|
106,286
|
|
|
|
–
|
|
Residential mortgage-backed securities
|
|
|
37,522
|
|
|
|
–
|
|
|
|
37,522
|
|
|
|
–
|
|
Commercial mortgage-backed securities
|
|
|
5,621
|
|
|
|
–
|
|
|
|
5,621
|
|
|
|
–
|
|
Total fixed maturities
|
|
|
184,475
|
|
|
|
4,057
|
|
|
|
180,418
|
|
|
|
–
|
|
Equities
(1)
|
|
|
3,767
|
|
|
|
3,757
|
|
|
|
–
|
|
|
|
10
|
|
Other invested assets
|
|
|
202
|
|
|
|
202
|
|
|
|
–
|
|
|
|
–
|
|
Cash equivalents
(3)
|
|
|
33,252
|
|
|
|
33,252
|
|
|
|
–
|
|
|
|
–
|
|
Separate accounts
(4)
|
|
|
20,819
|
|
|
|
20,819
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
242,515
|
|
|
$
|
62,087
|
|
|
$
|
180,418
|
|
|
$
|
10
|
|
|
(1)
|
Certain equity investments for which the fair value, of $2.3 million and $2.2 million as of March 31, 2019 and December 31, 2018, respectively, is measured using the net asset value per share (or its equivalent) practical expedient have been excluded from the fair value hierarchy, above.
|
|
(
2
)
|
The Company’s investment in FHLB common stock for which the fair value, of $10,000 at
March 31, 2019 and December 31, 2018, is based on its redemption value, effective January 1, 2019 (see Note 2), has been excluded from the fair value hierarchy, above.
|
14
Table of Contents
|
(
3
)
|
Cash equivalents are invested in money market funds with daily liquidity. The estimated fair value of cash equivalents is
based on the estimated fair value of the underlying assets as provided by fund managers in daily net asset values and included in Level 1 assets
.
|
|
(
4
)
|
Separate account assets are invested in money market funds with daily liquidity. The estimated fair value of separate account assets is based on the estimated fair value of the underlying assets as provided by fund managers in daily net asset values and included in Level 1 assets.
|
There were no Level 3 purchases, issuances, sales, settlements, or transfers during the three month periods ended March 31, 2019 and March 31, 2018.
7.
|
Accumulated Other Comprehensive Income
|
The components of AOCI are as follows:
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Other
|
|
|
|
Investment
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Gains (losses)
|
|
|
Shadow DAC
|
|
|
Income (loss)
|
|
|
|
(Dollars in thousands)
|
|
Balance, January 1, 2018
|
|
$
|
5,359
|
|
|
$
|
(602
|
)
|
|
$
|
4,757
|
|
Available-for-sale investment
|
|
|
|
|
|
|
|
|
|
|
|
|
gains (losses) arising during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities net of tax benefit of $207
|
|
|
(7,372
|
)
|
|
|
–
|
|
|
|
(7,372
|
)
|
Equity securities net of tax benefit of $63
|
|
|
(235
|
)
|
|
|
–
|
|
|
|
(235
|
)
|
Change in Shadow DAC net of tax of $235
|
|
|
–
|
|
|
|
885
|
|
|
|
885
|
|
Balance, December 31, 2018
|
|
|
(2,248
|
)
|
|
|
283
|
|
|
|
(1,965
|
)
|
Available-for-sale investment
|
|
|
|
|
|
|
|
|
|
|
|
|
gains (losses) arising during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities net of tax of $742
|
|
|
4,997
|
|
|
|
–
|
|
|
|
4,997
|
|
Change in Shadow DAC net of tax benefit of $172
|
|
|
–
|
|
|
|
(649
|
)
|
|
|
(649
|
)
|
Cumulative net effect of adoption of new accounting
principle
(1)
|
|
|
(1,160
|
)
|
|
|
–
|
|
|
|
(1,160
|
)
|
Balance, March 31, 2019
|
|
$
|
1,589
|
|
|
$
|
(366
|
)
|
|
$
|
1,223
|
|
|
(1)
|
This amount is the net effect of adopting ASU No. 2016-01 as discussed in Note 3.
|
AOCI includes gross unrealized gains and losses on debt and equity securities, as well as shadow DAC. This value is presented net of tax. Equity securities were removed from this table upon adoption of ASU No. 2016-01 at January 1, 2019.
Effective 2016, the parent holding company and subsidiaries files a consolidated federal income tax return. Tax years 2015 through 2018 are subject to examination by the IRS. Prior to 2016, consolidated federal income tax returns were filed under Federal Life as the ultimate parent.
Internal Revenue Code Section 382 (“Section 382”) limits how much of a loss carryforward can be used to offset taxable income when there is a change of ownership. The Company will be restricted in its ability to utilize loss carryforwards as a result of a 2018 change in ownership. The annual limit is estimated to be approximately $1.0 million and the total limit is estimated to be approximately $15.0 million.
15
Table of Contents
The Company has recorded a net deferred tax
liability
of $0.
1
million reflecting
a deferred tax liability of $0.6 million
from unrealized gains on securities offset by a $0.5 million deferred tax asset,
the par
tial benefit of $15.0 million in loss carryforwards, of which $13.1 million expire in varying amounts between 2025 and 2032. Realization of this asset is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. A val
uation allowance has been established to account for the Company’s assessment that the entire loss carryforward will likely not be recovered. Although realization of the net deferred tax asset is not assured, management believes it is more likely than not
that all of the net deferred tax asset will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced
.
The Company had no liability for unrecognized tax benefits at March 31, 2019 or December 31, 2018 and believes it is reasonably possible that the liability will not significantly increase within the next twelve months. No amounts have been accrued for interest or penalties.
The Tax Act limits life reserves for tax purposes to the greater of net surrender value or 92.81% of required reserves. It is not estimated that this will have a meaningful impact to the net admitted assets on the Company’s balance sheet.
The federal income tax provisions differ from the amounts determined by multiplying pre-tax income attributable to the Company by the statutory federal income tax rate of 21% for March 31, 2019 and March 31, 2018, as shown below.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Income tax benefits at statutory rate
|
|
$
|
(29
|
)
|
|
$
|
(186
|
)
|
Other
|
|
|
27
|
|
|
|
189
|
|
Income tax (benefit) expense
|
|
$
|
(2
|
)
|
|
$
|
3
|
|
Effective tax rate
|
|
|
-1.4
|
%
|
|
|
0.3
|
%
|
9.
|
Commitments and Contingent Liabilities
|
The Company is involved in various legal actions for which it will establish liabilities where appropriate. In the opinion of the Company’s management, based on the advice of legal counsel, the resolution of such litigation is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
10.
|
Debt and Federal Home Loan Bank Advances
|
The Company has not issued any debt or other credit obligations as of March 31, 2019 or December 31, 2018. The Company has no commitments in the form of loan guarantees. Federal Life is a member of the FHLB and has access to various advances and other funding products. As of March 31, 2019 and December 31, 2018, there are no advances or other credit outstanding with the FHLB.
11.
|
Related Party Transactions
|
All the outstanding shares of Americana and FED Mutual are owned by Federal Life. Federal Life is owned by FEDHO Holding Company, which is controlled by Federal Life Holding Company which is owned by Federal Life Group.
For the three months ended March 31, 2019 and March 31, 2018, Americana paid $135,000 and $41,000, respectively, in common stock dividends to Federal Life. As of March 31, 2019, and December 31, 2018, Americana reported $200,000 and $78,000, respectively, as dividends due to its parent company, Federal Life. This amount is generally settled within 60 days
.
Federal Life
provides financial support for Fed Mutual to continue its operations. All related party transactions eliminate in consolidation.
16
Table of Contents
|
|
Three Months Ended
March 31, 2019
|
|
|
Pro Forma for the
Three Months Ended
March 31, 2018
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss - numerator for earnings per common
share
|
|
$
|
(138
|
)
|
|
$
|
(890
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average basic common shares
outstanding
|
|
|
3,530,250
|
|
|
|
3,530,150
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
215,000
|
|
|
|
215,000
|
|
Restricted stock awards
|
|
|
140,000
|
|
|
|
140,000
|
|
Denominator for earnings per diluted common
share
|
|
|
3,885,250
|
|
|
|
3,885,150
|
|
Basic loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.25
|
)
|
Diluted loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.25
|
)
|
The amounts disclosed above include 140,000 shares that were granted as restricted stock awards to the Company’s executive officers at the closing of the offerings associated with the Company’s IPO. No effect has been given to any issuances of additional shares in connection with the grant of options or awards of stock under the stock-based incentive plan adopted by the Company. Under the stock-based incentive plan, the Company may issue 480,000 shares of its common stock. Of this, 140,000 shares were granted as restricted stock awards and 215,000 shares were used to award stock options under the stock-based incentive plan. The issuance of authorized but unissued shares of common stock upon the exercise of stock options or for purposes of making restricted stock awards under the stock-based incentive plan instead of open market purchases would dilute the voting interests of existing shareholders by approximately 12%.
On April 4, 2019, the Company filed with the SEC a Form 25, notification to voluntarily delist from the Nasdaq Capital Market and announced that it anticipates that its common stock will be quoted on the OTC Pink Open Market following the Nasdaq delisting. The delisting was effective April 14, 2019 and the Company’s stock began trading on the OTC Pink Open Market on April 15, 2019 under the symbol “FLFG”.
17
Table of Contents