kins_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(Mark one)
     
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
     
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to _________

Commission File Number 0-1665

KINGSTONE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware   36-2476480
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
15 Joys Lane
Kingston, NY 12401
(Address of principal executive offices)

(845) 802-7900
(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 þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of  “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
As of August 12, 2014, there were 7,294,917 shares of the registrant’s common stock outstanding.
 


 
 
 
 

KINGSTONE COMPANIES, INC.
INDEX
 
           
PAGE
 
               
 
2
 
       
2
 
         
2
 
         
3
 
         
4
 
         
5-6
 
         
7
 
       
30
 
       
55
 
       
55
 
               
 
56
 
       
56
 
       
56
 
       
56
 
       
56
 
       
56
 
       
56
 
       
57
 
    58  
EXHIBIT 3(a)      
EXHIBIT 3(b)      
EXHIBIT 31(a)      
EXHIBIT 31(b)      
EXHIBIT 32      
1 EXHIBIT 101.INS XBRL Instance Document      
1 EXHIBIT 101.SCH XBRL Taxonomy Extension Schema
1 EXHIBIT 101.CAL XBRL Taxonomy Extension Calculation Linkbase
1 EXHIBIT 101.DEF XBRL Taxonomy Extension Definition Linkbase
1 EXHIBIT 101.LAB XBRL Taxonomy Extension Label Linkbase
EXHIBIT 101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
 
 

 
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements as that term is defined in the federal securities laws.  The events described in forward-looking statements contained in this Quarterly Report may not occur.  Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results.  The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions are intended to identify forward-looking statements.  We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control that may influence the accuracy of the statements and the projections upon which the statements are based.  Factors which may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013 under “Factors That May Affect Future Results and Financial Condition.”
 
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate.  Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
 
 
1

 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.                       Financial Statements.
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
             
Condensed Consolidated Balance Sheets
           
   
June 30,
   
December 31,
 
   
2014
   
2013
 
   
(unaudited)
       
 Assets
           
 Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $4,829,265 at June 30, 2014 and $2,425,261 at December 31, 2013)
  $ 4,621,872     $ 2,399,482  
 Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $40,295,663 at June 30, 2014 and $28,079,902 at December 31, 2013)
    41,595,511       28,436,022  
 Equity securities, available-for-sale, at fair value (cost of $8,823,489 at June 30, 2014 and $6,690,338 at December 31, 2013)
    9,402,811       6,796,673  
 Total investments
    55,620,194       37,632,177  
 Cash and cash equivalents
    6,824,249       19,922,506  
 Premiums receivable, net of provision for uncollectible amounts
    9,249,702       7,590,074  
 Receivables - reinsurance contracts
    1,068,551       974,989  
 Reinsurance receivables, net of provision for uncollectible amounts
    44,423,447       37,560,825  
 Deferred policy acquisition costs
    7,996,102       6,860,263  
 Intangible assets, net
    2,471,387       2,709,244  
 Property and equipment, net of accumulated depreciation
    2,443,790       2,038,755  
 Other assets
    1,177,383       1,494,989  
 Total assets
  $ 131,274,805     $ 116,783,822  
                 
 Liabilities
               
 Loss and loss adjustment expense reserves
  $ 39,704,288     $ 34,503,229  
 Unearned premiums
    37,202,073       32,335,614  
 Advance premiums
    1,280,738       776,099  
 Reinsurance balances payable
    3,881,409       2,566,729  
 Deferred ceding commission revenue
    7,774,715       6,984,166  
 Accounts payable, accrued expenses and other liabilities
    2,557,243       3,215,487  
 Income taxes payable
    185,543       -  
 Deferred income taxes
    937,359       693,087  
 Total liabilities
    93,523,368       81,074,411  
                 
 Commitments and Contingencies
               
                 
 Stockholders' Equity
               
 Preferred stock, $.01 par value; authorized 2,500,000 shares
    -       -  
 Common stock, $.01 par value; authorized 20,000,000 shares; issued 8,213,826 shares at June 30, 2014 and 8,186,031 shares at December 31, 2013; outstanding 7,290,868 shares at June 30, 2014 and 7,266,573 shares at December 31, 2013
    82,138       81,860  
 Capital in excess of par
    32,723,291       32,692,568  
 Accumulated other comprehensive income
    1,240,251       305,219  
 Retained earnings
    5,286,405       4,187,209  
      39,332,085       37,266,856  
 Treasury stock, at cost, 922,958 shares at June 30, 2014 and 919,458 shares at December 31, 2013
    (1,580,648 )     (1,557,445 )
 Total stockholders' equity
    37,751,437       35,709,411  
                 
 Total liabilities and stockholders' equity
  $ 131,274,805     $ 116,783,822  
 

See accompanying notes to condensed consolidated financial statements.
 
 
2

 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
                         
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30
   
June 30
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenues
                       
 Net premiums earned
  $ 6,429,373     $ 4,676,282     $ 12,355,684     $ 9,299,497  
 Ceding commission revenue
    3,706,049       2,334,431       7,087,332       4,628,142  
 Net investment income
    451,915       275,031       830,703       558,318  
 Net realized gains on sales of investments
    134,602       249,893       322,950       355,018  
 Other income
    250,908       243,825       478,465       457,815  
 Total revenues
    10,972,847       7,779,462       21,075,134       15,298,790  
                                 
Expenses
                               
 Loss and loss adjustment expenses
    3,007,939       3,241,797       7,332,893       5,711,438  
 Commission expense
    2,903,792       2,079,084       5,486,300       4,194,904  
 Other underwriting expenses
    2,529,075       1,931,611       4,810,824       4,144,956  
 Other operating expenses
    338,379       227,833       588,414       471,143  
 Depreciation and amortization
    209,935       153,985       393,055       306,971  
 Interest expense
    -       17,890       -       39,105  
 Total expenses
    8,989,120       7,652,200       18,611,486       14,868,517  
                                 
 Income from operations before taxes
    1,983,727       127,262       2,463,648       430,273  
 Income tax expense
    629,225       59,161       782,013       171,164  
Net income
    1,354,502       68,101       1,681,635       259,109  
                                 
Other comprehensive income (loss), net of tax
                         
Gross change in unrealized gains (losses)
                         
 on available-for-sale-securities
    736,319       (1,260,607 )     1,416,715       (814,864 )
                                 
Income tax (expense) benefit related to items
                         
 of other comprehensive income (loss)
    (250,348 )     428,607       (481,683 )     277,054  
Comprehensive income (loss)
  $ 1,840,473     $ (763,899 )   $ 2,616,667     $ (278,701 )
                                 
Earnings per common share:
                               
Basic
  $ 0.19     $ 0.02     $ 0.23     $ 0.07  
Diluted
  $ 0.18     $ 0.02     $ 0.23     $ 0.07  
                                 
Weighted average common shares outstanding
                         
Basic
    7,287,935       3,827,712       7,277,313       3,834,269  
Diluted
    7,358,280       3,906,432       7,352,609       3,911,650  
                                 
Dividends declared and paid per common share
  $ 0.04     $ 0.04     $ 0.08     $ 0.08  
                                 
 
 

See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statement of Stockholders' Equity
Six months ended June 30, 2014 (unaudited)
                                                             
                                   Accumulated                          
                           
Capital
   
Other
                         
   
Preferred Stock
   
Common Stock
   
in Excess
   
Comprehensive
   
Retained
   
Treasury Stock
       
   
Shares
   
Amount
   
Shares
   
Amount
   
of Par
   
Income
   
Earnings
   
Shares
   
Amount
   
Total
 
Balance, January 1, 2014
    -     $ -       8,186,031     $ 81,860     $ 32,692,568     $ 305,219     $ 4,187,209       919,458     $ (1,557,445 )   $ 35,709,411  
Stock-based compensation
    -       -       -       -       26,783       -       -       -       -       26,783  
Shares deducted from exercise of stock
                                                                         
options for payment of withholding taxes
    -       -       (9,309 )     (93 )     (66,002 )     -       -       -       -       (66,095 )
Excess tax benefit from exercise
                                                                               
of stock options
    -       -       -       -       70,313       -       -       -       -       70,313  
Exercise of stock options
    -       -       37,104       371       (371 )     -       -       -       -       -  
Acquisition of treasury stock
    -       -       -       -       -       -       -       3,500       (23,203 )     (23,203 )
Dividends
    -       -       -       -       -       -       (582,439 )     -       -       (582,439 )
Net income
    -       -       -       -       -       -       1,681,635       -       -       1,681,635  
Change in unrealized gains on available-
                                                                         
for-sale securities, net of tax
    -       -       -       -       -       935,032       -       -       -       935,032  
Balance, June 30, 2014
    -     $ -       8,213,826     $ 82,138     $ 32,723,291     $ 1,240,251     $ 5,286,405       922,958     $ (1,580,648 )   $ 37,751,437  
 
 

See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
           
             
Six months ended June 30,
 
2014
   
2013
 
             
 Cash flows provided by operating activities:
           
 Net income
  $ 1,681,635     $ 259,109  
 Adjustments to reconcile net income to net cash provided by operating activities:
               
 Net realized gains on sale of investments
    (322,950 )     (355,018 )
 Depreciation and amortization
    393,055       306,971  
 Amortization of bond premium, net
    100,702       89,558  
 Stock-based compensation
    26,783       12,938  
 Excess tax benefit from exercise of stock options
    (70,313 )     -  
 Deferred income tax expense
    (237,411 )     (228,734 )
 (Increase) decrease in operating assets:
               
 Premiums receivable, net
    (1,659,628 )     (600,185 )
 Receivables - reinsurance contracts
    (93,562 )     -  
 Reinsurance receivables, net
    (6,862,622 )     4,369,750  
 Deferred policy acquisition costs
    (1,135,839 )     (636,374 )
 Other assets
    299,447       686,387  
 Increase (decrease) in operating liabilities:
               
 Loss and loss adjustment expense reserves
    5,201,059       (2,128,064 )
 Unearned premiums
    4,866,459       3,423,563  
 Advance premiums
    504,639       231,050  
 Reinsurance balances payable
    1,314,680       3,517,529  
 Advance payments from catastrophe reinsurers
    -       (7,358,391 )
 Deferred ceding commission revenue
    790,549       587,730  
 Accounts payable, accrued expenses and other liabilities
    (402,388 )     (466,608 )
 Net cash flows provided by operating activities
    4,394,295       1,711,211  
                 
 Cash flows (used in) provided by investing activities:
               
 Purchase - fixed-maturity securities held-to-maturity
    (2,215,540 )     -  
 Purchase - fixed-maturity securities available-for-sale
    (15,837,626 )     (1,649,667 )
 Purchase - equity securities available-for-sale
    (5,356,992 )     (4,298,630 )
 Sale or maturity - fixed-maturity securities available-for-sale
    3,643,499       4,557,745  
 Sale - equity securities available-for-sale
    3,417,605       2,727,084  
 Other investing activities
    (542,074 )     (145,881 )
 Net cash flows (used in) provided by investing activities
    (16,891,128 )     1,190,651  
                 
 Cash flows used in financing activities:
               
 Proceeds from line of credit
    -       230,000  
 Principal payments on line of credit
    -       (550,000 )
 Withholding taxes paid on net exercise of stock options
    (66,095 )     -  
 Excess tax benefit from exercise of stock options
    70,313       -  
 Purchase of treasury stock
    (23,203 )     (129,900 )
 Dividends paid
    (582,439 )     (307,274 )
 Net cash flows used in financing activities
    (601,424 )     (757,174 )
 

See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
   
Six months ended June 30,
 
2014
   
2013
 
   
 (Decrease) increase in cash and cash equivalents
  $ (13,098,257 )   $ 2,144,688  
 Cash and cash equivalents, beginning of period
    19,922,506       2,240,012  
 Cash and cash equivalents, end of period
  $ 6,824,249     $ 4,384,700  
                 
 Supplemental disclosures of cash flow information:
               
 Cash paid for income taxes
  $ 463,400     $ 564,000  
 Cash paid for interest
  $ -     $ 39,087  
                 
 Supplemental schedule of non-cash investing and financing activities:
               
 Shares deducted from exercise of stock options for payment of withholding taxes
  $ 66,095     $ -  
 

See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Nature of Business and Basis of Presentation
 
Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its wholly owned subsidiary Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance to small businesses and individuals exclusively through independent agents and brokers. KICO is a licensed insurance company in the State of New York. KICO has also obtained a license to write insurance in the Commonwealth of Pennsylvania; however, KICO has only nominally commenced writing business in Pennsylvania. Kingstone, through its wholly owned subsidiary, Payments, Inc., a licensed premium finance company in the State of New York, receives fees for placing contracts with a third party licensed premium finance company (see Note 12Subsequent Events).
 
The accompanying unaudited condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8-03 of SEC Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2013 and notes thereto included in the Company’s Annual Report on Form 10-K filed on March 31, 2014. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position and results of operations. The results of operations for the six months ended June 30, 2014 may not be indicative of the results that may be expected for the year ending December 31, 2014.
 
Note 2 – Accounting Policies
 
Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions, which include the reserves for losses and loss adjustment expenses, are subject to considerable estimation error due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of several years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require considerable judgment by management. On an on-going basis, management reevaluates its assumptions and the methods of calculating its estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements consist of Kingstone and its wholly owned subsidiaries. Subsidiaries include: (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates, and (2) Payments Inc. All significant inter-company transactions have been eliminated in consolidation.
 
 
7

 
 
Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2016. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.

Note 3 - Investments 

Available-for-Sale Securities

The amortized cost and fair value of investments in available-for-sale fixed-maturity securities and equity securities as of June 30, 2014 and December 31, 2013 are summarized as follows:
 
   
June 30, 2014
 
                                 
Net
 
  
 
Cost or
   
Gross
   
Gross Unrealized Losses
         
Unrealized
 
   
Amortized
   
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
       
 Fixed-Maturity Securities:
                                   
 Political subdivisions of States,
                                   
 Territories and Possessions
  $ 12,413,225     $ 348,720     $ (18,529 )   $ (15,108 )   $ 12,728,308     $ 315,083  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    27,882,438       1,021,295       (11,736 )     (24,794 )     28,867,203       984,765  
 Total fixed-maturity securities
    40,295,663       1,370,015       (30,265 )     (39,902 )     41,595,511       1,299,848  
                                                 
 Equity Securities:
                                               
 Preferred stocks
    3,340,238       28,311       -       (75,147 )     3,293,402       (46,836 )
 Common stocks
    5,483,251       643,486       (17,328 )     -       6,109,409       626,158  
 Total equity securities
    8,823,489       671,797       (17,328 )     (75,147 )     9,402,811       579,322  
                                                 
 Total
  $ 49,119,152     $ 2,041,812     $ (47,593 )   $ (115,049 )   $ 50,998,322     $ 1,879,170  
 
 
8

 
 
   
December 31, 2013
 
                                 
Net
 
  
 
Cost or
   
Gross
    Gross Unrealized Losses      
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
Fixed-Maturity Securities:
                               
Political subdivisions of States,
                         
 Territories and Possessions
  $ 7,000,222     $ 162,616     $ (49,491 )   $ (45,140 )   $ 7,068,207     $ 67,985  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    21,079,680       569,139       (179,810 )     (101,194 )     21,367,815       288,135  
 Total fixed-maturity securities
    28,079,902       731,755       (229,301 )     (146,334 )     28,436,022       356,120  
                                                 
 Equity Securities:
                                               
 Preferred stocks
    2,899,301       2,503       (251,525 )     (62,551 )     2,587,728       (311,573 )
 Common stocks
    3,791,037       470,606       (38,785 )     (13,913 )     4,208,945       417,908  
 Total equity securities
    6,690,338       473,109       (290,310 )     (76,464 )     6,796,673       106,335  
                                                 
 Total
  $ 34,770,240     $ 1,204,864     $ (519,611 )   $ (222,798 )   $ 35,232,695     $ 462,455  
 
A summary of the amortized cost and fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of June 30, 2014 and December 31, 2013 is shown below:

   
June 30, 2014
   
December 31, 2013
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ 983,007     $ 993,669     $ 758,281     $ 768,954  
 One to five years
    8,305,030       8,763,953       9,025,386       9,466,973  
 Five to ten years
    24,537,824       25,232,851       14,070,003       14,114,271  
 More than 10 years
    6,469,802       6,605,038       4,226,232       4,085,824  
 Total
  $ 40,295,663     $ 41,595,511     $ 28,079,902     $ 28,436,022  
 
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.
 
 
9

 

Held-to-Maturity Securities

The amortized cost and fair value of investments in held-to-maturity fixed-maturity securities as of June 30, 2014 and December 31, 2013 are summarized as follows:

   
June 30, 2014
 
                                 
Net
 
  
 
Cost or
 
Gross
   
Gross Unrealized Losses
     
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
                                     
 U.S. Treasury securities
  $ 606,336     $ 112,010     $ -     $ -     $ 718,346     $ 112,010  
                                                 
Political subdivisions of States,
                                       
 Territories and Possessions
    1,411,268       28,847       (12,999 )     -       1,427,116       15,848  
                                                 
Corporate and other bonds
                                         
 Industrial and miscellaneous
    2,604,268       87,657       (8,122 )     -       2,683,803       79,535  
                                                 
 Total
  $ 4,621,872     $ 228,514     $ (21,121 )   $ -     $ 4,829,265     $ 207,393  
 
   
December 31, 2013
                                 
Net
 
  
 
Cost or
 
Gross
    Gross Unrealized Losses      
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
                                     
 U.S. Treasury securities
  $ 606,138     $ 46,915     $ -     $ -     $ 653,053     $ 46,915  
                                                 
Political subdivisions of States,
                                       
 Territories and Possessions
    208,697       -       (25,359 )     -       183,338       (25,359 )
                                                 
Corporate and other bonds
                                         
 Industrial and miscellaneous
    1,584,647       4,223       -       -       1,588,870       4,223  
                                                 
 Total
  $ 2,399,482     $ 51,138     $ (25,359 )   $ -     $ 2,425,261     $ 25,779  
 
U.S. Treasury securities included in held-to-maturity securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.
 
 
10

 
 
A summary of the amortized cost and fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of June 30, 2014 and December 31, 2013 is shown below:

   
June 30, 2014
   
December 31, 2013
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ -     $ -     $ -     $ -  
 One to five years
    -       -       -       -  
 Five to ten years
    2,815,030       2,881,566       1,793,344       1,772,208  
 More than 10 years
    1,806,842       1,947,699       606,138       653,053  
 Total
  $ 4,621,872     $ 4,829,265     $ 2,399,482     $ 2,425,261  
 
Investment Income

Major categories of the Company’s net investment income are summarized as follows:

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
 Income:
             
 
   
 
 
 Fixed-maturity securities
  $ 406,137     $ 234,977     $ 749,055     $ 495,012  
 Equity securities
    141,705       93,389       256,218       179,844  
 Cash and cash equivalents
    2,821       -       23,440       29  
 Other
    594       11,817       594       11,817  
 Total
    551,257       340,183       1,029,307       686,702  
 Expenses:
                               
 Investment expenses
    99,342       65,152       198,604       128,384  
 Net investment income
  $ 451,915     $ 275,031     $ 830,703     $ 558,318  
 
Proceeds from the sale and maturity of fixed-maturity securities were $3,643,499 and $4,557,745 for the six months ended June 30, 2014 and 2013, respectively.

Proceeds from the sale of equity securities were $3,417,605 and $2,727,084 for the six months ended June 30, 2014 and 2013, respectively.

The Company’s net realized gains on investments are summarized as follows:
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Fixed-maturity securities:
                   
Gross realized gains
  $ 68,223     $ 104,241     $ 157,479     $ 181,217  
Gross realized losses
    (1,894 )     (56,471 )     (28,293 )     (56,471 )
      66,329       47,770       129,186       124,746  
                                 
Equity securities:
                               
Gross realized gains
    81,192       218,204       217,251       289,989  
Gross realized losses
    (12,919 )     (16,081 )     (23,487 )     (59,717 )
      68,273       202,123       193,764       230,272  
                                 
Net realized gains
  $ 134,602     $ 249,893     $ 322,950     $ 355,018  
 
 
11

 
 
Impairment Review
 
Impairment of investment securities results in a charge to operations when a market decline to below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. In evaluating potential impairment, GAAP specifies (i) if the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss.  When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.  For held-to-maturity debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security on the basis of timing of future estimated cash flows of the security.

OTTI losses are recorded in the condensed consolidated statements of income and comprehensive income as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At June 30, 2014, there were 23 securities that accounted for the gross unrealized loss. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of fixed-maturity securities and equity securities for the six months ended June 30, 2014 and 2013. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery of fair value to the Company’s cost basis.
 
 
12

 
 
The Company held securities with unrealized losses representing declines that were considered temporary at June 30, 2014 and December 31, 2013 as follows:

   
June 30, 2014
 
   
Less than 12 months
   
12 months or more
 
Total
 
  
             
No. of
               
No. of
   
Aggregate
       
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
 
 Category
 
Value
   
Losses
   
Held
   
Value
   
Losses
   
Held
   
Value
   
Losses
 
                                                 
Fixed-Maturity Securities:
                                           
Political subdivisions of
                                           
States, Territories and
                                           
 Possessions
  $ 1,479,948     $ (18,529 )     5     $ 534,874     $ (15,108 )     2     $ 2,014,822     $ (33,637 )
                                                                 
Corporate and other
                                                         
bonds industrial and
                                                         
 miscellaneous
    2,027,606       (11,736 )     5       778,210       (24,794 )     3       2,805,816       (36,530 )
                                                                 
Total fixed-maturity
                                                         
 securities
  $ 3,507,554     $ (30,265 )     10     $ 1,313,084     $ (39,902 )     5     $ 4,820,638     $ (70,167 )
                                                                 
 Equity Securities:
                                                               
 Preferred stocks
  $ -     $ -       -     $ 1,635,873     $ (75,147 )     6     $ 1,635,873     $ (75,147 )
 Common stocks
    621,830       (17,328 )     2       -       -       -       621,830       (17,328 )
                                                                 
 Total equity securities
  $ 621,830     $ (17,328 )     2     $ 1,635,873     $ (75,147 )     6     $ 2,257,703     $ (92,475 )
                                                                 
 Total
  $ 4,129,384     $ (47,593 )     12     $ 2,948,957     $ (115,049 )     11     $ 7,078,341     $ (162,642 )
 
 
13

 
 
   
December 31, 2013
 
   
Less than 12 months
   
12 months or more
 
Total
 
  
             
No. of
               
No. of
   
Aggregate
       
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
 
 Category
 
Value
   
Losses
   
Held
   
Value
   
Losses
   
Held
   
Value
   
Losses
 
                                                 
Fixed-Maturity Securities:
                                           
Political subdivisions of
                                           
States, Territories and
                                           
 Possessions
  $ 2,015,437     $ (49,491 )     6     $ 415,866     $ (45,140 )     2     $ 2,431,303     $ (94,631 )
                                                                 
Corporate and other
                                                         
bonds industrial and
                                                         
 miscellaneous
    6,447,605       (179,810 )     24       1,430,377       (101,194 )     5       7,877,982       (281,004 )
                                                                 
Total fixed-maturity
                                                         
 securities
  $ 8,463,042     $ (229,301 )     30     $ 1,846,243     $ (146,334 )     7     $ 10,309,285     $ (375,635 )
                                                                 
 Equity Securities:
                                                               
 Preferred stocks
  $ 1,835,958     $ (251,525 )     8     $ 444,100     $ (62,551 )     2     $ 2,280,058     $ (314,076 )
 Common stocks