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 September 30, 2015
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 filero
 
Non-accelerated filer o
 
Smaller reporting company þ
        (Do not check if a smaller reporting company)    

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 November 11, 2015, there were 7,335,110 shares of the registrant’s common stock outstanding.
 
 
 

 

KINGSTONE COMPANIES, INC.
INDEX
 
       
PAGE
         
PART I — FINANCIAL INFORMATION
 
4
         
    Item 1 — Financial Statements  
4
         
       
4
           
       
5
           
       
6
           
       
7
           
       
8
         
    Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of Operations  
33
         
    Item 3 —  Quantitative and Qualitative Disclosures About Market Risk  
61
         
    Item 4 —  Controls and Procedures  
61
         
PART II — OTHER INFORMATION
 
62
         
    Item 1 — Legal Proceedings  
62
         
    Item 1A — Risk Factors  
62
         
    Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds  
62
         
    Item 3 — Defaults Upon Senior Securities  
62
         
    Item 4 — Mine Safety Disclosures  
62
         
    Item 5 — Other Information  
62
         
    Item 6 — Exhibits  
63
         
  64
 
EXHIBIT 3(a)
EXHIBIT 3(b)
EXHIBIT 31(a)
EXHIBIT 31(b)
EXHIBIT 32
EXHIBIT 101.INS XBRL Instance Document
EXHIBIT 101.SCH XBRL Taxonomy Extension Schema
EXHIBIT 101.CAL XBRL Taxonomy Extension Calculation Linkbase
 EXHIBIT 101.DEF XBRL Taxonomy Extension Definition Linkbase
EXHIBIT 101.LAB XBRL Taxonomy Extension Label Linkbase
EXHIBIT 101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
2

 
 
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, 2014 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.
 
 
3

 
 
PART I.  FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
           
   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
(unaudited)
       
 Assets
           
 Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of
           
 $5,273,419 at September 30, 2015 and $5,395,054 at December 31, 2014)
  $ 5,137,198     $ 5,128,735  
 Fixed-maturity securities, available-for-sale, at fair value (amortized cost of
               
 $61,211,677 at September 30, 2015 and $50,083,441 at December 31, 2014)
    62,095,309       51,120,859  
 Equity securities, available-for-sale, at fair value (cost of $9,536,987
               
 at  September 30, 2015 and $7,621,309 at December 31, 2014)
    9,493,292       8,017,729  
 Total investments
    76,725,799       64,267,323  
 Cash and cash equivalents
    6,731,629       9,906,878  
 Premiums receivable, net of provision for uncollectible amounts
    10,832,446       8,946,899  
 Receivables - reinsurance contracts
    2,285,356       1,301,549  
 Reinsurance receivables, net of provision for uncollectible amounts
    31,171,559       35,575,276  
 Deferred policy acquisition costs
    10,456,707       8,985,981  
 Intangible assets, net
    1,876,744       2,233,530  
 Property and equipment, net of accumulated depreciation
    3,222,004       2,448,042  
 Other assets
    1,341,376       1,330,944  
 Total assets
  $ 144,643,620     $ 134,996,422  
                 
 Liabilities
               
 Loss and loss adjustment expense reserves
  $ 38,899,492     $ 39,912,683  
 Unearned premiums
    47,441,330       40,458,041  
 Advance premiums
    1,555,786       1,006,582  
 Reinsurance balances payable
    1,342,213       2,096,363  
 Deferred ceding commission revenue
    6,069,907       5,956,540  
 Accounts payable, accrued expenses and other liabilities
    4,334,065       3,928,137  
 Income taxes payable
    322,256       -  
 Deferred income taxes
    655,461       1,137,180  
 Total liabilities
    100,620,510       94,495,526  
                 
 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 8,287,898 shares
               
 at September 30, 2015 and 8,235,095 shares at December 31, 2014; outstanding
               
 7,335,110 shares at September 30, 2015 and 7,308,757 shares at December 31, 2014
    82,879       82,351  
 Capital in excess of par
    32,982,715       32,873,383  
 Accumulated other comprehensive income
    554,357       946,332  
 Retained earnings
    12,211,392       8,203,003  
      45,831,343       42,105,069  
 Treasury stock, at cost, 952,788 shares at September 30, 2015 and 926,338 shares
               
 at December 31, 2014
    (1,808,233 )     (1,604,173 )
 Total stockholders' equity
    44,023,110       40,500,896  
                 
 Total liabilities and stockholders' equity
  $ 144,643,620     $ 134,996,422  
________________________________________________________________________________________
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
                       
                         
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
       
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                         
 Revenues
                       
 Net premiums earned
  $ 13,129,604     $ 9,895,000     $ 34,381,118     $ 22,250,684  
 Ceding commission revenue
    2,643,531       3,278,319       9,388,457       10,365,651  
 Net investment income
    649,441       463,513       1,850,069       1,294,216  
 Net realized (losses) gains on sales of investments
    (40,487 )     115,176       (105,718 )     438,126  
 Other income
    275,280       263,726       1,299,511       742,191  
 Total revenues
    16,657,369       14,015,734       46,813,437       35,090,868  
                                 
 Expenses
                               
 Loss and loss adjustment expenses
    5,050,194       4,538,167       16,884,224       11,871,060  
 Commission expense
    4,021,383       3,106,064       11,033,874       8,592,364  
 Other underwriting expenses
    3,389,024       2,845,708       9,349,842       7,656,532  
 Other operating expenses
    468,352       485,959       1,174,693       1,074,373  
 Depreciation and amortization
    267,424       248,888       749,658       641,943  
 Total expenses
    13,196,377       11,224,786       39,192,291       29,836,272  
                                 
 Income from operations before taxes
    3,460,992       2,790,948       7,621,146       5,254,596  
 Income tax expense
    1,115,338       907,267       2,513,811       1,689,280  
 Net income
    2,345,654       1,883,681       5,107,335       3,565,316  
                                 
 Other comprehensive income (loss), net of tax
                               
 Gross change in unrealized gains (losses)
                               
 on available-for-sale-securities
    (92,097 )     (410,446 )     (699,619 )     1,329,219  
                                 
 Reclassification adjustment for gains
                               
 included in net income
    40,487       (115,176 )     105,718       (438,126 )
 Net change in unrealized gains (losses)
    (51,610 )     (525,622 )     (593,901 )     891,093  
 Income tax benefit (expense) related to items
                               
 of other comprehensive income (loss)
    17,547       178,711       201,926       (302,972 )
 Other comprehensive income (loss), net of tax
    (34,063 )     (346,911 )     (391,975 )     588,121  
                                 
 Comprehensive income
  $ 2,311,591     $ 1,536,770     $ 4,715,360     $ 4,153,437  
                                 
Earnings per common share:
                               
Basic
  $ 0.32     $ 0.26     $ 0.70     $ 0.49  
Diluted
  $ 0.32     $ 0.26     $ 0.69     $ 0.48  
                                 
Weighted average common shares outstanding
                               
Basic
    7,334,269       7,294,913       7,330,178       7,283,244  
Diluted
    7,381,626       7,378,097       7,367,714       7,360,294  
                                 
Dividends declared and paid per common share
  $ 0.05     $ 0.05     $ 0.15     $ 0.13  
_______________________________________________________________________________________
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
 
Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
                                           
Nine months ended September 30, 2015
                                                           
                                                             
                                 
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, 2015
    -     $ -       8,235,095     $ 82,351     $ 32,873,383     $ 946,332     $ 8,203,003       926,338     $ (1,604,173 )   $ 40,500,896  
Stock-based compensation
    -       -       -       -       129,546       -       -       -       -       129,546  
Shares deducted from exercise of stock
                                                                               
options for payment of withholding taxes
    -       -       (30,755 )     (308 )     (243,354 )     -       -       -       -       (243,662 )
Excess tax benefit from exercise
                                                                               
of stock options
    -       -       -       -       223,976       -       -       -       -       223,976  
Exercise of stock options
    -       -       83,558       836       (836 )     -       -       -       -       -  
Acquisition of treasury stock
    -       -       -       -       -       -       -       26,450       (204,060 )     (204,060 )
Dividends
    -       -       -       -       -       -       (1,098,946 )     -       -       (1,098,946 )
Net income
    -       -       -       -       -       -       5,107,335       -       -       5,107,335  
Change in unrealized gains on available-
                                                                               
for-sale securities, net of tax
    -       -       -       -       -       (391,975 )     -       -       -       (391,975 )
Balance, September 30, 2015
    -     $ -       8,287,898     $ 82,879     $ 32,982,715     $ 554,357     $ 12,211,392       952,788     $ (1,808,233 )   $ 44,023,110  
________________________________________________________________________________________________________________
 
See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
           
Nine months ended September 30,
 
2015
   
2014
 
             
 Cash flows provided by operating activities:
           
 Net income
  $ 5,107,335     $ 3,565,316  
 Adjustments to reconcile net income to net cash flows provided by operating activities:
               
 Net realized (losses) gains on sale of investments
    105,718       (438,126 )
 Depreciation and amortization
    749,658       641,943  
 Amortization of bond premium, net
    257,996       205,107  
 Stock-based compensation
    129,546       118,582  
 Excess tax benefit from exercise of stock options
    (223,976 )     (74,471 )
 Deferred income tax expense
    (279,793 )     107,433  
 (Increase) decrease in operating assets:
               
 Premiums receivable, net
    (1,885,547 )     (1,734,722 )
 Receivables - reinsurance contracts
    (983,807 )     (776,000 )
 Reinsurance receivables, net
    4,403,717       2,236,751  
 Deferred policy acquisition costs
    (1,470,726 )     (1,783,842 )
 Other assets
    (16,634 )     (198,361 )
 Increase (decrease) in operating liabilities:
               
 Loss and loss adjustment expense reserves
    (1,013,191 )     2,419,060  
 Unearned premiums
    6,983,289       7,317,198  
 Advance premiums
    549,204       487,030  
 Reinsurance balances payable
    (754,150 )     (509,180 )
 Deferred ceding commission revenue
    113,367       (1,295,193 )
 Accounts payable, accrued expenses and other liabilities
    952,160       24,809  
 Net cash flows provided by operating activities
    12,724,166       10,313,334  
                 
 Cash flows used in investing activities:
               
 Purchase - fixed-maturity securities held-to-maturity
    -       (2,715,540 )
 Purchase - fixed-maturity securities available-for-sale
    (13,187,405 )     (24,041,145 )
 Purchase - equity securities available-for-sale
    (3,552,291 )     (7,453,247 )
 Sale or maturity - fixed-maturity securities available-for-sale
    1,680,633       5,092,195  
 Sale - equity securities available-for-sale
    1,642,971       5,537,511  
 Acquisition of fixed assets     (1,166,834     (722,053
 Recovery of loss from failed bank
    -       51,587  
 Other investing activities
    6,203       22,519  
 Net cash flows used in investing activities
    (14,576,723 )     (24,228,173 )
                 
 Cash flows used in financing activities:
               
 Proceeds from exercise of stock options
    -       5,876  
 Withholding taxes paid on net exercise of stock options
    (243,662 )     (66,095 )
 Excess tax benefit from exercise of stock options
    223,976       74,471  
 Purchase of treasury stock
    (204,060 )     (46,728 )
 Dividends paid
    (1,098,946 )     (947,186 )
 Net cash flows used in financing activities
    (1,322,692 )     (979,662 )
                 
 Decrease in cash and cash equivalents
  $ (3,175,249 )   $ (14,894,501 )
 Cash and cash equivalents, beginning of period
    9,906,878       19,922,506  
 Cash and cash equivalents, end of period
  $ 6,731,629     $ 5,028,005  
                 
 Supplemental disclosures of cash flow information:
               
 Cash paid for income taxes
  $ 1,457,000     $ 1,712,400  
                 
 Supplemental schedule of non-cash investing and financing activities:
               
 Value of shares deducted from exercise of stock options for payment of withholding taxes
  $ 243,662     $ 66,095  
_____________________________________________________________________________________
 
See accompanying notes to condensed consolidated financial statements.
 
 
7

 
 
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 States of New York, New Jersey, Connecticut, Pennsylvania and Texas; however, KICO writes substantially all of its business in New York.  Through March 31, 2015, Kingstone, through its wholly owned subsidiary, Payments Inc., a licensed premium finance company in the State of New York, received fees for placing contracts with a third party licensed premium finance company (see Note 12 – Premium Finance Placement Fees).
 
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, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2015. 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 nine months ended September 30, 2015 may not be indicative of the results that may be expected for the year ending December 31, 2015.
 
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.
 
 
8

 
 
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.
 
Accounting Pronouncements
 
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The Company adopted this guidance on January 1, 2015 and it did not have any effect on the Company’s consolidated results of operations, financial position or cash flows.

In May 2014, FASB 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.

In May 2015, FASB issued guidance requiring expanded disclosures for insurance entities that issue short-duration contracts. The expanded disclosures are designed to provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with insurance claims. The disclosures include information about incurred and paid claims development by accident year, on a net basis after reinsurance, for the number of years claims incurred typically remain outstanding, not to exceed ten years. Each period presented in the disclosure about claims development that precedes the current reporting period is considered required supplementary information. The expanded disclosures also include information about significant changes in methodologies and assumptions, a reconciliation of incurred and paid claims development to the carrying amount of the liability for unpaid claims and claim adjustment expenses, the total amount of incurred but not reported liabilities plus expected development, claims frequency information including the methodology used to determine claim frequency and any changes to that methodology, and claim duration. The guidance is effective for annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2016, and is to be applied retrospectively. The new guidance affects disclosures only and will have no impact on the Company’s results of operations or financial position.

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.
 
 
9

 
 
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 September 30, 2015 and December 31, 2014 are summarized as follows:

   
September 30, 2015
 
                                 
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
  $ 13,682,943     $ 478,684     $ (37,619 )   $ -     $ 14,124,008     $ 441,065  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    43,005,459       791,305       (333,737 )     (40,438 )     43,422,589       417,130  
                                                 
 Residential mortgage backed
                                               
 securities
    4,523,275       49,488       (24,051 )     -       4,548,712       25,437  
 Total fixed-maturity securities
    61,211,677       1,319,477       (395,407 )     (40,438 )     62,095,309       883,632  
                                                 
 Equity Securities:
                                               
 Preferred stocks
    2,859,267       23,934       (43,971 )     (14,598 )     2,824,632       (34,635 )
 Common stocks
    6,677,720       296,774       (305,834 )     -       6,668,660       (9,060 )
 Total equity securities
    9,536,987       320,708       (349,805 )     (14,598 )     9,493,292       (43,695 )
                                                 
 Total
  $ 70,748,664     $ 1,640,185     $ (745,212 )   $ (55,036 )   $ 71,588,601     $ 839,937  

   
December 31, 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
  $ 13,862,141     $ 412,490     $ (23,813 )   $ (6,379 )   $ 14,244,439     $ 382,298  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    36,221,300       803,440       (118,092 )     (30,228 )     36,876,420       655,120  
 Total fixed-maturity securities
    50,083,441       1,215,930       (141,905 )     (36,607 )     51,120,859       1,037,418  
                                                 
 Equity Securities:
                                               
 Preferred stocks
    3,172,632       19,180       (2,647 )     (62,886 )     3,126,280       (46,352 )
 Common stocks
    4,448,677       444,950       -       (2,177 )     4,891,449       442,772  
 Total equity securities
    7,621,309       464,130       (2,647 )     (65,063 )     8,017,729       396,420  
                                                 
 Total
  $ 57,704,750     $ 1,680,060     $ (144,552 )   $ (101,670 )   $ 59,138,588     $ 1,433,838  
 
 
10

 
 
 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 September 30, 2015 and December 31, 2014 is shown below:

   
September 30, 2015
   
December 31, 2014
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ 1,003,870     $ 1,025,475     $ 482,833     $ 487,507  
 One to five years
    13,012,835       13,408,879       11,640,381       11,943,127  
 Five to ten years
    39,868,480       40,201,676       32,283,921       32,865,231  
 More than 10 years
    2,803,217       2,910,567       5,676,306       5,824,994  
 Residential mortgage backed securities
    4,523,275       4,548,712       -       -  
 Total
  $ 61,211,677     $ 62,095,309     $ 50,083,441     $ 51,120,859  
 
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

Held-to-Maturity Securities

The amortized cost and fair value of investments in held-to-maturity fixed-maturity securities as of September 30, 2015 and December 31, 2014 are summarized as follows:

   
September 30, 2015
 
                                 
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
  $ 606,380     $ 163,096     $ -     $ -     $ 769,476     $ 163,096  
                                                 
 Political subdivisions of States,
                                               
 Territories and Possessions
    1,416,537       58,142       -       (46,621 )     1,428,058       11,521  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    3,114,281       91,875       (2,577 )     (127,694 )     3,075,885       (38,396 )
                                                 
 Total
  $ 5,137,198     $ 313,113     $ (2,577 )   $ (174,315 )   $ 5,273,419     $ 136,221  
 
 
11

 
 
   
December 31, 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
  $ 606,353     $ 183,200     $ -     $ -     $ 789,553     $ 183,200  
                                                 
 Political subdivisions of States,
                                               
 Territories and Possessions
    1,413,303       49,981       -       (12,247 )     1,451,037       37,734  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    3,109,079       98,306       (52,921 )     -       3,154,464       45,385  
                                                 
 Total
  $ 5,128,735     $ 331,487     $ (52,921 )   $ (12,247 )   $ 5,395,054     $ 266,319  
 
Held-to-maturity U.S. Treasury securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

A summary of the amortized cost and fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of September 30, 2015 and December 31, 2014 is shown below:

   
September 30, 2015
   
December 31, 2014
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ -     $ -     $ -     $ -  
 One to five years
    500,000       505,150       -       -  
 Five to ten years
    4,030,818       3,998,793       3,522,927       3,563,401  
 More than 10 years
    606,380       769,476       1,605,808       1,831,653  
 Total
  $ 5,137,198     $ 5,273,419     $ 5,128,735     $ 5,395,054  
 
Investment Income

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

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                         
 Income:
             
 
   
 
 
 Fixed-maturity securities
  $ 595,529     $ 433,028     $ 1,671,821     $ 1,182,083  
 Equity securities
    125,379       116,683       378,084       372,901  
 Cash and cash equivalents
    250       232       465       23,672  
 Other
    -       -       -       594  
 Total
    721,158       549,943       2,050,370       1,579,250  
 Expenses:
                               
 Investment expenses
    71,717       86,430       200,301       285,034  
 Net investment income
  $ 649,441     $ 463,513     $ 1,850,069     $ 1,294,216  
 
Proceeds from the sale and maturity of fixed-maturity securities were $1,680,633 and $5,092,195 for the nine months ended September 30, 2015 and 2014, respectively.
 
 
12

 

Proceeds from the sale of equity securities were $1,642,971 and $5,537,511 for the nine months ended September 30, 2015 and 2014, respectively.

The Company’s net realized gains (losses) on investments are summarized as follows:

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                         
 Fixed-maturity securities:
                       
 Gross realized gains
  $ 20     $ 25,870     $ 20     $ 183,349  
 Gross realized losses
    (25,886 )     (20,436 )     (112,097 )     (48,729 )
      (25,866 )     5,434       (112,077 )     134,620  
                                 
 Equity securities:
                               
 Gross realized gains
    12,549       77,535       48,970       294,786  
 Gross realized losses
    (27,170 )     (19,380 )     (42,611 )     (42,867 )
      (14,621 )     58,155       6,359       251,919  
                                 
 Cash and short term investments (1)
    -       51,587       -       51,587  
                                 
 Net realized gains (losses)
  $ (40,487 )   $ 115,176     $ (105,718 )   $ 438,126  
 
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 September 30, 2015, there were 47 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 nine months ended September 30, 2015 and 2014. 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.
 
 
13

 
 
The Company held securities with unrealized losses representing declines that were considered temporary at September 30, 2015 and December 31, 2014 as follows:

   
September 30, 2015
 
   
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
  $ 852,736     $ (37,619 )     3     $ -     $ -       -     $ 852,736     $ (37,619 )
                                                                 
 Corporate and other
                                                               
 bonds industrial and
                                                               
 miscellaneous
    8,963,637       (333,737 )     17       450,035       (40,438 )     1       9,413,672       (374,175 )
                                                                 
 Residential mortgage
                                                               
 backed securities
    1,132,899       (24,051 )     5       -       -       -       1,132,899       (24,051 )
                                                                 
 Total fixed-maturity
                                                               
 securities
  $ 10,949,272     $ (395,407 )     25     $ 450,035     $ (40,438 )     1     $ 11,399,307     $ (435,845 )
                                                                 
 Equity Securities:
                                                               
 Preferred stocks
  $ 727,065     $ (43,971 )     2     $ 697,517     $ (14,598 )     3     $ 1,424,582     $ (58,569 )
 Common stocks
    3,553,900       (305,834 )     16       -       -       -       3,553,900       (305,834 )
                                                                 
 Total equity securities
  $ 4,280,965     $ (349,805 )     18     $ 697,517     $ (14,598 )     3     $ 4,978,482     $ (364,403 )
                                                                 
 Total
  $ 15,230,237     $ (745,212 )     43     $ 1,147,552     $ (55,036 )     4     $ 16,377,789     $ (800,248 )

 
14

 

   
December 31, 2014
 
   
Less than 12 months
   
12 months or more
   
Total
 
  
             
No. of
               
No. of
   
Aggregate
       
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
   
Positions