Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016

Commission file number:

001-12251

 

 

AMERISAFE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Texas   75-2069407

(State of

Incorporation)

 

(I.R.S. Employer

Identification Number)

2301 Highway 190 West, DeRidder, Louisiana   70634
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (337) 463-9052

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    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  ¨    No  x

As of July 27, 2016, there were 19,201,040 shares of the Registrant’s common stock, par value $.01 per share, outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page
No.
 
FORWARD-LOOKING STATEMENTS      3   
PART I - FINANCIAL INFORMATION   
Item 1   Financial Statements      4   
Item 2   Management’s Discussion and Analysis of Financial Condition and Results of Operations      17   
Item 3   Quantitative and Qualitative Disclosures About Market Risk      22   
Item 4   Controls and Procedures      23   
PART II - OTHER INFORMATION   
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds      23   
Item 6   Exhibits      24   

 

2


Table of Contents

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

 

    the cyclical nature of the workers’ compensation insurance industry;

 

    general economic conditions, including recession, inflation, performance of financial markets, interest rates, unemployment rates and fluctuating asset values;

 

    decreased demand for our insurance;

 

    increased competition on the basis of types of insurance offered, premium rates, coverage availability, payment terms, claims management, safety services, policy terms, overall financial strength, financial ratings and reputation;

 

    greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

 

    technology breaches or failures, including those resulting from a malicious cyber attack on the Company or its policyholders and medical providers;

 

    adverse developments in economic, competitive, judicial or regulatory conditions within the workers’ compensation insurance industry;

 

    changes in regulations, laws, rates, or rating factors applicable to the Company, its policyholders or the agencies that sell its insurance;

 

    loss of the services of any of our senior management or other key employees;

 

    changes in rating agency policies, practices or ratings;

 

    changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all;

 

    decreased level of business activity of our policyholders caused by decreased business activity generally, and in particular in the industries we target;

 

    changes in legal theories of liability under our insurance policies;

 

    developments in capital markets that adversely affect the performance of our investments;

 

    the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and

 

    other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report, and under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

     June 30,
2016
    December 31,
2015
 
     (unaudited)        

Assets

    

Investments:

    

Fixed maturity securities—held-to-maturity, at amortized cost (fair value $643,324 and $662,276 in 2016 and 2015, respectively)

   $ 620,165      $ 645,164   

Fixed maturity securities—available-for-sale, at fair value (cost $447,988 and $376,109 in 2016 and 2015, respectively)

     460,697        380,022   

Equity securities—available-for-sale, at fair value (cost $0 in 2016 and 2015)

     32        31   

Short-term investments

     17,165        7,718   

Other investments

     10,850        12,217   
  

 

 

   

 

 

 

Total investments

     1,108,909        1,045,152   

Cash and cash equivalents

     70,155        69,481   

Amounts recoverable from reinsurers

     94,256        91,077   

Premiums receivable, net of allowance

     208,235        185,364   

Deferred income taxes

     26,531        29,905   

Accrued interest receivable

     11,648        11,685   

Property and equipment, net

     6,436        6,181   

Deferred policy acquisition costs

     20,675        20,412   

Other assets

     47,924        42,788   
  

 

 

   

 

 

 

Total assets

   $ 1,594,769      $ 1,502,045   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Liabilities:

    

Reserves for loss and loss adjustment expenses

   $ 725,549      $ 718,033   

Unearned premiums

     179,800        167,983   

Reinsurance premiums payable

     63        154   

Amounts held for others

     54,095        49,790   

Policyholder deposits

     48,775        48,380   

Insurance-related assessments

     36,478        32,329   

Federal income tax payable

     3,828        911   

Accounts payable and other liabilities

     31,439        30,484   

Payable for investments purchased

     18,795        —    
  

 

 

   

 

 

 

Total liabilities

     1,098,822        1,048,064   

Shareholders’ equity:

    

Common stock:

    

Voting—$0.01 par value authorized shares—50,000,000 in 2016 and 2015; 20,459,290 and 20,388,396 shares issued and 19,201,040 and 19,130,146 shares outstanding in 2016 and 2015, respectively

     204        203   

Additional paid-in capital

     206,944        204,688   

Treasury stock at cost (1,258,250 shares in 2016 and 2015)

     (22,370     (22,370

Accumulated earnings

     302,860        268,873   

Accumulated other comprehensive income, net

     8,309        2,587   
  

 

 

   

 

 

 

Total shareholders’ equity

     495,947        453,981   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,594,769      $ 1,502,045   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2016     2015     2016     2015  

Revenues

        

Gross premiums written

   $ 103,224      $ 106,022      $ 203,606      $ 206,811   

Ceded premiums written

     (2,550     (2,549     (5,101     (5,085
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums written

   $ 100,674      $ 103,473      $ 198,505      $ 201,726   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums earned

   $ 90,728      $ 95,569      $ 186,689      $ 190,356   

Net investment income

     6,201        6,890        12,245        13,723   

Net realized gains (losses) on investments

     545        (2,617     793        (2,558

Fee and other income

     89        94        171        203   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     97,563        99,936        199,898        201,724   

Expenses

        

Loss and loss adjustment expenses incurred

     49,171        57,304        95,887        117,310   

Underwriting and certain other operating costs

     9,749        9,278        17,221        16,750   

Commissions

     6,491        6,905        13,369        13,910   

Salaries and benefits

     6,321        5,899        12,105        11,792   

Policyholder dividends

     1,216        438        2,306        653   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     72,948        79,824        140,888        160,415   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     24,615        20,112        59,010        41,309   

Income tax expense

     7,976        5,793        18,114        11,860   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     16,639        14,319        40,896        29,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 16,639      $ 14,319      $ 40,896      $ 29,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.87      $ 0.76      $ 2.14      $ 1.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.87      $ 0.75      $ 2.13      $ 1.54   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing earnings per share

        

Basic

     19,096,718        18,917,229        19,077,328        18,882,693   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     19,184,984        19,080,065        19,178,893        19,069,949   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.18      $ 0.15      $ 0.36      $ 0.30   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2016      2015      2016      2015  

Net income

   $ 16,639       $ 14,319       $ 40,896       $ 29,449   

Other comprehensive income:

           

Unrealized gain (loss) on securities, net of tax

     2,929         (1,576      5,722         (758
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

   $ 19,568       $ 12,743       $ 46,618       $ 28,691   
  

 

 

    

 

 

    

 

 

    

 

 

 

AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

     Common Stock      Treasury Stock     Additional
Paid-In
Capital
     Accumulated
Earnings
    Accumulated
Other
Comprehensive
Loss
     Total  
     Shares      Amount      Shares     Amounts            

Balance at December 31, 2015

     20,388,396       $ 203         (1,258,250   $ (22,370   $ 204,688       $ 268,873      $ 2,587       $ 453,981   

Comprehensive income

     —           —           —          —          —           40,896        5,722         46,618   

Common stock issued upon exercise of options

     38,879         1         —          —          500         —          —           501   

Tax benefit from share-based payments

     —           —           —          —          546         —          —           546   

Restricted common stock issued

     32,015         —           —          —          602         —          —           602   

Share-based compensation

     —           —           —          —          608         —          —           608   

Dividends to shareholders

     —           —           —          —          —           (6,909     —           (6,909
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance at June 30, 2016

     20,459,290       $ 204         (1,258,250   $ (22,370   $ 206,944       $ 302,860      $ 8,309       $ 495,947   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes.

 

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AMERISAFE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Six Months Ended
June 30,
 
     2016     2015  

Operating activities

    

Net income

   $ 40,896      $ 29,449   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     594        687   

Net amortization of investments

     8,163        8,246   

Deferred income taxes

     291        (662

Net realized (gains) losses on investments

     (793     2,558   

Net realized losses on disposal of assets

     1        1   

Share-based compensation

     744        380   

Changes in operating assets and liabilities:

    

Premiums receivable, net

     (22,871     (24,184

Accrued interest receivable

     37        15   

Deferred policy acquisition costs

     (263     (1,741

Amounts held by others

     1,016        (27,848

Other assets

     (756     (1,818

Reserves for loss and loss adjustment expenses

     7,516        27,543   

Unearned premiums

     11,817        11,369   

Reinsurance balances

     (3,270     (4,901

Amounts held for others and policyholder deposits

     4,700        2,295   

Accounts payable and other liabilities

     8,539        4,712   
  

 

 

   

 

 

 

Net cash provided by operating activities

     56,361        26,101   

Investing activities

    

Purchases of investments held-to-maturity

     (76,920     (117,104

Purchases of investments available-for-sale

     (132,699     (59,707

Purchases of short-term investments

     (12,132     (4,440

Proceeds from maturities of investments held-to-maturity

     103,565        59,268   

Proceeds from sales and maturities of investments available-for-sale

     66,755        39,821   

Proceeds from sales and maturities of short-term investments

     2,507        31,055   

Purchases of property and equipment

     (850     (553
  

 

 

   

 

 

 

Net cash used in investing activities

     (49,774     (51,660

Financing activities

    

Proceeds from stock option exercises

     501        834   

Tax benefit from share-based payments

     546        1,071   

Dividends to shareholders

     (6,960     (5,713
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,913     (3,808
  

 

 

   

 

 

 

Change in cash and cash equivalents

     674        (29,367

Cash and cash equivalents at beginning of period

     69,481        90,956   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 70,155      $ 61,589   
  

 

 

   

 

 

 

See accompanying notes.

 

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AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Basis of Presentation

AMERISAFE, Inc. (the “Company”) is an insurance holding company incorporated in the state of Texas. The accompanying unaudited condensed consolidated financial statements include the accounts of AMERISAFE and its subsidiaries: American Interstate Insurance Company (“AIIC”) and its insurance subsidiaries, Silver Oak Casualty, Inc. (“SOCI”) and American Interstate Insurance Company of Texas (“AIICTX”), Amerisafe Risk Services, Inc. (“RISK”) and Amerisafe General Agency, Inc. (“AGAI”). AIIC and SOCI are property and casualty insurance companies organized under the laws of the state of Nebraska. AIICTX is a property and casualty insurance company organized under the laws of the state of Texas. RISK, a wholly owned subsidiary of the Company, is a claims and safety service company currently servicing only affiliated insurance companies. AGAI, a wholly owned subsidiary of the Company, is a general agent for the Company. AGAI sells insurance, which is underwritten by AIIC, SOCI and AIICTX, as well as by nonaffiliated insurance carriers. The assets and operations of AGAI are not significant to that of the Company and its consolidated subsidiaries.

The terms “AMERISAFE,” the “Company,” “we,” “us” or “our” refer to AMERISAFE, Inc. and its consolidated subsidiaries, as the context requires.

The Company provides workers’ compensation insurance for small to mid-sized employers engaged in hazardous industries, principally construction, trucking, manufacturing, agriculture and oil and gas. Assets and revenues of AIIC represent at least 95% of comparable consolidated amounts of the Company for each of 2016 and 2015.

In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, the results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934 and therefore do not include all information and footnotes to be in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015.

The preparation of financial statements in accordance 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In May 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments in this update change the disclosure requirements for investments in certain entities that calculate net asset value (NAV) per share. Under current accounting standards entities are permitted to estimate the fair value of certain investments using the investment’s NAV as a practical expedient. The current disclosure guidance also permits entities to disclose the investment at NAV in the fair value hierarchy table as either Level 2 or Level 3, based upon certain criteria. The measurement basis utilizing NAV is different than the measurement criteria of all other investments which utilize inputs to calculate fair value. Due to this inconsistency, the FASB issued this ASU which requires entities to remove investments measured at NAV from the fair value hierarchy table. Other than the change in presentation, the adoption of this new guidance will not have an impact on our consolidated financial statements.

Certain prior year amounts have been reclassified to conform with the current year presentation.

Note 2. Stock Options and Restricted Stock

As of June 30, 2016, the Company has three equity incentive plans: the AMERISAFE 2005 Equity Incentive Plan (the “2005 Incentive Plan”), the AMERISAFE 2010 Non-Employee Director Restricted Stock Plan (the “2010 Restricted Stock Plan”) and the AMERISAFE 2012 Equity and Incentive Compensation Plan (the “2012 Incentive Plan”). The 2005 Incentive Plan expired on October 27, 2015. No grants will be made under the 2005 Incentive Plan after October 27, 2015 but all grants made on or prior to such date will continue in effect thereafter subject to the terms and conditions of the 2005 Incentive Plan. See Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information regarding the Company’s incentive plans.

During the six months ended June 30, 2016, the Company granted 27,077 and 5,952 shares of restricted common stock to executive officers and non-employee directors, respectively. The market value of the restricted shares granted totaled $1.9 million. During the six months ended June 30, 2015, the Company granted 25,461 and 7,112 shares of restricted common stock to executive officers and non-employee directors, respectively. The market value of the restricted shares granted totaled $1.4 million.

 

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During the six months ended June 30, 2016, options to purchase 38,879 shares of common stock were exercised. During the six months ended June 30, 2015, options to purchase 97,850 shares of common stock were exercised. In connection with these exercises, the Company received $0.5 million and $0.8 million of stock option proceeds, respectively.

The Company recognized share-based compensation expense of $0.5 million in the quarter ended June 30, 2016 compared to an immaterial amount for the same period of 2015. The Company recognized share-based compensation expense of $0.7 million in the six months ended June 30, 2016 and $0.4 million for the same period of 2015.

Note 3. Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. The Company has no participating unvested common shares which contain nonforfeitable rights to dividends and applies the treasury stock method in computing basic and diluted earnings per share.

Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. The diluted EPS calculation includes potential common shares assumed issued under the treasury stock method, which reflects the potential dilution that would occur if any outstanding options or warrants were exercised or restricted stock becomes vested, and includes the “if converted” method for participating securities if the effect is dilutive.

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2016      2015      2016      2015  
     (in thousands, except share and per share amounts)  

Basic EPS:

           

Net income available to common shareholders - basic

   $ 16,639       $ 14,319       $ 40,896       $ 29,449   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average common shares

     19,096,718         18,917,229         19,077,328         18,882,693   

Basic earnings per common share

   $ 0.87       $ 0.76       $ 2.14       $ 1.56   

Diluted EPS:

           

Net income available to common shareholders - diluted

   $ 16,639       $ 14,319       $ 40,896       $ 29,449   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares:

           

Weighted average common shares

     19,096,718         18,917,229         19,077,328         18,882,693   

Stock options and performance shares

     88,266         162,836         101,565         187,256   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares

     19,184,984         19,080,065         19,178,893         19,069,949   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.87       $ 0.75       $ 2.13       $ 1.54   

Note 4. Investments

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at June 30, 2016 are summarized as follows:

 

     Amortized Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (in thousands)  

States and political subdivisions

   $ 423,631       $ 19,066       $ (3    $ 442,694   

Corporate bonds

     163,648         1,739         (117      165,270   

Commercial mortgage-backed securities

     6,681         37         (6      6,712   

U.S. agency-based mortgage-backed securities

     11,849         1,280         (1      13,128   

U.S. Treasury securities and obligations of U.S. government agencies

     12,261         1,057         —          13,318   

Asset-backed securities

     2,095         183         (76      2,202   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 620,165       $ 23,362       $ (203    $ 643,324   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at June 30, 2016 are summarized as follows:

 

     Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (in thousands)  

Fixed maturity:

           

States and political subdivisions

   $ 171,931       $ 9,788       $ (70    $ 181,649   

Corporate bonds

     201,031         2,590         (288      203,333   

U.S. agency-based mortgage-backed securities

     12,672         46         (703      12,015   

U.S. Treasury securities and obligations of U.S. government agencies

     62,354         1,346         —           63,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity

     447,988         13,770         (1,061      460,697   

Other investments

     10,000         850         —           10,850   

Equity securities

     —           32         —           32   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 457,988       $ 14,652       $ (1,061    $ 471,579   
  

 

 

    

 

 

    

 

 

    

 

 

 

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2015 are summarized as follows:

 

     Amortized Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (in thousands)  

States and political subdivisions

   $ 408,447       $ 15,352       $ (45    $ 423,754   

Corporate bonds

     171,224         159         (810      170,573   

Commercial mortgage-backed securities

     37,494         204         (15      37,683   

U.S. agency-based mortgage-backed securities

     13,223         1,249         (1      14,471   

U.S. Treasury securities and obligations of U.S. government agencies

     12,487         897         (4      13,380   

Asset-backed securities

     2,289         202         (76      2,415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 645,164       $ 18,063       $ (951    $ 662,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2015 are summarized as follows:

 

     Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (in thousands)  

Fixed maturity:

           

States and political subdivisions

   $ 164,684       $ 6,942       $ (207    $ 171,419   

Corporate bonds

     202,537         253         (1,486      201,304   

U.S. agency-based mortgage-backed securities

     8,888         4         (1,593      7,299   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity

     376,109         7,199         (3,286      380,022   

Other investments

     10,000         2,217         —           12,217   

Equity securities

     —           31         —           31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 386,109       $ 9,447       $ (3,286    $ 392,270   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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A summary of the cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at June 30, 2016, by contractual maturity, is as follows:

 

Maturity

   Amortized
Cost
     Fair Value  
     (in thousands)  

Within one year

   $ 101,082       $ 102,092   

After one year through five years

     294,889         304,442   

After five years through ten years

     117,736         123,845   

After ten years

     85,833         90,903   

U.S. agency-based mortgage-backed securities

     11,849         13,128   

Commercial mortgage-backed securities

     6,681         6,712   

Asset-backed securities

     2,095         2,202   
  

 

 

    

 

 

 

Totals

   $ 620,165       $ 643,324   
  

 

 

    

 

 

 

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at June 30, 2016, by contractual maturity, is as follows:

 

Maturity

   Amortized
Cost
     Fair Value  
     (in thousands)  

Within one year

   $ 59,564       $ 59,891   

After one year through five years

     214,075         217,789   

After five years through ten years

     52,827         54,534   

After ten years

     108,850         116,468   

U.S. agency-based mortgage-backed securities

     12,672         12,015   
  

 

 

    

 

 

 

Totals

   $ 447,988       $ 460,697   
  

 

 

    

 

 

 

The following table summarizes the fair value and gross unrealized losses on securities, aggregated by major investment category and length of time that the individual securities have been in a continuous unrealized loss position:

 

     Less Than 12 Months      12 Months or Greater      Total  
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
 
     (in thousands)  
June 30, 2016                  

Held-to-Maturity

                 

Fixed maturity securities:

                 

Corporate bonds

   $ 14,753       $ 71       $ 5,498      $ 46      $ 20,251       $ 117   

States and political subdivisions

     4,780         3         —           —           4,780         3   

U.S. agency-based mortgage-backed securities

     —           —           25        1        25         1   

Commercial mortgage-backed securities

     1,720         6         —           —           1,720         6   

Asset-backed securities

     —           —           1,269        76        1,269         76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

     21,253         80         6,792         123         28,045         203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for Sale

                 

Fixed maturity securities:

                 

Corporate bonds

   $ 10,008       $ 103       $ 3,078       $ 185       $ 13,086       $ 288   

States and political subdivisions

     1,807         1         4,722         69         6,529         70   

U.S. agency-based mortgage-backed securities

     —           —           7,792         703         7,792         703   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     11,815         104         15,592         957         27,407         1,061   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,068       $ 184       $ 22,384       $ 1,080       $ 55,452       $ 1,264   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Less Than 12 Months      12 Months or Greater      Total  
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
     Fair Value of
Investments
with
Unrealized
Losses
     Gross
Unrealized
Losses
 
     (in thousands)  
December 31, 2015         

Held-to-Maturity

  

     

Fixed maturity securities:

        

Corporate bonds

   $ 128,436       $ 687       $ 18,139      $ 123      $ 146,575       $ 810   

States and political subdivisions

     24,068         45         —           —           24,068         45   

U.S. Treasury securities and obligations of U.S. government agencies

     2,980         4         —           —           2,980         4   

U.S. agency-based mortgage-backed securities

     18         —           28        1         46         1   

Commercial mortgage-backed securities

     9,784         15         —           —           9,784         15   

Asset-backed securities

     —           —           1,389         76         1,389         76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

     165,286         751         19,556         200         184,842         951   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for Sale

        

Fixed maturity securities:

        

Corporate bonds

   $ 141,857       $ 1,475       $ 4,216       $ 11       $ 146,073       $ 1,486   

States and political subdivisions

     6,560         9         4,439         198         10,999         207   

U.S. agency-based mortgage-backed securities

     434         37         6,794         1,556         7,228         1,593   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     148,851         1,521         15,449         1,765         164,300         3,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 314,137       $ 2,272       $ 35,005       $ 1,965       $ 349,142       $ 4,237   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2016, the Company held 51 individual fixed maturity securities that were in an unrealized loss position, of which 24 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.

The Company holds investments in a limited partnership hedge fund accounted for under the equity method. The carrying value of this investment is $10.8 million at June 30, 2016.

Investment income is recognized as it is earned. The discount or premium on fixed maturity securities is amortized using the “constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums or discounts. Realized investment gains and losses are determined using the specific identification method.

We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of specific investments. We consider various factors in determining if a decline in the fair value of an individual security is other-than-temporary. The key factors we consider are:

 

    any reduction or elimination of preferred dividends, or nonpayment of scheduled principal or interest payments;

 

    the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that may affect its operations or earnings;

 

    how long and by how much the fair value of the security has been below its cost or amortized cost;

 

    any downgrades of the security by a rating agency;

 

    our intent not to sell the security for a sufficient time period for it to recover its value;

 

    the likelihood of being forced to sell the security before the recovery of its value; and

 

    an evaluation as to whether there are any credit losses on debt securities.

We reviewed all securities with unrealized losses in accordance with the impairment policy described above. The Company determined that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices

 

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generally, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. We expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the securities before the recovery of the amortized cost basis.

During the six months ended June 30, 2016, there were no impairment losses recognized for other-than-temporary declines in the fair value of our investments compared to $2.7 million for the same period in 2015.

Net realized gains in the six months ended June 30, 2016 were $0.8 million resulting from the sale of fixed maturity securities classified as available-for-sale. Net realized losses in the six months ended June 30, 2015 were $2.6 million resulting from an impairment loss of $2.7 million recognized for the other-than-temporary decline in the fair value of four fixed maturity securities offset by $0.1 million in gains on called fixed maturity securities.

Note 5. Income Taxes

In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition and measurement of deferred income tax benefits based on the likelihood of their realization in future years. As of June 30, 2016, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions recognized for the periods ended June 30, 2016 and 2015.

Tax years 2012 through 2015 are subject to examination by the federal and state taxing authorities.

Note 6. Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income was $19.6 million for the three months ended June 30, 2016, compared to $12.7 million for the three months ended June 30, 2015. Comprehensive income was $46.6 million for the six months ended June 30, 2016, compared to $28.7 million for the same period in 2015. The difference between net income as reported and comprehensive income was due to changes in unrealized gains and losses, net of tax on available-for-sale securities.

Comprehensive income includes net income plus unrealized gains (losses) on our available-for-sale investment securities, net of tax. In reporting comprehensive income on a net basis in the statement of income, we used a 35 percent tax rate. The following table illustrates the changes in the balance of each component of accumulated other comprehensive income for each period presented in the interim financial statements.

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2016      2015      2016      2015  
     (in thousands)  

Beginning balance

   $ 5,380       $ 3,628       $ 2,587       $ 2,810   

Other comprehensive income (loss) before reclassification

     3,286         (2,130      5,986         (1,628

Amounts reclassified from accumulated other comprehensive income

     (357      554         (264      870   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     2,929         (1,576      5,722         (758
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 8,309       $ 2,052       $ 8,309       $ 2,052   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive income to current period net income. The effects of reclassifications out of accumulated other comprehensive income by the respective line items of net income are presented in the following table.

 

Component of Accumulated Other

Comprehensive Income

   Three Months Ended
June 30,
    Six Months Ended
June 30,
   

Affected line item in the statement

of income

     2016     2015     2016     2015      
     (in thousands)      

Unrealized gains on available-for-sale securities

   $ 549      $ 1,273      $ 406      $ 261     

Net realized gains (losses) on investments

Other-than-temporary impairment

     —         (2,126     —         (1,600  

Net realized gains (losses) on investments

  

 

 

   

 

 

   

 

 

   

 

 

   
     549        (853     406        (1,339  

Income before income taxes

     (192     299        (142     469     

Income tax expense

  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 357      $ (554   $ 264      $ (870  

Net income

  

 

 

   

 

 

   

 

 

   

 

 

   

Note 7. Fair Value Measurements

The Company carries available-for-sale securities at fair value in our consolidated financial statements and determines fair value measurements and disclosure in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures.

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard defines fair value, describes three levels of inputs that may be used to measure fair value, and expands disclosures about fair value measurements.

Fair value is defined in ASC Topic 820 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. Fair value is the price to sell an asset or transfer a liability and, therefore, represents an exit price, not an entry price. Fair value is the exit price in the principal market (or, if lacking a principal market, the most advantageous market) in which the reporting entity would transact. Fair value is a market-based measurement, not an entity-specific measurement, and, as such, is determined based on the assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset, also known as current replacement cost. Valuation techniques used to measure fair value are to be consistently applied.

In ASC Topic 820, inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable:

 

    Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.

 

    Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Valuation techniques used to measure fair value are intended to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:

 

    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

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Table of Contents
    Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data.

 

    Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are to be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.

The fair values of the Company’s investments are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016.

At June 30, 2016, assets and liabilities measured at fair value on a recurring basis are summarized below:

 

     June 30, 2016  
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
     Total Fair
Value
 
     (in thousands)  

Financial instruments carried at fair value, classified as a part of:

           

Securities available for sale—equity:

           

Domestic common stock

     32         —           —           32   

Securities available for sale—fixed maturity:

           

States and political subdivisions

     —           181,649         —           181,649   

Corporate bonds

     —           203,333         —           203,333   

U.S. agency-based mortgage-backed securities

     —           12,015         —           12,015   

U.S. Treasury securities

     63,700         —           —           63,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale—fixed maturity

     63,700        396,997         —           460,697   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 63,732       $ 396,997       $ —         $ 460,729   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2016, assets and liabilities measured at amortized cost are summarized below:

 

     June 30, 2016  
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
     Total Fair
Value
 
     (in thousands)  

Securities held-to-maturity—fixed maturity

           

States and political subdivisions

   $ —         $ 442,694       $ —         $ 442,694   

Corporate bonds

     —           165,270         —           165,270   

Commercial mortgage-backed securities

     —           6,712         —           6,712   

U.S. agency-based mortgage-backed securities

     —           13,128         —           13,128   

U.S. Treasury securities

     7,437         —           —           7,437   

Obligations of U.S. government agencies

     —           5,881         —           5,881   

Asset-backed securities

     —           2,202         —           2,202   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity

   $ 7,437       $ 635,887       $ —         $ 643,324   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

At December 31, 2015, assets and liabilities measured at fair value on a recurring basis are summarized below:

 

     December 31, 2015  
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
     Total Fair
Value
 
     (in thousands)  

Financial instruments carried at fair value, classified as part of:

           

Securities available for sale—equity:

           

Domestic common stock

     31         —           —           31   

Securities available for sale—fixed maturity:

           

States and political subdivisions

     —           171,419         —           171,419   

U.S. agency-based mortgage-backed securities

     —           7,299         —           7,299   

Corporate bonds

     —           201,304         —           201,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale—fixed maturity

   $ —         $ 380,022       $ —         $ 380,022   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 31       $ 380,022       $ —         $ 380,053   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015, assets and liabilities measured at amortized cost are summarized below:

 

     December 31, 2015  
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
     Total Fair
Value
 
     (in thousands)  

Securities held-to-maturity—fixed maturity:

           

States and political subdivisions

   $ —         $ 423,754       $ —         $ 423,754   

Corporate bonds

     —           170,573         —           170,573   

Commercial mortgage-backed securities

     —           37,683         —           37,683   

U.S. agency-based mortgage-backed securities

     —           14,471         —           14,471   

U.S. Treasury securities

     7,599         —           —           7,599   

Obligations of U.S. government agencies

     —           5,781         —           5,781   

Asset-backed securities

     —           2,415         —           2,415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity

   $ 7,599       $ 654,677       $ —         $ 662,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company determines fair value amounts for financial instruments using available third-party market information. When such information is not available, the Company determines the fair value amounts using appropriate valuation methodologies. Nonfinancial instruments such as real estate, property and equipment, deferred policy acquisition costs, deferred income taxes and loss and loss adjustment expense reserves are excluded from the fair value disclosure.

Cash and Cash Equivalents—The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values, which are characterized as Level 1 assets.

Investments—The fair values for fixed maturity and equity securities are based on prices obtained from an independent pricing service. Equity and treasury securities are characterized as Level 1 assets, as their fair values are based on quoted prices in active markets. Fixed maturity securities, other than treasury securities, are characterized as Level 2 assets, as their fair values are determined using observable market inputs.

Short Term Investments—The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values. These securities are characterized as Level 2 assets in the fair value hierarchy.

Other Investments—Other investments consist of a limited partnership (“LP”) interest that is accounted for under the equity method valued using the net asset value provided by the general partner of the LP, which approximates the fair value of the interest. The LP’s objective is to generate absolute returns by investing long and short in publicly-traded global securities. Redemptions are allowed monthly following a 60 day notice with no lock up periods. The Company has no unfunded commitments related to the LP.

 

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The following table summarizes the carrying values and corresponding fair values for financial instruments:

 

     As of June 30, 2016      As of December 31, 2015  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (in thousands)  

Assets:

           

Fixed maturity securities—held-to-maturity

   $ 620,165       $ 643,324       $ 645,164       $ 662,276   

Fixed maturity securities—available-for-sale

     460,697         460,697         380,022         380,022   

Equity securities

     32         32         31         31   

Cash and cash equivalents

     70,155         70,155         69,481         69,481   

Short-term investments

     17,165         17,165         7,718         7,718   

Other investments

     10,850         10,850         12,217         12,217   

Note 8. Treasury Stock

The Company’s Board of Directors initiated a share repurchase program in February 2010. In October 2015, the Board reauthorized this program with a limit of $25.0 million. Unless reauthorized, the program will expire on December 31, 2016. There were no shares repurchased under this program in the six months ended June 30, 2016. Since the beginning of this plan, the Company has repurchased a total of 1,258,250 shares for $22.4 million, or an average price of $17.78, including commissions.

Note 9. Commitments and Contingencies

In February 2015, the Company was notified of an adverse verdict against its subsidiary, American Interstate Insurance Company, related to a 2009 workers’ compensation claim in the State of Iowa. The verdict was for $25.3 million, of which $0.3 million was for actual damages and $25.0 million was awarded for punitive damages. American Interstate is appealing both the verdict and the damage awards. The Company has posted an appeal bond in the amount of $27.8 million, as required by law. The Company maintains reinsurance against catastrophic losses, including court ordered judgments. As of June 30, 2016, the Company’s total reserve for the claim was $2.5 million. The $2.5 million reserve does not include payments that the Company has previously paid in this case. The payments, plus the $2.5 million reserve, total $5.4 million. The Company’s retention is $5.0 million before its reinsurance providers are obligated to reimburse the Company for additional costs. The Company presently believes that the reserve amount, together with its reinsurance coverage, is adequate to satisfy this claim.

Note 10. Subsequent Events

On July 26, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.18 per share payable on September 23, 2016 to shareholders of record as of September 9, 2016. The Board intends to consider the payment of a regular cash dividend each calendar quarter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included in Item 1of Part I of this Quarterly Report on Form 10-Q, together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

We begin our discussion with an overview of our Company to give you an understanding of our business and the markets we serve. We then discuss our critical accounting policies. This is followed with a discussion of our results of operations for the three and six months ended June 30, 2016 and 2015. This discussion includes an analysis of certain significant period-to-period variances in our consolidated statements of operations. Our cash flows and financial condition are discussed under the caption “Liquidity and Capital Resources.”

Business Overview

AMERISAFE is a holding company that markets and underwrites workers’ compensation insurance through its insurance subsidiaries. Workers’ compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their employees who are injured in the course and scope of their employment. Our business strategy is focused on providing this coverage to small to mid-sized employers engaged in hazardous industries, principally construction, trucking, manufacturing, agriculture and oil and gas. Employers engaged in hazardous industries pay substantially higher than average rates for workers’ compensation insurance compared to employers in other industries, as measured per payroll dollar. The higher premium rates are due to the nature of the work

 

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performed and the inherent workplace danger of our target employers. Hazardous industry employers also tend to have less frequent but more severe claims as compared to employers in other industries due to the nature of their businesses. We provide proactive safety reviews of employers’ workplaces. These safety reviews are a vital component of our underwriting process and also promote safer workplaces. We utilize intensive claims management practices that we believe permit us to reduce the overall cost of our claims. In addition, our audit services ensure that our policyholders pay the appropriate premiums required under the terms of their policies and enable us to monitor payroll patterns that cause underwriting, safety or fraud concerns. We believe that the higher premiums typically paid by our policyholders, together with our disciplined underwriting and safety, claims and audit services, provide us with the opportunity to earn attractive returns for our shareholders.

We actively market our insurance in 27 states through independent agencies, as well as through our wholly owned insurance agency subsidiary. We are also licensed in an additional 20 states, the District of Columbia and the U.S. Virgin Islands.

Critical Accounting Policies

Understanding our accounting policies is key to understanding our financial statements. Management considers some of these policies to be very important to the presentation of our financial results because they require us to make significant estimates and assumptions. These estimates and assumptions affect the reported amounts of our assets, liabilities, revenues and expenses and related disclosures. Some of the estimates result from judgments that can be subjective and complex and, consequently, actual results in future periods might differ from these estimates.

Management believes that the most critical accounting policies relate to the reporting of reserves for loss and loss adjustment expenses, including losses that have occurred but have not been reported prior to the reporting date, amounts recoverable from reinsurers, premiums receivable, assessments, deferred policy acquisition costs, deferred income taxes, the impairment of investment securities and share-based compensation. These critical accounting policies are more fully described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2015.

Results of Operations

The following table summarizes our consolidated financial results for the three and six months ended June 30, 2016 and 2015.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2016     2015     2016     2015  
     (dollars in thousands, except per share data)  
     (unaudited)  

Gross premiums written

   $ 103,224      $ 106,022      $ 203,606      $ 206,811   

Net premiums earned

     90,728        95,569        186,689        190,356   

Net investment income

     6,201        6,890        12,245        13,723   

Total revenues

     97,563        99,936        199,898        201,724   

Total expenses

     72,948        79,824        140,888        160,415   

Net income

     16,639        14,319        40,896        29,449   

Diluted earnings per common share

   $ 0.87      $ 0.75      $ 2.13      $ 1.54   

Other Key Measures

      

Net combined ratio (1)

     80.4     83.6     75.5     84.2

Return on average equity (2)

     13.7     12.3     17.2     12.8

Book value per share (3)

   $ 25.83      $ 24.87      $ 25.83      $ 24.87   

 

(1) The net combined ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, underwriting and certain other operating costs, commissions, salaries and benefits, and policyholder dividends by net premiums earned in the current period.
(2) Return on average equity is calculated by dividing the annualized net income by the average shareholders’ equity for the applicable period.
(3) Book value per share is calculated by dividing shareholders’ equity by total outstanding shares, as of the end of the period.

Consolidated Results of Operations for Three Months Ended June 30, 2016 Compared to June 30, 2015

Gross Premiums Written. Gross premiums written for the quarter ended June 30, 2016 were $103.2 million, compared to $106.0 million for the same period in 2015, a decrease of 2.6%. The decrease was attributable to a $3.0 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters and a $0.9 million decrease in assumed premium from mandatory pooling arrangements. These decreases were partially offset by a $1.0 million increase in annual premiums on voluntary policies written during the period. The effective loss cost multiplier, or LCM, for our voluntary business was 1.73 for the second quarter ended June 30, 2016 compared to 1.81 for the same period in 2015.

 

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Net Premiums Written. Net premiums written for the quarter ended June 30, 2016 were $100.7 million, compared to $103.5 million for the same period in 2015, a decrease of 2.7%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 2.7% for the second quarter of 2016 compared to 2.6% for the second quarter of 2015. The increase in ceded premiums as a percentage of gross premiums earned reflects an increase of $0.1 million of additional ceded premium as a result of ceded losses during the period. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2015.

Net Premiums Earned. Net premiums earned for the second quarter of 2016 were $90.7 million, compared to $95.6 million for the same period in 2015, a decrease of 5.1%. The decrease was attributable to a $3.0 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters and a $0.9 million decrease in assumed premium from mandatory pooling arrangements.

Net Investment Income. Net investment income for the quarter ended June 30, 2016 was $6.2 million, compared to $6.9 million for the same period in 2015. The decrease of $0.7 million was largely due to the decline in value of a hedge fund investment where the change in value is recorded in investment income each quarter. Average invested assets, including cash and cash equivalents, were $1.2 billion in the quarter ended June 30, 2016, compared to an average of $1.1 billion for the same period in 2015, an increase of 1.6%. The pre-tax investment yield on our investment portfolio was 2.1% and 2.4% per annum during the quarters ended June 30, 2016 and 2015, respectively. The tax-equivalent yield on our investment portfolio was 3.3% per annum for the quarter ended June 30, 2016, compared to 3.6% per annum for the same period in 2015. The tax-equivalent yield is calculated using the effective interest rate and a 35% marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized gains on investments for the three months ended June 30, 2016 totaled $0.5 million compared to net realized losses of $2.6 million for the same period in 2015. Net realized gains in the second quarter of 2016 were attributable to the sale of fixed maturity securities classified as available-for-sale. Net realized losses in the second quarter of 2015 were attributable to other-than-temporary impairments of four fixed maturity securities of $2.7 million partially offset by realized gains on the call of fixed maturity securities.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (“LAE”) incurred totaled $49.2 million for the three months ended June 30, 2016, compared to $57.3 million for the same period in 2015, a decrease of $8.1 million, or 14.2%. The current accident year losses and LAE incurred were $61.6 million, or 67.9% of net premiums earned, compared to $66.7 million, or 69.8% of net premiums earned, for the same period in 2015. We recorded favorable prior accident year development of $12.4 million in the second quarter of 2016, compared to favorable prior accident year development of $9.4 million in the same period of 2015, as further discussed below in “Prior Year Development.” Our net loss ratio was 54.2% in the second quarter of 2016, compared to 60.0% for the same period of 2015.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for the quarter ended June 30, 2016 were $22.6 million, compared to $22.1 million for the same period in 2015, an increase of 2.2%. This increase was primarily due to a $1.0 million increase in accounts receivable write-offs due to a change in estimate recorded in prior year and a $0.4 million increase in compensation expense. Offsetting these increases were a $0.4 million decrease in commission expense, a $0.3 million decrease in premium taxes and a $0.3 million decrease in mandatory pooling arrangement fees. Our expense ratio was 24.9% in the second quarter of 2016 compared to 23.1% in the second quarter of 2015.

Income Tax Expense. Income tax expense for the three months ended June 30, 2016 was $8.0 million, compared to $5.8 million for the same period in 2015. The increase was attributable to an increase in the pre-tax income to $24.6 million in the quarter ended June 30, 2016 from $20.1 million in the same period in 2015. Also, the effective tax rate increased to 32.4% in the quarter ended June 30, 2016 from 28.8% in the same period in 2015. The increase in the tax rate resulted from a higher proportion of underwriting income to tax-exempt income in the quarter relative to the second quarter of 2015.

Consolidated Results of Operations for Six Months Ended June 30, 2016 Compared to June 30, 2015

Gross Premiums Written. Gross premiums written for the first six months of 2016 were $203.6 million, compared to $206.8 million for the same period in 2015, a decrease of 1.5%. The decrease was attributable to a $2.0 million decrease in annual premiums on voluntary policies written during the period, a $0.8 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters and a $0.7 million decrease in assumed premium from mandatory pooling arrangements. The effective LCM for our voluntary business was 1.74 for the six months ended June 30, 2016 compared to 1.81 for the same period in 2015.

Net Premiums Written. Net premiums written for the six months ended June 30, 2016 were $198.5 million, compared to $201.7 million for the same period in 2015, a decrease of 1.6%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 2.7% and 2.6% for the first six months of 2016 and 2015, respectively. The increase in ceded premiums as a percentage of gross premiums earned reflects an increase of $0.1 million of additional ceded premium as a result of ceded losses during the period. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

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Net Premiums Earned. Net premiums earned for the first six months of 2016 were $186.7 million, compared to $190.4 million for the same period in 2015, a decrease of 1.9%. The decrease was attributable to the decrease in net premiums written during the period.

Net Investment Income. Net investment income for the first six months of 2016 was $12.2 million, compared to $13.7 million for the same period in 2015, a decrease of 10.8%. The decrease was attributable to the decline in value of a hedge fund investment where the change in value is recorded in investment income each quarter. Average invested assets, including cash and cash equivalents increased 1.0% to $1.1 billion in the six months ended June 30, 2016. The pre-tax investment yield on our investment portfolio was 2.1% per annum during the six months ended June 30, 2016, compared to 2.5% per annum during the same period in 2015. The tax-equivalent yield on our investment portfolio was 3.3% per annum for the first six months of 2016 compared to 3.6% for the same period in 2015. The tax-equivalent yield is calculated using the effective interest rate and a 35% marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized gains on investments for the six months ended June 30, 2016 totaled $0.8 million, compared to net realized losses of $2.6 million for the same period in 2015. Net realized gains in the first half of 2016 were attributable to the sale of fixed maturity securities classified as available-for-sale. Net realized losses in the first half of 2015 were attributable to other-than-temporary impairments of four fixed maturity securities of $2.7 million.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $95.9 million for the six months ended June 30, 2016, compared to $117.3 million for the same period in 2015, a decrease of $21.4 million, or 18.3%. The current accident year losses and LAE incurred were $126.8 million, or 67.9% of net premiums earned, compared to $132.9 million, or 69.8% of net premiums earned, for the same period in 2015. We recorded favorable prior accident year development of $30.9 million in the first six months of 2016, compared to favorable prior accident year development of $15.6 million in the same period of 2015, as further discussed below in “Prior Year Development.” Our net loss ratio was 51.4% in the first six months of 2016, compared to 61.6% for the same period of 2015.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for the six months ended June 30, 2016 were $42.7 million, compared to $42.5 million for the same period in 2015, an increase of 0.6%. This increase was primarily due to a $1.3 million increase in accounts receivable write-offs due to a change in estimate recorded in prior year, a $0.3 million increase in compensation expense and a $0.2 million increase in auditor fees. Offsetting these increases were a $0.8 million decrease in premium taxes, a $0.5 million decrease in commission expense and a $0.3 million decrease in mandatory pooling arrangement fees. Our expense ratio was 22.9% in the first six months of 2016 compared to 22.3% in the same period of 2015.

Income Tax Expense. Income tax expense for the six months ended June 30, 2016 was $18.1 million, compared to $11.9 million for the same period in 2015. The increase was attributable to an increase in pre-tax income to $59.0 million in the first six months of 2016 from $41.3 million in the first six months of 2015. The effective tax rate increased to 30.7% for the six months ended June 30, 2016 from 28.7% for the six months ended June 30, 2015. The increase in the tax rate resulted from a higher proportion of underwriting income to tax-exempt income for the six months ended June 30, 2016 compared with the six months ended June 30, 2015.

Liquidity and Capital Resources

Our principal sources of operating funds are premiums, investment income and proceeds from sales and maturities of investments. Our primary uses of operating funds include payments of claims and operating expenses. Currently, we pay claims using cash flow from operations and invest the remaining funds.

Net cash provided by operating activities was $56.4 million for the six months ended June 30, 2016, which represented a $30.3 million increase from $26.1 million in net cash provided by operating activities for the six months ended June 30, 2015. This increase in operating cash flow was attributable to a $28.9 million decrease in amounts held by others, a $7.0 million decrease in underwriting expenses paid, a $2.8 million decrease in losses paid and a $0.3 million increase in paid losses payable. Offsetting these increases were a $4.5 million increase in federal taxes paid, a $2.3 million decrease in premium collections and a $1.5 million decrease in investment income.

Net cash used in investing activities was $49.8 million for the six months ended June 30, 2016, compared to net cash used in investment activities of $51.7 million for the same period in 2015. Cash provided by sales and maturities of investments totaled $172.8 million for the six months ended June 30, 2016, compared to $130.1 million for the same period in 2015. A total of $221.8 million in cash was used to purchase investments in the six months ended June 30, 2016, compared to $181.3 million in purchases for the same period in 2015.

 

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Net cash used in financing activities in the six months ended June 30, 2016 was $5.9 million compared to net cash used in financing activities of $3.8 million for the same period in 2015. In the six months ended June 30, 2016, $7.0 million of cash was used for dividends paid to shareholders compared to $5.7 million in the same period of 2015. Offsetting this increase were proceeds of $0.5 million and $0.8 million from stock option exercises in the six months ended June 30, 2016 and 2015, respectively. During the six months ended June 30, 2016, the tax benefit from share based compensation was $0.5 million compared to $1.1 million for the same period in 2015.

Investment Portfolio

Our investment portfolio, including cash and cash equivalents, totaled $1.2 billion on June 30, 2016 compared to $1.1 billion at December 31, 2015. Effective April 1, 2010, purchases of fixed maturity securities are classified as available-for-sale or held-to-maturity based on the individual security. Such classification is made at the time of purchase. The reported value of our fixed maturity securities classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities, was equal to their amortized cost, and thus was not impacted by changing interest rates. Our equity securities and fixed maturity securities classified as available-for-sale were reported at fair value.

The composition of our investment portfolio, including cash and cash equivalents, as of June 30, 2016, is shown in the following table:

 

     Carrying
Value
     Percentage of
Portfolio
 
     (in thousands)  

Fixed maturity securities—held-to-maturity:

     

States and political subdivisions

   $ 423,631         35.9

U.S. agency-based mortgage-backed securities

     11,849         1.0

Commercial mortgage-backed securities

     6,681         0.6

U.S. Treasury securities and obligations of U.S. government agencies

     12,261         1.0

Corporate bonds

     163,648         13.9

Asset-backed securities

     2,095         0.2
  

 

 

    

 

 

 

Total fixed maturity securities—held-to-maturity

     620,165         52.6
  

 

 

    

 

 

 

Fixed maturity securities—available-for-sale:

     

States and political subdivisions

     181,649         15.4

U.S. agency-based mortgage-backed securities

     12,015         1.0

U.S. Treasury securities and obligations of U.S. government agencies

     63,700         5.4

Corporate bonds

     203,333         17.2
  

 

 

    

 

 

 

Total fixed maturity securities—available-for-sale

     460,697         39.0
  

 

 

    

 

 

 

Equity securities

     32         0.0

Short-term investments

     17,165         1.5

Cash and cash equivalents

     70,155         6.0

Other investments

     10,850         0.9
  

 

 

    

 

 

 

Total investments, including cash and cash equivalents

   $ 1,179,064         100.0
  

 

 

    

 

 

 

Our securities classified as available-for-sale are “marked to market” as of the end of each calendar quarter. As of that date, unrealized gains and losses are recorded to Accumulated Other Comprehensive Income, except when such securities are deemed to be other-than-temporarily impaired. For our securities classified as held-to-maturity, unrealized gains and losses are not recorded in the financial statements until realized or until a decline in fair value, below amortized cost, is deemed to be other-than-temporary.

During the three and six months ended June 30, 2016, there were no impairment losses recognized for other-than-temporary declines in the fair value of our investments.

During the three and six months ended June 30, 2015, the Company recorded charges for four fixed maturity securities whose fair values were determined to be other-than-temporarily impaired. These charges are included in “Net realized gains (losses) on investments”, and totaled $2.7 million for the three and six months ended June 30, 2015.

 

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Prior Year Development

The Company recorded favorable prior accident year development of $12.4 million in the three months ended June 30, 2016. The table below sets forth the favorable development for the three and six months ended June 30, 2016 and 2015 for accident years 2011 through 2015 and, collectively, for all accident years prior to 2011.

 

     Three Months Ended
June 30, 2016
     Three Months Ended
June 30, 2015
     Six Months Ended
June 30, 2016
     Six Months Ended
June 30, 2015
 
     (in millions)  

Accident Year

           

2015

   $ —         $ —         $ —         $ —     

2014

     3.8         —           7.7         —     

2013

     4.2         1.0         9.4         1.0   

2012

     1.7         3.5         7.5         8.2   

2011

     0.1         —           1.4         1.1   

Prior to 2011

     2.6         4.9         4.9         5.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net development

   $ 12.4       $ 9.4       $ 30.9       $ 15.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below sets forth the number of open claims as of June 30, 2016 and 2015, and the number of claims reported and closed during the three and six months then ended.

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2016      2015      2016      2015  

Open claims at beginning of period

     5,151         5,337         5,300         5,515   

Claims reported

     1,339         1,352         2,610         2,603   

Claims closed

     (1,349      (1,453      (2,769      (2,882
  

 

 

    

 

 

    

 

 

    

 

 

 

Open claims at end of period

     5,141         5,236         5,141         5,236   
  

 

 

    

 

 

    

 

 

    

 

 

 

The number of open claims at June 30, 2016 decreased by 95 claims as compared to the number of open claims at June 30, 2015. At June 30, 2016, our incurred amounts for certain accident years, particularly 2012, 2013 and 2014, developed more favorably than management previously expected. Multiple factors can cause loss development both unfavorable and favorable. The favorable loss development we experienced across accident years was largely due to favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement. We believe the favorable loss development in accident years 2012, 2013 and 2014 resulted primarily from an intensive claims management focus with the company actively seeking to settle claims, leading to favorable development.

The assumptions we used in establishing our reserves for these accident years were based on our historical claims data. However, as of June 30, 2016, actual results for these accident years have been better than our assumptions would have predicted. We do not presently intend to modify our assumptions for establishing reserves in light of recent results. However, if actual results for current and future accident years are consistent with, or different than, our results in these recent accident years, our historical claims data will reflect this change and, over time, will impact the reserves we establish for future claims.

Our reserves for loss and loss adjustment expenses are inherently uncertain and our focus on providing workers’ compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers’ compensation insurance companies. As a result of this focus on higher severity, lower frequency business, our reserve for loss and loss adjustment expenses may have greater volatility than other workers’ compensation insurance companies. For additional information, see Item 1, “Business—Loss Reserves” in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are credit risk, interest rate risk and equity price risk. We currently have no exposure to foreign currency risk.

 

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Since December 31, 2015, there have been no material changes in the quantitative or qualitative aspect of our market risk profile. For additional information regarding the Company’s exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms. We note that the design of any system of controls is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions.

Because of its inherent limitations, management does not expect that our disclosure controls and procedures and our internal controls over financial reporting will prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. Any control system, no matter how well designed and operated, is based upon certain assumptions and can only provide reasonable, not absolute assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any within the Company, have been detected.

There have not been any changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Board of Directors initially authorized the Company’s share repurchase program in February 2010. In October 2015, the Board reauthorized this program. As of June 30, 2016, we had repurchased a total of 1,258,250 shares of our outstanding common stock for $22.4 million. There were no shares purchased during the six months ended June 30, 2016 and 2015. We intend to purchase shares of our common stock from time to time depending upon market conditions and subject to applicable regulatory considerations. It is anticipated that future purchases will be funded from available capital. At June 30, 2016, the dollar value of shares that may yet be purchased under the program is $25.0 million.

 

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Item 6. Exhibits.

 

Exhibit

No.

  

Description

  31.1    Certification of G. Janelle Frost filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certification of Neal A. Fuller filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1    Certification of G. Janelle Frost and Neal A. Fuller filed pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      AMERISAFE, INC.
July 29, 2016      

/S/ G. Janelle Frost

      G. Janelle Frost
      President and Chief Executive Officer
      (Principal Executive Officer)
July 29, 2016      

/s/ Neal A. Fuller

      Neal A. Fuller
      Executive Vice President and Chief Financial Officer
      (Principal Financial and Accounting Officer)

 

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Table of Contents

EXHIBIT INDEX

 

Exhibit

No.

  

Description

  31.1    Certification of G. Janelle Frost filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certification of Neal A. Fuller filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1    Certification of G. Janelle Frost and Neal A. Fuller filed pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

26