10-Q 1 cnfr-10q_20200930.htm 10-Q cnfr-10q_20200930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2020

OR

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 001-37536

 

Conifer Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Michigan

 

27-1298795

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

550 West Merrill Street, Suite 200

 

 

Birmingham, Michigan

 

48009

(Address of principal executive offices)

 

(Zip code)

 

(248) 559-0840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

CNFR

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

The number of outstanding shares of the registrant’s common stock, no par value, as of November 12, 2020, was 9,678,463.

 

 

 

 


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Form 10-Q

INDEX

 

 

Page No.

Part I — Financial Information

 

Item 1 — Financial Statements

3

Consolidated Balance Sheets (Unaudited)

3

Consolidated Statements of Operations (Unaudited)

4

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

6

Consolidated Statements of Cash Flows (Unaudited)

7

Notes to Consolidated Financial Statements (Unaudited)

8

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

23

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

35

Item 4 — Controls and Procedures

36

Part II — Other Information

 

Item 1 — Legal Proceedings

37

Item 1A — Risk Factors

37

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

37

Item 6 — Exhibits

38

Signatures

39

 

 

 

2


 

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(dollars in thousands)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

Debt securities, at fair value (amortized cost of $135,883 and $129,313, respectively)

 

$

139,441

 

 

$

131,000

 

Equity securities, at fair value (cost of $17,027 and $6,554, respectively)

 

 

15,913

 

 

 

7,306

 

Short-term investments, at fair value

 

 

24,898

 

 

 

31,426

 

Total investments

 

 

180,252

 

 

 

169,732

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

7,550

 

 

 

7,464

 

Premiums and agents' balances receivable, net

 

 

20,137

 

 

 

20,168

 

Receivable from Affiliate

 

 

12

 

 

 

313

 

Reinsurance recoverables on unpaid losses

 

 

18,564

 

 

 

22,579

 

Reinsurance recoverables on paid losses

 

 

3,496

 

 

 

5,155

 

Prepaid reinsurance premiums

 

 

4,543

 

 

 

1,250

 

Deferred policy acquisition costs

 

 

12,277

 

 

 

11,906

 

Other assets

 

 

13,062

 

 

 

8,698

 

Total assets

 

$

259,893

 

 

$

247,265

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Unpaid losses and loss adjustment expenses

 

$

103,684

 

 

$

107,246

 

Unearned premiums

 

 

55,089

 

 

 

51,503

 

Debt

 

 

40,920

 

 

 

35,824

 

Accounts payable and accrued expenses

 

 

17,614

 

 

 

9,967

 

Total liabilities

 

 

217,307

 

 

 

204,540

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value (100,000,000 shares authorized; 9,678,463 and 9,592,861 issued and outstanding, respectively)

 

 

92,417

 

 

 

91,816

 

Accumulated deficit

 

 

(52,259

)

 

 

(49,580

)

Accumulated other comprehensive income (loss)

 

 

2,428

 

 

 

489

 

Total shareholders' equity

 

 

42,586

 

 

 

42,725

 

Total liabilities and shareholders' equity

 

$

259,893

 

 

$

247,265

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

3


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross earned premiums

 

$

26,872

 

 

 

25,962

 

 

$

78,884

 

 

$

76,594

 

Ceded earned premiums

 

 

(4,645

)

 

 

(3,187

)

 

 

(12,882

)

 

 

(10,783

)

Net earned premiums

 

 

22,227

 

 

 

22,775

 

 

 

66,002

 

 

 

65,811

 

Net investment income

 

 

776

 

 

 

1,210

 

 

 

2,593

 

 

 

3,171

 

Net realized investment gains

 

 

3,316

 

 

 

390

 

 

 

4,489

 

 

 

1,124

 

Change in fair value of equity securities

 

 

(356

)

 

 

(1,065

)

 

 

(1,866

)

 

 

(715

)

Other gains

 

 

 

 

 

 

 

 

260

 

 

 

 

Other income

 

 

642

 

 

 

564

 

 

 

2,013

 

 

 

1,567

 

Total revenue

 

 

26,605

 

 

 

23,874

 

 

 

73,491

 

 

 

70,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses, net

 

 

14,553

 

 

 

14,857

 

 

 

40,767

 

 

 

43,695

 

Policy acquisition costs

 

 

6,483

 

 

 

6,153

 

 

 

19,181

 

 

 

17,952

 

Operating expenses

 

 

4,537

 

 

 

4,297

 

 

 

14,441

 

 

 

12,960

 

Interest expense

 

 

723

 

 

 

720

 

 

 

2,185

 

 

 

2,155

 

Total expenses

 

 

26,296

 

 

 

26,027

 

 

 

76,574

 

 

 

76,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before equity earnings in Affiliate and income taxes

 

 

309

 

 

 

(2,153

)

 

 

(3,083

)

 

 

(5,804

)

Equity earnings (losses) in Affiliate, net of tax

 

 

188

 

 

 

121

 

 

 

417

 

 

 

219

 

Income tax expense (benefit)

 

 

(44

)

 

 

(802

)

 

 

13

 

 

 

(791

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

541

 

 

$

(1,230

)

 

$

(2,679

)

 

$

(4,794

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share, basic and diluted

 

$

0.06

 

 

$

(0.13

)

 

$

(0.28

)

 

$

(0.55

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

9,630,600

 

 

 

9,543,535

 

 

 

9,606,436

 

 

 

8,640,409

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

4


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

541

 

 

$

(1,230

)

 

$

(2,679

)

 

$

(4,794

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses) during the period

 

 

(1,085

)

 

 

812

 

 

 

2,617

 

 

 

3,735

 

Income tax (benefit) expense

 

 

 

 

 

818

 

 

 

 

 

 

818

 

Unrealized investment gains (losses), net of tax

 

 

(1,085

)

 

 

(6

)

 

 

2,617

 

 

 

2,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: reclassification adjustments to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized investment gains (losses) included in net income (loss)

 

 

292

 

 

 

(41

)

 

 

678

 

 

 

(151

)

Income tax (benefit) expense

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications included in net income (loss), net of tax

 

 

292

 

 

 

(41

)

 

 

678

 

 

 

(151

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

(1,377

)

 

 

35

 

 

 

1,939

 

 

 

3,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

(836

)

 

$

(1,195

)

 

$

(740

)

 

$

(1,726

)

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

5


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

(dollars in thousands)

 

 

 

No Par, Common Stock

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

(Accumulated)

 

 

Income (Loss)

 

 

Equity

 

Balances at June 30, 2020

 

 

9,598,155

 

 

$

92,275

 

 

$

(52,800

)

 

$

3,805

 

 

$

43,280

 

Net income

 

 

 

 

 

 

 

 

541

 

 

 

 

 

 

541

 

Repurchase of common stock

 

 

(6,505

)

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

Stock-based compensation expense

 

 

86,813

 

 

 

161

 

 

 

 

 

 

 

 

 

161

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(1,377

)

 

 

(1,377

)

Balances at September 30, 2020

 

 

9,678,463

 

 

$

92,417

 

 

$

(52,259

)

 

$

2,428

 

 

$

42,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2019

 

 

9,519,550

 

 

$

91,410

 

 

$

(45,322

)

 

$

421

 

 

$

46,509

 

Net income (loss)

 

 

 

 

 

 

 

 

(1,230

)

 

 

 

 

 

(1,230

)

Repurchase of common stock

 

 

(17,752

)

 

 

(66

)

 

 

 

 

 

 

 

 

(66

)

Issuance of common stock private placement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock unit expense

 

 

87,075

 

 

 

234

 

 

 

 

 

 

 

 

 

234

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

35

 

Balances at September 30, 2019

 

 

9,588,873

 

 

$

91,578

 

 

$

(46,552

)

 

$

456

 

 

$

45,482

 

 

 

 

No Par, Common Stock

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

(Accumulated)

 

 

Income (Loss)

 

 

Equity

 

Balances at December 31, 2019

 

 

9,592,861

 

 

$

91,816

 

 

$

(49,580

)

 

$

489

 

 

$

42,725

 

Net income (loss)

 

 

 

 

 

 

 

 

(2,679

)

 

 

 

 

 

(2,679

)

Repurchase of common stock

 

 

(11,211

)

 

 

(35

)

 

 

 

 

 

 

 

 

(35

)

Stock-based compensation expense

 

 

96,813

 

 

 

636

 

 

 

 

 

 

 

 

 

636

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,939

 

 

 

1,939

 

Balances at September 30, 2020

 

 

9,678,463

 

 

 

92,417

 

 

 

(52,259

)

 

 

2,428

 

 

 

42,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

8,478,202

 

 

$

86,533

 

 

$

(41,758

)

 

$

(2,612

)

 

$

42,163

 

Net income (loss)

 

 

 

 

 

 

 

 

(4,794

)

 

 

 

 

 

(4,794

)

Repurchase of common stock

 

 

(162,875

)

 

 

(674

)

 

 

 

 

 

 

 

 

(674

)

Issuance of common stock private placement

 

 

1,176,471

 

 

 

5,000

 

 

 

 

 

 

 

 

 

5,000

 

Restricted stock unit expense, net

 

 

97,075

 

 

 

719

 

 

 

 

 

 

 

 

 

719

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

3,068

 

 

 

3,068

 

Balances at September 30, 2019

 

 

9,588,873

 

 

 

91,578

 

 

 

(46,552

)

 

 

456

 

 

 

45,482

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

6


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(2,679

)

 

$

(4,794

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

330

 

 

 

342

 

Amortization of bond premium and discount, net

 

 

469

 

 

 

342

 

Net realized investment (gains) losses

 

 

(4,489

)

 

 

(1,124

)

Change in fair value of equity securities

 

 

1,866

 

 

 

715

 

Stock based compensation expenses

 

 

636

 

 

 

719

 

Other

 

 

(678

)

 

 

(1,038

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Premiums and agents' balances and other receivables

 

 

332

 

 

 

5,667

 

Reinsurance recoverables

 

 

5,674

 

 

 

10,224

 

Prepaid reinsurance premiums

 

 

(3,293

)

 

 

(1,692

)

Deferred policy acquisition costs

 

 

(371

)

 

 

(868

)

Other assets

 

 

281

 

 

 

(3,326

)

Increase (decrease) in:

 

 

 

 

 

 

 

 

Unpaid losses and loss adjustment expenses

 

 

(3,562

)

 

 

4,530

 

Unearned premiums

 

 

3,586

 

 

 

(131

)

Accounts payable and other liabilities

 

 

(1,097

)

 

 

(2,222

)

Net cash provided by (used in) operating activities

 

 

(2,995

)

 

 

7,344

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(245,583

)

 

 

(74,466

)

Proceeds from maturities and redemptions of investments

 

 

16,648

 

 

 

13,122

 

Proceeds from sales of investments

 

 

226,993

 

 

 

69,760

 

Purchases of property and equipment

 

 

(62

)

 

 

(24

)

Net cash provided by (used in) investing activities

 

 

(2,004

)

 

 

8,392

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds received from issuance of shares of common stock

 

 

 

 

 

5,000

 

Repurchase of common stock

 

 

(35

)

 

 

(674

)

Repurchase of senior unsecured notes

 

 

(625

)

 

 

 

Borrowings under debt arrangements

 

 

5,745

 

 

 

1,000

 

Repayment of borrowings under debt arrangements

 

 

 

 

 

(1,000

)

Net cash provided by financing activities

 

 

5,085

 

 

 

4,326

 

Net increase (decrease) in cash

 

 

86

 

 

 

20,062

 

Cash at beginning of period

 

 

7,464

 

 

 

10,792

 

Cash at end of period

 

$

7,550

 

 

$

30,854

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,938

 

 

$

1,907

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

 

7


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

1. Summary of Significant Accounting Policies

Basis of Presentation and Management Representation

The consolidated financial statements include accounts, after elimination of intercompany accounts and transactions, of Conifer Holdings, Inc. (the “Company” or “Conifer”), its wholly owned subsidiaries, Conifer Insurance Company ("CIC"), White Pine Insurance Company ("WPIC"), Red Cedar Insurance Company ("RCIC"), and Sycamore Insurance Agency, Inc. ("SIA").  CIC, WPIC, and RCIC are collectively referred to as the "Insurance Company Subsidiaries." On a stand-alone basis, Conifer Holdings, Inc. is referred to as the "Parent Company."

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which differ from statutory accounting practices prescribed or permitted for insurance companies by regulatory authorities.  The Company has applied the rules and regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting and therefore the consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements.  In the opinion of management, all adjustments, consisting of items of a normal recurring nature, necessary for a fair presentation of the consolidated interim financial statements, have been included.

These consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.  

The results of operations for the nine months ended September 30, 2020, are not necessarily indicative of the results expected for the year ended December 31, 2020.  Results for interim periods are not necessarily indicative of the results that may be expected for a full year, especially when considering the risks and uncertainties associated with the novel coronavirus ("COVID-19") and the impact it may have on our business, results of operations and financial condition. The COVID-19 pandemic has negatively impacted the U.S. and global economies, lowered equity market valuations, created significant volatility and disruption in the capital markets, dramatically increased unemployment levels and has fueled concerns that it will lead to a global recession. Depending on the duration and severity of the pandemic, we foresee the potential for adverse impacts related to, among other things: (i) sales results; (ii) insurance product margin; (iii) net investment income; (iv) invested assets; (v) regulatory capital; (vi) liabilities for insurance products; (vii) access to capital markets; and (viii) the present value of future profits. The full extent to which COVID-19 will impact our business, results of operations and financial condition remains uncertain.

Business

 

The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into three types of insurance businesses: commercial lines, personal lines, and agency business. The Company underwrites a variety of specialty insurance products, including property, general liability, liquor liability, automobile, and homeowners and dwelling policies. The Company markets and sells its insurance products through a network of independent agents, including managing general agents, whereby policies are written in all 50 states in the United States of America (“U.S.”). The Company’s corporate headquarters are located in Birmingham, Michigan with additional office facilities in Florida, Michigan and Pennsylvania.

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 financial statements and the reported amounts of revenues and expenses during the reporting period.  While management believes the amounts included in the consolidated financial statements reflect management's best estimates and assumptions, actual results may differ from these estimates.

Cash, Cash Equivalents, and Short-term Investments

Cash consists of cash deposits in banks, generally in operating accounts.  Cash equivalents consist of money-market funds that are specifically used as overnight investments tied to cash deposit accounts.  Short-term investments, consisting of money-market funds, are classified as investments in the consolidated balance sheets as they relate to the Company’s investment activities.

8


 

Recently Issued Accounting Guidance

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which amends the current methodology and timing for recognizing credit losses.  This amendment will replace the current GAAP "incurred loss" methodology for credit losses with a methodology based on expected credit losses.  The new guidance will also require expanded consideration of a broader range of reasonable and increased supportable information for the credit loss estimates.  This ASU is effective for annual and interim reporting periods beginning after December 15, 2022.  Management is currently evaluating the impact of the guidance.  The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

Early Adoption of ASU No. 2019-12

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU No. 2019-12"). The update is intended to simplify the current rules regarding the accounting for income taxes and addresses several technical topics including accounting for franchise taxes, allocating income taxes between a loss in continuing operations and in other categories such as discontinued operations, reporting income taxes for legal entities that are not subject to income taxes, and interim accounting for enacted changes in tax laws. The new standard is effective for fiscal years beginning after December 15, 2020; however, early adoption is permitted.  The Company early adopted the provisions of ASU No. 2019-12 on April 1, 2020, which did not have a material impact on its consolidated financial statements and related disclosures.

2. Investments

The cost or amortized cost, gross unrealized gain or loss, and estimated fair value of the investments in securities classified as available for sale at September 30, 2020 and December 31, 2019, were as follows (dollars in thousands):

 

 

 

September 30, 2020

 

 

 

Cost or

 

 

Gross Unrealized

 

 

Estimated

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Debt Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government

 

$

9,777

 

 

$

257

 

 

$

 

 

$

10,034

 

State and local government

 

 

27,925

 

 

 

926

 

 

 

(50

)

 

 

28,801

 

Corporate debt

 

 

30,857

 

 

 

1,425

 

 

 

(137

)

 

 

32,145

 

Asset-backed securities

 

 

18,756

 

 

 

195

 

 

 

(136

)

 

 

18,815

 

Mortgage-backed securities

 

 

37,148

 

 

 

592

 

 

 

(5

)

 

 

37,735

 

Commercial mortgage-backed securities

 

 

5,441

 

 

 

382

 

 

 

(23

)

 

 

5,800

 

Collateralized mortgage obligations

 

 

5,979

 

 

 

141

 

 

 

(9

)

 

 

6,111

 

Total debt securities available for sale

 

$

135,883

 

 

$

3,918

 

 

$

(360

)

 

$

139,441

 

 

 

 

December 31, 2019

 

 

 

Cost or

 

 

Gross Unrealized

 

 

Estimated

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Debt Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government

 

$

9,392

 

 

$

66

 

 

$

(6

)

 

$

9,452

 

State and local government

 

 

14,388

 

 

 

545

 

 

 

 

 

 

14,933

 

Corporate debt

 

 

39,550

 

 

 

865

 

 

 

(21

)

 

 

40,394

 

Asset-backed securities

 

 

19,549

 

 

 

81

 

 

 

(55

)