Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - First Trinity Financial CORPFinancial_Report.xls
EX-31 - EXHIBIT 31.1 - First Trinity Financial CORPex31-1.htm
EX-32 - EXHIBIT 32.2 - First Trinity Financial CORPex32-2.htm
EX-31 - EXHIBIT 31.2 - First Trinity Financial CORPex31-2.htm
EX-32 - EXHIBIT 32.1 - First Trinity Financial CORPex32-1.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

[ X ]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934

 

 For the quarterly period ended September 30, 2014

 

[     ]

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: 000-52613

 

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 Oklahoma                               

34- 1991436

(State or other jurisdiction of incorporation or organization) 

 (I.R.S. Employer Identification Number)

 

7633 East 63rd Place, Suite 230

Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

 

(918) 249-2438

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for 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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, "accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer:  ☐ 

Accelerated filer:  ☐

Non-accelerated filer:  ☐

Smaller reporting company:  

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ☐       No ☑

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Common stock .01 par value as of November 10, 2014: 7,831,934 shares.

 

 
 

 

 

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

Page Number

 

 

Item 1. Consolidated Financial Statements

 

 

 

Consolidated Statements of Financial Position as of September 30, 2014 (Unaudited) and December 31, 2013 

 3

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)

 4

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)   

 5

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2014 and 2013 (Unaudited)   

 6

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited) 

 7

 

 

Notes to Consolidated Financial Statements (Unaudited)  

 8

 

 

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

 29

 

 

Item 4. Controls and Procedures   

 53

 

 

Part II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

54 

 

 

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

54

   

Item 3. Defaults upon Senior Securities  

54
   
Item 4. Mine Safety Disclosures 54
   
Item 5. Other Information 55
   
Item 6. Exhibits      55
   
Signatures 56
   
Exhibit No. 31.1   

Exhibit No. 31.2                                                       

 

Exhibit No. 32.1                                                       

 

Exhibit No. 32.2

 

Exhibit No 101.INS

 

Exhibit No. 101.SCH

 
Exhibit No. 101.CAL  

Exhibit No. 101.DEF

 

Exhibit No. 101.LAB

 

Exhibit No. 101.PRE

 

 

 
2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.      Consolidated Financial Statements

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

September 30, 2014

   

December 31, 2013

 
   

(Unaudited)

         

Assets

               

Investments

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $107,337,322 as of September 30, 2014 and $98,218,823 as of December 31, 2013)

  $ 111,392,012     $ 100,429,711  

Available-for-sale equity securities at fair value (cost: $615,734 as of September 30, 2014 and $567,697 as of December 31, 2013)

    738,984       717,433  

Mortgage loans on real estate

    35,052,415       19,124,869  

Investment real estate

    9,201,462       6,531,971  

Policy loans

    1,497,314       1,488,646  

Short-term investments

    1,391,445       -  

Other long-term investments

    22,213,923       21,763,648  

Total investments

    181,487,555       150,056,278  

Cash and cash equivalents

    7,603,167       10,608,438  

Accrued investment income

    1,721,630       1,558,153  

Recoverable from reinsurers

    1,175,013       1,200,807  

Agents' balances and due premiums

    497,409       285,033  

Deferred policy acquisition costs

    8,896,234       8,172,627  

Value of insurance business acquired

    6,777,951       7,086,790  

Property and equipment, net

    91,640       130,287  

Other assets

    4,866,852       4,074,746  

Total assets

  $ 213,117,451     $ 183,173,159  

Liabilities and Shareholders' Equity

               

Policy liabilities

               

Policyholders' account balances

  $ 135,938,605     $ 113,750,681  

Future policy benefits

    35,154,347       33,354,454  

Policy claims

    533,730       611,417  

Other policy liabilities

    99,576       89,504  

Total policy liabilities

    171,726,258       147,806,056  

Notes payable

    4,076,473       -  

Deferred federal income taxes

    3,044,722       2,543,825  

Other liabilities

    1,405,855       2,182,264  

Total liabilities

    180,253,308       152,532,145  

Shareholders' equity

               

Common stock, par value $.01 per share (20,000,000 shares authorized, and 8,050,193 issued as of September 30, 2014 and December 31, 2013 and 7,831,934 and 7,851,984 outstanding as of September 30, 2014 and December 31, 2013, respectively)

    80,502       80,502  

Additional paid-in capital

    28,684,748       28,684,748  

Treasury stock, at cost (218,259 and 198,209 shares as of September 30, 2014 and December 31, 2013, respectively)

    (773,731 )     (693,731 )

Accumulated other comprehensive income

    3,306,188       1,878,157  

Accumulated earnings

    1,566,436       691,338  

Total shareholders' equity

    32,864,143       30,641,014  

Total liabilities and shareholders' equity

  $ 213,117,451     $ 183,173,159  

 

See notes to consolidated financial statements (unaudited).        

 

 
3

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Revenues

                               

Premiums

  $ 2,026,730     $ 1,930,541     $ 5,968,768     $ 5,779,585  

Net investment income

    2,227,772       1,826,964       6,460,183       5,242,954  

Net realized investment gains

    16,528       89,799       778,244       366,000  

Other income

    56,277       43,373       76,352       51,131  

Total revenues

    4,327,307       3,890,677       13,283,547       11,439,670  

Benefits, Claims and Expenses

                               

Benefits and claims

                               

Increase in future policy benefits

    562,682       576,056       1,777,486       1,741,803  

Death benefits

    808,294       847,526       2,280,756       1,943,220  

Surrenders

    215,089       129,880       459,027       438,856  

Interest credited to policyholders

    1,141,903       942,075       3,243,630       2,737,378  

Dividend, endowment and supplementary life contract benefits

    59,569       69,225       197,169       191,163  

Total benefits and claims

    2,787,537       2,564,762       7,958,068       7,052,420  

Policy acquisition costs deferred

    (606,042 )     (274,016 )     (1,692,513 )     (1,426,610 )

Amortization of deferred policy acquisition costs

    347,073       69,372       936,627       453,081  

Amortization of value of insurance business acquired

    106,241       105,771       308,839       321,571  

Commissions

    591,212       505,998       1,631,193       1,558,435  

Other underwriting, insurance and acquisition expenses

    867,080       901,754       3,190,362       3,021,792  

Total expenses

    1,305,564       1,308,879       4,374,508       3,928,269  

Total benefits, claims and expenses

    4,093,101       3,873,641       12,332,576       10,980,689  

Income before total federal income tax expense

    234,206       17,036       950,971       458,981  

Current federal income tax benefit

    (146,465 )     (124,016 )     (68,015 )     (20,768 )

Deferred federal income tax expense

    182,907       308,631       143,888       193,786  

Total federal income tax expense

    36,442       184,615       75,873       173,018  

Net income (loss)

  $ 197,764     $ (167,579 )   $ 875,098     $ 285,963  

Net income (loss) per common share basic and diluted

  $ 0.03     $ (0.02 )   $ 0.11     $ 0.04  

 

See notes to consolidated financial statements (unaudited).

                               

 

 
4

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Net income (loss)

  $ 197,764     $ (167,579 )   $ 875,098     $ 285,963  

Other comprehensive income (loss)

                               

Total net unrealized gains (losses) arising during the period

    (1,251,770 )     (922,836 )     2,391,378       (3,154,582 )

Less net realized investment gains

    7,631       48,845       574,062       101,777  

Net unrealized gains (losses)

    (1,259,401 )     (971,681 )     1,817,316       (3,256,359 )

Adjustment to deferred acquisition costs

    (7,714 )     4,193       (32,279 )     15,874  

Other comprehensive income (loss) before income tax (expense) benefit

    (1,267,115 )     (967,488 )     1,785,037       (3,240,485 )

Income tax (expense) benefit

    253,424       193,495       (357,006 )     648,097  

Total other comprehensive income (loss)

    (1,013,691 )     (773,993 )     1,428,031       (2,592,388 )

Total comprehensive income (loss)

  $ (815,927 )   $ (941,572 )   $ 2,303,129     $ (2,306,425 )

 

See notes to consolidated financial statements (unaudited).

                               

 

 
5

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

                           

Accumulated

                 
   

Common

   

Additional

           

Other

   

Accumulated

   

Total

 
   

Stock

   

Paid-in

   

Treasury

   

Comprehensive

   

Earnings

   

Shareholders'

 
   

$.01 Par Value

   

Capital

   

Stock

   

Income

   

(Deficit)

   

Equity

 

Balance as of January 1, 2013

  $ 80,374     $ 28,707,648     $ (648,595 )   $ 5,780,670     $ (197,985 )   $ 33,722,112  

Subscriptions of common stock

    128       (40,900 )     -       -       -       (40,772 )

Repurchase of common stock

    -       -       (45,136 )     -       -       (45,136 )

Comprehensive income (loss):

                                               

Net income

    -       -       -       -       285,963       285,963  

Other comprehensive loss

    -       -       -       (2,592,388 )     -       (2,592,388 )

Balance as of September 30, 2013

  $ 80,502     $ 28,666,748     $ (693,731 )   $ 3,188,282     $ 87,978     $ 31,329,779  
                                                 

Balance as of January 1, 2014

  $ 80,502     $ 28,684,748     $ (693,731 )   $ 1,878,157     $ 691,338     $ 30,641,014  

Repurchase of common stock

    -       -       (80,000 )     -       -       (80,000 )

Comprehensive income:

                                               

Net income

    -       -       -       -       875,098       875,098  

Other comprehensive income

    -       -       -       1,428,031       -       1,428,031  

Balance as of September 30, 2014

  $ 80,502     $ 28,684,748     $ (773,731 )   $ 3,306,188     $ 1,566,436     $ 32,864,143  

 

See notes to consolidated financial statements (unaudited).                 

 

 
6

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) 

 

   

Nine Months Ended September 30,

 
   

2014

   

2013

 

Operating activities

               

Net income

  $ 875,098     $ 285,963  

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

               

Provision for depreciation

    151,013       156,736  

Accretion of discount on investments

    (667,036 )     (648,823 )

Net realized investment gains

    (778,244 )     (366,000 )

Gain on sale of real estate

    -       (3,047 )

Amortization of policy acquisition cost

    936,627       453,081  

Policy acquisition costs deferred

    (1,692,513 )     (1,426,610 )

Mortgage loan origination fees deferred

    (73,500 )     (112,458 )

Amortization of loan origination fees

    58,477       34,575  

Amortization of value of insurance business acquired

    308,839       321,571  

Provision for deferred federal income tax expense

    143,888       193,786  

Interest credited to policyholders

    3,243,630       2,737,378  

Change in assets and liabilities:

               

Allowance for mortgage and premium finance loan losses

    59,793       42,114  

Policy loans

    (8,668 )     (31,336 )

Accrued investment income

    (163,477 )     (31,020 )

Recoverable from reinsurers

    25,794       (131,194 )

Agents' balances and due premiums

    (212,376 )     47,971  

Other assets (excluding $9,500 net change in 2014 premium financing loans)

    (801,606 )     (405,651 )

Future policy benefits

    1,799,893       1,774,311  

Policy claims

    (77,687 )     96,587  

Other policy liabilities

    10,072       (46,420 )

Other liabilities

    (776,409 )     655,492  

Net cash provided by operating activities

    2,361,608       3,597,006  
                 

Investing activities

               

Purchases of fixed maturity securities

    (19,781,456 )     (12,111,396 )

Maturities of fixed maturity securities

    4,209,000       2,441,000  

Sales of fixed maturity securities

    6,349,530       2,882,457  

Purchases of equity securities

    (131,717 )     (14,504 )

Sales of equity security securities

    105,080       97,965  

Purchases of short-term investments, net

    (1,391,445 )     -  

Purchases and originations of mortgage loans

    (20,972,323 )     (7,371,253 )

Payments on mortgage loans

    5,284,042       2,137,408  

Purchases of other long-term investments

    (1,975,228 )     (4,337,915 )

Payments on other long-term investments

    2,759,728       2,824,536  

Loans repaid for premiums financed

    19,000       118,371  

Sale of real estate

    36,000       180,000  

Purchases of real estate

    (2,817,857 )     (10,656 )

Purchases of furniture and equipment

    -       (53,995 )

Net cash used in investing activities

    (28,307,646 )     (13,217,982 )
                 

Financing activities

               

Policyholders' account deposits

    24,011,810       16,094,089  

Policyholders' account withdrawals

    (5,067,516 )     (5,080,040 )

Purchases of treasury stock

    (80,000 )     (45,136 )

Proceeds from issuance of notes payable

    4,076,473       -  

Proceeds used in private placement stock offerings

    -       (40,772 )

Net cash provided by financing activities

    22,940,767       10,928,141  
                 

Increase (decrease) in cash and cash equivalents

    (3,005,271 )     1,307,165  

Cash and cash equivalents, beginning of period

    10,608,438       10,947,474  

Cash and cash equivalents, end of period

  $ 7,603,167     $ 12,254,639  

 

See notes to consolidated financial statements (unaudited).

               

 

 
7

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

  

1.

Organization and Significant Accounting Policies

 

Nature of Operations

 

First Trinity Financial Corporation (the “Company”) is the parent holding company of Trinity Life Insurance Company (“TLIC”), Family Benefit Life Insurance Company (“FBLIC”), First Trinity Capital Corporation (“FTCC”) and Southern Insurance Services, LLC (“SIS”). The Company was incorporated in Oklahoma on April 19, 2004, for the primary purpose of organizing a life insurance subsidiary.

 

The Company owns 100% of TLIC. TLIC owns 100% of FBLIC. TLIC and FBLIC are primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life and annuity insurance products to individuals. TLIC’s and FBLIC’s current product portfolio consists of a modified premium whole life insurance policy with a flexible premium deferred annuity rider, whole life, term, final expense, accidental death and dismemberment and annuity products. The term products are both renewable and convertible and issued for 10, 15, 20 and 30 years. They can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense is issued as either a simplified issue or as a graded benefit, determined by underwriting. The TLIC and FBLIC products are sold through independent agents. TLIC is licensed in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas. FBLIC is licensed in the states of Arizona, Arkansas, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Virginia and West Virginia. FBLIC also has certificate of authority applications pending in Alabama and Georgia.

 

The Company owns 100% of FTCC that was incorporated in 2006, and began operations in January 2007. FTCC provided financing for casualty insurance premiums for individuals and companies and was licensed to conduct premium financing business in the states of Alabama, Arkansas, Louisiana, Mississippi and Oklahoma. FTCC currently has no operations other than minor premium refunds and collections of past due accounts and accounts involved in litigation. The Company also owns 100% of SIS, a limited liability company acquired in 2009 that operated as a property and casualty insurance agency but currently has no operations.

 

Company Capitalization

 

The Company raised $1,450,000 from two private placement stock offerings during 2004 and $25,669,480 from three public stock offerings from June 22, 2005 through February 23, 2007; June 29, 2010 through April 30, 2012; and August 15, 2012 through March 8, 2013. The Company issued 7,347,488 shares of its common stock and incurred $3,624,518 of offering costs during these private placements and public stock offerings.

 

The Company also issued 702,705 shares of its common stock in connection with two stock dividends paid to shareholders in 2011 and 2012 that resulted in accumulated earnings being charged $5,270,288 with an offsetting credit of $5,270,288 to common stock and additional paid-in capital. The impact of these two stock dividend charges of $5,270,288 has decreased the balance of accumulated earnings through September 30, 2014 to $1,566,436, as shown in the accumulated earnings caption in the September 30, 2014 consolidated statement of financial position.

 

The Company has also purchased 218,259 shares of treasury stock at a cost of $773,731 from former members of the Board of Directors, a former agent and a charitable organization where a former member of the Board of Directors had donated shares of the Company’s common stock.

 

Acquisition of Other Companies 

 

On December 23, 2008, FTFC acquired 100% of the outstanding common stock of First Life America Corporation (“FLAC”) from an unaffiliated company. The acquisition of FLAC was accounted for as a purchase. The aggregate purchase price for FLAC was approximately $2,695,000 (including direct cost associated with the acquisition of approximately $195,000). The acquisition of FLAC was financed with the working capital of FTFC. On December 31, 2008, FTFC made FLAC a 15 year loan in the form of a surplus note in the amount of $250,000 with an interest rate of 6% payable quarterly, that was approved by the Oklahoma Insurance Department (“OID”). This surplus note is eliminated in consolidation.

 

 
8

 

  

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

1.     Organization and Significant Accounting Policies (continued)

 

On August 31, 2009, two of the Company’s subsidiaries, Trinity Life Insurance Company (“Old TLIC”) and FLAC, were merged, with FLAC being the surviving company. Immediately following the merger, FLAC changed its name to TLIC.

 

On December 28, 2011, TLIC acquired 100% of the outstanding common stock of FBLIC from FBLIC’s shareholders. The acquisition of FBLIC was accounted for as a purchase. The aggregate purchase price for the acquisition of FBLIC was $13,855,129. The acquisition of FBLIC was financed with the working capital of TLIC.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ended December 31, 2014 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 2013.

 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

 

Reclassifications

 

Certain reclassifications have been made in the prior year and prior quarter financial statements to conform to current year and current quarter classifications. These reclassifications had no effect on previously reported net income or shareholders' equity.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

 

Common Stock

 

Common stock is fully paid, non-assessable and has a par value of $.01 per share.

 

Subsequent Events

 

Management has evaluated all events subsequent to September 30, 2014 through the date that these financial statements have been issued and no disclosures are required.

 

 
9

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

1.     Organization and Significant Accounting Policies (continued)

 

Recent Accounting Pronouncements

 

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for the quarter ending March 31, 2015. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Revenue from Contracts with Customers

 

In May 2014, the FASB issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company’s fee income related to providing limited services will be subject to this updated guidance.

 

The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

 

The updated guidance is effective for the quarter ending March 31, 2017.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position, or liquidity.

 

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

 

In June 2014, the FASB issued updated guidance to resolve diversity in practice concerning employee share-based payments that contain performance targets that could be achieved after the requisite service period. Many reporting entities account for performance targets that could be achieved after the requisite service period as performance conditions that affect the vesting of the award and, therefore, do not reflect the performance targets in the estimate of the grant-date fair value of the award. Other reporting entities treat those performance targets as nonvesting conditions that affect the grant-date fair value of the award.

 

The updated guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. As such, the performance target that affects vesting should not be reflected in estimating that fair value of the award at the grant date. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which service has been rendered. If the performance target becomes probable of being achieved before the end of the service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered is recognized prospectively over the remaining service period. The total amount of compensation cost recognized during and after the service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest.

 

 
10

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

1.     Organization and Significant Accounting Policies (continued)

 

The updated guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

 

In August 2014, the FASB issued guidance to address the diversity in practice in determining when there is substantial doubt about an entity’s ability to continue as a going concern and when an entity must disclose certain relevant conditions and events.  The new guidance requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued).

 

The new guidance allows the entity to consider the mitigating effects of management’s plans that will alleviate the substantial doubt and requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans.  If conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans that are intended to mitigate those conditions.

 

The guidance is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

 
11

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

2. Investments

 

Fixed Maturity and Equity Securities Available-For-Sale

 

Investments in fixed maturity and equity securities available-for-sale as of September 30, 2014 and December 31, 2013 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

September 30, 2014 (Unaudited)

 

Cost

   

Gains

   

Losses

   

Value

 

Fixed maturity securities

                               

U.S. government and U.S. government agencies

  $ 2,641,222     $ 168,485     $ 127,808     $ 2,681,899  

States and political subdivisions

    882,129       12,697       2,841       891,985  

Residential mortgage-backed securities

    68,914       74,136       -       143,050  

Corporate bonds

    92,685,197       3,895,680       479,266       96,101,611  

Foreign bonds

    11,059,860       538,569       24,962       11,573,467  

Total fixed maturity securities

    107,337,322       4,689,567       634,877       111,392,012  

 

           

Gross

   

Gross

         
           

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
Equity securities                        

Mutual funds

    75,154       12,797       -       87,951  

Corporate preferred stock

    371,241       3,126       22,086       352,281  

Corporate common stock

    169,339       129,413       -       298,752  

Total equity securities

    615,734       145,336       22,086       738,984  

Total fixed maturity and equity securities

  $ 107,953,056     $ 4,834,903     $ 656,963     $ 112,130,996  

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

December 31, 2013

 

Cost

   

Gains

   

Losses

   

Value

 

Fixed maturity securities

                               

U.S. government and U.S. government agencies

  $ 3,163,203     $ 177,700     $ 285,282     $ 3,055,621  

States and political subdivisions

    209,495       601       9,698       200,398  

Residential mortgage-backed securities

    86,022       62,588       -       148,610  

Corporate bonds

    89,683,844       3,332,305       1,262,513       91,753,636  

Foreign bonds

    5,076,259       234,153       38,966       5,271,446  

Total fixed maturity securities

    98,218,823       3,807,347       1,596,459       100,429,711  

 

           

Gross

   

Gross

         
           

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
Equity securities                        

Mutual funds

    68,808       15,759       -       84,567  

Corporate preferred stock

    347,905       21,752       32,605       337,052  

Corporate common stock

    150,984       144,830       -       295,814  

Total equity securities

    567,697       182,341       32,605       717,433  

Total fixed maturity and equity securities

  $ 98,786,520     $ 3,989,688     $ 1,629,064     $ 101,147,144  

 

 
12

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

2. Investments (continued)

 

All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of September 30, 2014 and December 31, 2013 are summarized as follows: 

 

           

Unrealized

   

Number of

 

September 30, 2014 (Unaudited)

 

Fair Value

   

Loss

   

Securities

 

Fixed maturity securities

                       

Less than 12 months

                       

States and political subdivisions

  $ 344,690     $ 1,528       3  

Corporate bonds

    10,600,571       213,522       42  

Foreign bonds

    1,809,047       24,962       8  

Total less than 12 months

    12,754,308       240,012       53  

More than 12 months

                       

U.S. government and U.S. government agencies

    1,302,193       127,808       3  

States and political subdivisions

    105,429       1,313       1  

Corporate bonds

    4,041,270       265,744       17  

Total more than 12 months

    5,448,892       394,865       21  

Total fixed maturity securities

    18,203,200       634,877       74  

Equity securities

                       

Less than 12 months

                       

Corporate preferred stock

    49,340       606       1  

More than 12 months

                       

Corporate preferred stock

    147,020       21,480       2  

Total equity securities

    196,360       22,086       3  

Total fixed maturity and equity securities

  $ 18,399,560     $ 656,963       77  
                         

 

           

Unrealized

   

Number of

 

December 31, 2013

 

Fair Value

   

Loss

   

Securities

 

Fixed maturity securities

                       

Less than 12 months

                       

U.S. government and U.S. government agencies

  $ 1,144,718     $ 285,282       3  

States and political subdivisions

    97,934       9,698       1  

Corporate bonds

    31,495,624       1,225,816       141  

Foreign bonds

    1,364,449       38,966       5  

Total less than 12 months

    34,102,725       1,559,762       150  

More than 12 months

                       

Corporate bonds

    531,683       36,697       4  

Total more than 12 months

    531,683       36,697       4  

Total fixed maturity securities

    34,634,408       1,596,459       154  

Equity securities

                       

Less than 12 months

                       

Corporate preferred stock

    185,840       32,605       3  

Total equity securities

    185,840       32,605       3  

Total fixed maturity and equity securities

  $ 34,820,248     $ 1,629,064       157  

 

 
13

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

2.     Investments (continued)

 

As of September 30, 2014, all of the above fixed maturity securities had a fair value to cost ratio equal to or greater than 73%. As of December 31, 2013, all of the above fixed maturity securities had a fair value to cost ratio equal to or greater than 77%. Fixed maturity securities were 96% investment grade as rated by Standard & Poor’s as of both September 30, 2014 and December 31, 2013. As of September 30, 2014, all of the above equity securities had a fair value to cost ratio equal to or greater than 84%. As of December 31, 2013, all of the above equity securities had a fair value to cost ratio equal to or greater than 78%.

 

The Company’s decision to record an impairment loss is primarily based on whether the security’s fair value is likely to remain significantly below its book value based on all of the factors considered. Factors that are considered include the length of time the security’s fair value has been below its carrying amount, the severity of the decline in value, the credit worthiness of the issuer, and the coupon and/or dividend payment history of the issuer. The Company also assesses whether it intends to sell or whether it is more likely than not that it may be required to sell the security prior to its recovery in value.

 

For any fixed maturity securities that are other-than-temporarily impaired, the Company determines the portion of the other-than-temporary impairment that is credit-related and the portion that is related to other factors. The credit-related portion is the difference between the expected future cash flows and the amortized cost basis of the fixed maturity security, and that difference is charged to earnings. The non-credit-related portion representing the remaining difference to fair value is recognized in other comprehensive income (loss). Only in the case of a credit-related impairment where management has the intent to sell the security, or it is more likely than not that it will be required to sell the security before recovery of its cost basis, is a fixed maturity security adjusted to fair value and the resulting losses recognized in realized gains (losses) in the consolidated statements of operations. Any other-than-temporary impairments on equity securities are recorded in the consolidated statements of operations in the periods incurred as the difference between fair value and cost.

 

Based on management’s review, the Company experienced no other-than-temporary impairments during the nine months ended September 30, 2014 and the year ended December 31, 2013. Management believes that the Company will fully recover its cost basis in the securities held as of September 30, 2014, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature.  The remaining temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.

 

Net unrealized gains included in other comprehensive income for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation had been realized as of September 30, 2014 and December 31, 2013, are summarized as follows:

 

   

(Unaudited)

         
   

September 30, 2014

   

December 31, 2013

 

Unrealized appreciation on available-for-sale securities

  $ 4,177,940     $ 2,360,624  

Adjustment to deferred acquisition costs

    (45,206 )     (12,927 )

Deferred income taxes

    (826,546 )     (469,540 )

Net unrealized appreciation on available-for-sale securities

  $ 3,306,188     $ 1,878,157  

 

 
14

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

2.     Investments (continued)

 

The amortized cost and fair value of fixed maturity available-for-sale securities and other long-term investments as of September 30, 2014, by contractual maturity, are summarized as follows:

 

   

September 30, 2014 (Unaudited)

 
   

Fixed Maturity Available-For-Sale Securities

   

Other Long-Term Investments

 
   

Amortized Cost

   

Fair Value

   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 3,299,318     $ 3,335,353     $ 4,048,397     $ 4,100,030  

Due in one year through five years

    36,908,502       38,978,452       9,445,793       10,259,074  

Due after five years through ten years

    54,695,282       56,290,517       5,882,990       7,329,407  

Due after ten years

    12,365,306       12,644,640       2,836,743       4,178,007  

Due at multiple maturity dates

    68,914       143,050       -       -  
    $ 107,337,322     $ 111,392,012     $ 22,213,923     $ 25,866,518  

 

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale and mortgage loans on real estate for the three and nine months ended September 30, 2014 and 2013 are summarized as follows:

 

   

Three Months Ended September 30, (Unaudited)

   

Nine Months Ended September 30, (Unaudited)

 
   

Fixed Maturity and Equity Securities

   

Mortgage Loans on Real Estate

   

Fixed Maturity and Equity Securities

   

Mortgage Loans on Real Estate

 
   

2014

   

2013

   

2014

   

2013

   

2014

   

2013

   

2014

   

2013

 

Proceeds

  $ 1,982,472     $ 2,377,678     $ 2,273,252     $ 694,203     $ 10,663,610     $ 5,421,422     $ 5,284,042     $ 2,134,439  

Gross realized gains

    8,755       55,425       8,897       40,954       576,218       115,020       204,182       264,223  

Gross realized losses

    (1,124 )     (6,580 )     -       -       (2,156 )     (13,243 )     -       -  

 

The accumulated change in net unrealized investment gains for fixed maturity and equity securities available-for-sale for the three and nine months ended September 30, 2014 and 2013 and the amount of realized investment gains on fixed maturity and equity securities available-for-sale and mortgage loans on real estate for the three and nine months ended September 30, 2014 and 2013 are summarized as follows:

 

   

Three Months Ended September 30, (Unaudited)

   

Nine Months Ended September 30, (Unaudited)

 
   

2014

   

2013

   

2014

   

2013

 

Change in unrealized investment gains:

                               

Available-for-sale securities:

                               

Fixed maturity securities

  $ (1,230,128 )   $ (934,277 )   $ 1,843,802     $ (3,238,158 )

Equity securities

    (29,273 )     (37,404 )     (26,486 )     (18,201 )

Net realized investment gains:

                               

Available-for-sale securities:

                               

Fixed maturity securities

    7,631       53,300       552,662       106,232  

Equity securities

    -       (4,455 )     21,400       (4,455 )

Mortgage loans on real estate

    8,897       40,954       204,182       264,223  

 

 
15

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

2.     Investments (continued)

 

Major categories of net investment income for the three and nine months ended September 30, 2014 and 2013 are summarized as follows:

 

   

Three Months Ended September 30, (Unaudited)

   

Nine Months Ended September 30, (Unaudited)

 
   

2014

   

2013

   

2014

   

2013

 

Fixed maturity securities

  $ 1,160,725     $ 1,101,529     $ 3,408,788     $ 3,294,448  

Equity securities

    10,917       10,330       32,321       25,016  

Other long-term investments

    400,985       404,978       1,234,775       1,220,456  

Mortgage loans

    681,204       305,106       1,716,909       781,273  

Policy loans

    25,902       25,804       76,280       74,869  

Real estate

    204,984       90,870       582,978       272,290  

Short-term and other investments

    40,839       42,700       112,917       70,664  

Gross investment income

    2,525,556       1,981,317       7,164,968       5,739,016  

Investment expenses

    (297,784 )     (154,353 )     (704,785 )     (496,062 )

Net investment income

  $ 2,227,772     $ 1,826,964     $ 6,460,183     $ 5,242,954  

 

TLIC and FBLIC are required to hold assets on deposit with various state insurance departments for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of September 30, 2014 and December 31, 2013, these required deposits, included in investment assets, had amortized costs that totaled $3,703,486 and $3,220,853, respectively. As of September 30, 2014 and December 31, 2013, these required deposits had fair values that totaled $3,732,720 and $3,097,372, respectively.

 

The Company’s mortgage loans by property type as of September 30, 2014 and December 31, 2013 are summarized as follows:

 

   

(Unaudited)

September 30, 2014

   

December 31, 2013

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 

Commercial mortgage loans

                               

Retail stores

  $ 1,668,911       4.76 %   $ 1,801,443       9.42 %

Office buildings

    330,067       0.94 %     349,508       1.83 %

Total commercial mortgage loans

    1,998,978       5.70 %     2,150,951       11.25 %

Residential mortgage loans

    33,053,437       94.30 %     16,973,918       88.75 %

Total mortgage loans

  $ 35,052,415       100.00 %   $ 19,124,869       100.00 %

 

 

TLIC owns approximately six and one-half acres of land located in Topeka, Kansas that includes a 20,000 square foot office building on approximately one-half of this land. The Company also owns one acre of land in Greensburg, Indiana that includes a 3,975 square foot retail building on approximately 8% of this land, another acre of land in Norman, Oklahoma that includes a 9,100 square foot retail building on approximately 18% of this land, one acre of land in Houston, Texas that includes a 9,195 square foot building constructed on approximately 25% of this land and three-fourths of an acre of land in Harrisonville, Missouri that includes a 6,895 square foot building constructed on approximately 20% of this land. 

 

 
16

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

 2.     Investments (continued)

 

The Company’s investment real estate as of September 30, 2014 and December 31, 2013 is summarized as follows:

 

 

   

(Unaudited)

September 30, 2014

   

December 31, 2013

 

Land

  $ 2,247,638     $ 1,453,135  

Buildings

    7,676,170       5,688,816  

Less - accumulated depreciation

    (722,346 )     (609,980 )

Buildings net of accumulated depreciation

    6,953,824       5,078,836  

Investment real estate, net of accumulated depreciation

  $ 9,201,462     $ 6,531,971  

 

 

3.     Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) on the measurement date.  The Company also considers the impact on fair value of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity.

 

The Company holds fixed maturity and equity securities that are measured and reported at fair market value on the statement of financial position. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include equity securities that are traded in an active exchange market.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities and corporate debt securities.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments where independent pricing information was not able to be obtained for a significant portion of the underlying assets.

 

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in and out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

 

 
17

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

3.     Fair Value Measurements (continued)

 

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 is summarized as follows:

 

 

September 30, 2014 (Unaudited)

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturity securities, available-for-sale

                               

U.S. government and U.S. government agencies

  $ -     $ 2,681,899     $ -     $ 2,681,899  

States and political subdivisions

    -       891,985       -       891,985  

Residential mortgage-backed securities

    -       143,050       -       143,050  

Corporate bonds

    -       96,101,611       -       96,101,611  

Foreign bonds

    -       11,573,467       -       11,573,467  

Total fixed maturity securities

  $ -     $ 111,392,012     $ -     $ 111,392,012  
                                 

Equity securities, available-for-sale

                               

Mutual funds

  $ -     $ 87,951     $ -     $ 87,951  

Corporate preferred stock

    200,501       151,780       -       352,281  

Corporate common stock

    264,752       -       34,000       298,752  

Total equity securities

  $ 465,253     $ 239,731     $ 34,000     $ 738,984  
                                 

Short-term investments

  $ 1,391,445     $ -     $ -     $ 1,391,445  

 

December 31, 2013

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturity securities, available-for-sale

                               

U.S. government and U.S. government agencies

  $ -     $ 3,055,621     $ -     $ 3,055,621  

States and political subdivisions

    -       200,398       -       200,398  

Residential mortgage-backed securities

    -       148,610       -       148,610  

Corporate bonds

    -       91,753,636       -       91,753,636  

Foreign bonds

    -       5,271,446       -       5,271,446  

Total fixed maturity securities

  $ -     $ 100,429,711     $ -     $ 100,429,711  
                                 

Equity securities, available-for-sale

                               

Mutual funds

  $ -     $ 84,567     $ -     $ 84,567  

Corporate preferred stock

    81,540       255,512       -       337,052  

Corporate common stock

    277,814       -       18,000       295,814  

Total equity securities

  $ 359,354     $ 340,079     $ 18,000     $ 717,433  

 

As of both September 30, 2014 and December 31, 2013, Level 3 financial instruments consisted of two private placement common stocks that have no active trading. These private placement stocks represent investments in small development stage insurance holding companies. The fair value for these securities was determined through the use of unobservable assumptions about market participants. The Company has assumed a willing market participant would purchase the securities for the same price as the Company paid until such time as the development stage company commences operations.

 

 
18

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

 

3.     Fair Value Measurements (continued)

 

Fair values for Level 1 and Level 2 assets for the Company’s fixed maturity and equity securities available-for-sale are primarily based on prices supplied by a third party investment service. The third party investment service provides quoted prices in the market which use observable inputs in developing such rates.

 

The Company analyzes market valuations received to verify reasonableness and to understand the key assumptions used and the sources. Since the fixed maturity securities owned by the Company do not trade on a daily basis, the third party investment service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. As the fair value estimates of the Company’s fixed maturity securities are based on observable market information rather than market quotes, the estimates of fair value on these fixed maturity securities are included in Level 2 of the hierarchy. The Company’s Level 2 investments include obligations of U.S. government, U.S. government agencies, state and political subdivisions, mortgage-backed securities, corporate bonds and foreign bonds.

 

The Company’s equity securities are included in Level 1 and Level 2 and the private placement common stocks included in Level 3. Level 1 for those equity securities classified as such is appropriate since they trade on a daily basis, are based on quoted market prices in active markets and are based upon unadjusted prices. Level 2 for those equity securities classified as such is appropriate since they are not actively traded as of September 30, 2014.

 

The Company’s fixed maturity and equity securities available-for-sale portfolio is highly liquid and allows for a high percentage of the portfolio to be priced through pricing services.

 

The Company’s short-term investments are appropriately included in Level 1 due to the liquid nature and short-term duration of those investments.

 

The change in the fair value of the Company’s Level 3 equity securities, available-for-sale for the three and nine months ended September 30, 2014 and 2013 is summarized as follows:

 

   

(Unaudited)

Three Months Ended September 30,

   

(Unaudited)

Nine Months Ended September 30,

 
   

2014

   

2013