UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
or
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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 001-33251
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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65-0231984 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer |
1110 W. Commercial Blvd., Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(954) 958-1200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 (§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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 |
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Accelerated filer |
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Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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Emerging growth company |
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 34,872,073 shares of common stock, par value $0.01 per share, outstanding on July 23, 2018.
UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
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Page No. |
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Item 1. |
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4 |
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Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 |
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4 |
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5 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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27 |
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Item 3. |
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47 |
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Item 4. |
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49 |
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Item 1. |
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49 |
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Item 1A. |
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50 |
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Item 2. |
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50 |
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Item 6. |
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51 |
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52 |
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Universal Insurance Holdings, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of June 30, 2018 and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017 and the related condensed consolidated statement of cash flows for the six-month periods ended June 30, 2018 and 2017. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of December 31, 2017 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 23, 2018. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Plante & Moran, PLLC
Chicago, Illinois
July 27, 2018
3
PART I — FINANCIAL INFORMATION
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share data)
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As of |
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June 30, |
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December 31, |
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2018 |
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2017 |
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(unaudited) |
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ASSETS |
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Available-for-sale debt securities |
$ |
656,762 |
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$ |
639,334 |
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Available-for-sale short-term investments |
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— |
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10,000 |
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Equity securities |
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70,866 |
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62,215 |
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Investment real estate, net |
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19,539 |
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18,474 |
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Total invested assets |
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747,167 |
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730,023 |
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Cash and cash equivalents |
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311,088 |
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213,486 |
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Restricted cash and cash equivalents |
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2,635 |
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2,635 |
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Prepaid reinsurance premiums |
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310,618 |
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132,806 |
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Reinsurance recoverable |
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117,851 |
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182,405 |
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Reinsurance receivable, net |
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1,402 |
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— |
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Premium receivable, net |
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67,186 |
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56,500 |
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Property and equipment, net |
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34,792 |
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32,866 |
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Deferred policy acquisition costs |
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88,756 |
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73,059 |
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Income taxes recoverable |
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11,839 |
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9,472 |
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Deferred income tax asset, net |
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177 |
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9,286 |
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Other assets |
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17,766 |
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12,461 |
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Total assets |
$ |
1,711,277 |
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$ |
1,454,999 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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LIABILITIES: |
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Unpaid losses and loss adjustment expenses |
$ |
151,916 |
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$ |
248,425 |
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Unearned premiums |
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608,921 |
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532,444 |
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Advance premium |
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38,230 |
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26,216 |
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Accounts payable |
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2,778 |
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2,866 |
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Book overdraft |
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2,982 |
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36,715 |
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Reinsurance payable, net |
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341,912 |
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110,381 |
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Dividends payable |
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5,638 |
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— |
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Other liabilities and accrued expenses |
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54,695 |
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45,096 |
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Long-term debt |
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12,132 |
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12,868 |
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Total liabilities |
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1,219,204 |
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1,015,011 |
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Commitments and Contingencies (Note 12) |
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STOCKHOLDERS' EQUITY: |
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Cumulative convertible preferred stock, $.01 par value |
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— |
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— |
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Authorized shares - 1,000 |
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Issued shares - 10 and 10 |
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Outstanding shares - 10 and 10 |
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Minimum liquidation preference, $9.99 and $9.99 per share |
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Common stock, $.01 par value |
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463 |
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458 |
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Authorized shares - 55,000 |
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Issued shares - 46,257 and 45,778 |
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Outstanding shares - 34,872 and 34,735 |
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Treasury shares, at cost - 11,385 and 11,043 |
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(116,239 |
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(105,123 |
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Additional paid-in capital |
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85,925 |
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86,186 |
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Accumulated other comprehensive income (loss), net of taxes |
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(9,161 |
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(6,281 |
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Retained earnings |
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531,085 |
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464,748 |
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Total stockholders' equity |
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492,073 |
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439,988 |
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Total liabilities and stockholders' equity |
$ |
1,711,277 |
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$ |
1,454,999 |
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The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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PREMIUMS EARNED AND OTHER REVENUES |
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Direct premiums written |
$ |
342,781 |
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$ |
296,191 |
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$ |
612,765 |
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$ |
541,606 |
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Change in unearned premium |
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(68,754 |
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(51,568 |
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(76,477 |
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(60,608 |
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Direct premium earned |
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274,027 |
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244,623 |
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536,288 |
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480,998 |
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Ceded premium earned |
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(81,755 |
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(75,614 |
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(161,439 |
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(150,430 |
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Premiums earned, net |
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192,272 |
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169,009 |
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374,849 |
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330,568 |
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Net investment income (expense) |
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5,786 |
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3,223 |
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10,571 |
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5,927 |
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Net realized gains (losses) on sale of securities |
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145 |
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1,710 |
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(2,496 |
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1,647 |
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Net change in unrealized gains (losses) of equity securities |
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(1,521 |
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— |
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(6,630 |
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— |
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Commission revenue |
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5,709 |
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4,644 |
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10,980 |
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9,242 |
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Policy fees |
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5,764 |
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5,250 |
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10,539 |
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9,733 |
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Other revenue |
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1,633 |
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1,651 |
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3,475 |
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3,244 |
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Total premiums earned and other revenues |
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209,788 |
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185,487 |
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401,288 |
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360,361 |
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OPERATING COSTS AND EXPENSES |
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Losses and loss adjustment expenses |
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89,842 |
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80,184 |
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165,768 |
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150,754 |
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General and administrative expenses |
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58,698 |
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57,380 |
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122,573 |
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114,313 |
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Total operating costs and expenses |
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148,540 |
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137,564 |
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288,341 |
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265,067 |
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INCOME BEFORE INCOME TAXES |
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61,248 |
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47,923 |
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112,947 |
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95,294 |
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Income tax expense |
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15,164 |
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18,547 |
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26,808 |
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34,719 |
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NET INCOME |
$ |
46,084 |
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$ |
29,376 |
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$ |
86,139 |
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$ |
60,575 |
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Basic earnings per common share |
$ |
1.32 |
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$ |
0.84 |
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$ |
2.47 |
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$ |
1.73 |
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Weighted average common shares outstanding - Basic |
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34,909 |
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34,959 |
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34,874 |
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35,049 |
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Diluted earnings per common share |
$ |
1.29 |
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$ |
0.82 |
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$ |
2.42 |
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$ |
1.68 |
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Weighted average common shares outstanding - Diluted |
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35,589 |
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35,958 |
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35,636 |
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36,061 |
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Cash dividend declared per common share |
$ |
0.14 |
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$ |
0.14 |
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$ |
0.28 |
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$ |
0.28 |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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Net income |
$ |
46,084 |
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$ |
29,376 |
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$ |
86,139 |
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$ |
60,575 |
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Other comprehensive income (loss), net of taxes |
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(1,849 |
) |
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1,486 |
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(5,899 |
) |
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3,950 |
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Comprehensive income |
$ |
44,235 |
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$ |
30,862 |
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$ |
80,240 |
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$ |
64,525 |
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The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
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Six Months Ended June 30, |
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2018 |
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2017 |
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Cash flows from operating activities: |
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Net cash provided by (used in) operating activities |
$ |
158,081 |
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$ |
140,965 |
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Cash flows from investing activities: |
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Proceeds from sale of property and equipment |
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17 |
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15 |
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Purchases of property and equipment |
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(4,024 |
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(2,757 |
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Purchases of equity securities |
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(19,106 |
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(13,275 |
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Purchases of available-for-sale debt securities |
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(205,738 |
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(67,517 |
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Purchases of investment real estate, net |
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(1,269 |
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(3,759 |
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Proceeds from sales of equity securities |
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4,127 |
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56,971 |
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Proceeds from sales of available-for-sale debt securities |
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119,222 |
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6,507 |
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Maturities of available-for-sale debt securities |
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64,480 |
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39,144 |
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Maturities of available-for-sale short-term investments |
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10,000 |
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5,000 |
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Net cash provided by (used in) investing activities |
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(32,291 |
) |
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20,329 |
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Cash flows from financing activities: |
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Preferred stock dividend |
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(5 |
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(5 |
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Common stock dividend |
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(9,821 |
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(9,803 |
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Issuance of common stock for stock option exercises |
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73 |
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— |
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Purchase of treasury stock |
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(11,116 |
) |
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(8,919 |
) |
Payments related to tax withholding for share-based compensation |
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(6,583 |
) |
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(1,367 |
) |
Repayment of debt |
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(736 |
) |
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(1,435 |
) |
Net cash provided by (used in) financing activities |
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(28,188 |
) |
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(21,529 |
) |
Cash and cash equivalents, and restricted cash and cash equivalents: |
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Net increase (decrease) during the period |
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97,602 |
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|
139,765 |
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Balance, beginning of period |
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216,121 |
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|
108,365 |
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Balance, end of period |
$ |
313,723 |
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$ |
248,130 |
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The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):
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June 30, 2018 |
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December 31, 2017 |
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Cash and cash equivalents |
$ |
311,088 |
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$ |
213,486 |
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Restricted cash and cash equivalents (1) |
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2,635 |
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2,635 |
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Total cash and cash equivalents and restricted cash and cash equivalents |
$ |
313,723 |
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$ |
216,121 |
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(1) |
See “—Note 5 (Insurance Operations),” for a discussion of the nature of the restrictions for restricted cash and cash equivalents. |
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
6
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Universal Insurance Holdings, Inc. (“UVE”) is a Delaware corporation incorporated in 1990. UVE with its wholly-owned subsidiaries (the “Company”) is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”), together referred to as the “Insurance Entities,” the Company is principally engaged in the property and casualty insurance business offered primarily through its network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance currently offered in seventeen states as of June 30, 2018, including Florida, which comprises the vast majority of the Company’s in-force policies. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.
The Company generates revenues primarily from the collection of premiums and invests funds in excess of those retained for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed by the Insurance Entities, policy fees collected from policyholders by our wholly-owned managing general agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments.
Basis of Presentation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“U. S. GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 23, 2018. The condensed consolidated balance sheet at December 31, 2017, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.
To conform to the current period presentation, certain amounts in the prior periods’ consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.
The Financial Statements include the accounts of UVE and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Management must make estimates and assumptions that affect amounts reported in the Company’s Financial Statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
7
2. Significant Accounting Policies
The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2017. The following are new or revised disclosures or disclosures required on a quarterly basis.
Recently Adopted Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities to improve the recognition and measurement of financial instruments. The new ASU requires certain investments in equity securities to be measured at fair value with changes in fair value reported in earnings and requires changes in instrument-specific credit risk for financial liabilities recorded at fair value under the fair value option to be reported in Other Comprehensive Income (“OCI”). The Company adopted this ASU effective January 1, 2018 using the modified retrospective transition method and recorded a cumulative effect adjustment of $3.6 million to the Condensed Consolidated Balance Sheets to reclassify unrealized losses on investments in equity securities to retained earnings from other comprehensive income. The adoption of this ASU also resulted in the recognition of the change in unrealized gains and losses for equity security investments as a separate component in the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2018.
In August 2016, the FASB revised U.S. GAAP with the issuance of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new ASU applies to: 1) debt prepayment or debt extinguishment costs, 2) settlement of zero-coupon debt instruments, 3) contingent consideration payments made after business combination, 4) proceeds from the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, 6) distributions received from equity method investments, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows and application of the predominance principle. Historically, the items outlined above have not been applicable to the Company. The Company adopted this ASU effective January 1, 2018 and the adoption did not have an impact on our Condensed Consolidated Statements of Cash Flows.
In November 2016, the FASB revised U.S. GAAP, Statement of Cash Flows (Topic 230): Restricted Cash with the issuance of the ASU 2016-18, to reduce diversity in the classification and presentation of changes in restricted cash in the statement of cash flows. The new ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company is required to reconcile such total to amounts on the Condensed Consolidated Balance Sheets and disclose the nature of the restrictions. The Company adopted this ASU effective January 1, 2018, which only resulted in a change in the presentation of the Condensed Consolidated Statements of Cash Flows.
In February 2018, the FASB revised U.S. GAAP, Comprehensive Income (Topic 220), with the issuance of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in response to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on December 22, 2017. The new ASU permits a company to reclassify the disproportionate income tax effects of the Tax Act on items within accumulated other comprehensive income (“AOCI”) to retained earnings and requires certain new disclosures. The Company adopted this guidance effective January 1, 2018 and made an election to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. Retained earnings were reduced by approximately $0.6 million due to this reclassification. The reclassification represents the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances at the date of enactment of the Tax Act related to items remaining in accumulated other comprehensive income. The Company follows an aggregate portfolio approach and considers that it had two portfolios, an available for sale debt equity portfolio and an available for sale equity portfolio, the disproportionate tax effects relating to the available for sale equity portfolio were included in the transition adjustment when adopting ASU 2016-01.
8
Securities Available for Sale
The following table provides the amortized cost and fair value of debt and short-term investment securities available for sale as of the dates presented (in thousands):
|
June 30, 2018 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|||
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
$ |
59,086 |
|
|
$ |
— |
|
|
$ |
(1,374 |
) |
|
$ |
57,712 |
|
Corporate bonds |
|
339,730 |
|
|
|
424 |
|
|
|
(6,190 |
) |
|
|
333,964 |
|
Mortgage-backed and asset-backed securities |
|
242,492 |
|
|
|
31 |
|
|
|
(5,091 |
) |
|
|
237,432 |
|
Municipal bonds |
|
15,798 |
|
|
|
— |
|
|
|
(81 |
) |
|
|
15,717 |
|
Redeemable preferred stock |
|
11,762 |
|
|
|
318 |
|
|
|
(143 |
) |
|
|
11,937 |
|
Total |
$ |
668,868 |
|
|
$ |
773 |
|
|
$ |
(12,879 |
) |
|
$ |
656,762 |
|
|
December 31, 2017 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|||
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
$ |
60,481 |
|
|
$ |
— |
|
|
$ |
(877 |
) |
|
$ |
59,604 |
|
Corporate bonds |
|
228,336 |
|
|
|
476 |
|
|
|
(1,308 |
) |
|
|
227,504 |
|
Mortgage-backed and asset-backed securities |
|
221,956 |
|
|
|
19 |
|
|
|
(2,523 |
) |
|
|
219,452 |
|
Municipal bonds |
|
120,883 |
|
|
|
599 |
|
|
|
(1,187 |
) |
|
|
120,295 |
|
Redeemable preferred stock |
|
12,059 |
|
|
|
485 |
|
|
|
(65 |
) |
|
|
12,479 |
|
Short-term investments |
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
Total |
$ |
653,715 |
|
|
$ |
1,579 |
|
|
$ |
(5,960 |
) |
|
$ |
649,334 |
|
The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):
|
|
June 30, 2018 |
|
|
December 31, 2017 (1) |
|
||||||||||
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
||
Credit Ratings |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
||||
AAA |
|
$ |
310,359 |
|
|
|
47.3 |
% |
|
$ |
317,313 |
|
|
|
48.9 |
% |
AA |
|
|
73,207 |
|
|
|
11.1 |
% |
|
|
129,573 |
|
|
|
20.0 |
% |
A |
|
|
182,479 |
|
|
|
27.8 |
% |
|
|
146,749 |
|
|
|
22.6 |
% |
BBB |
|
|
87,007 |
|
|
|
13.3 |
% |
|
|
51,020 |
|
|
|
7.8 |
% |
BB+ and Below |
|
|
114 |
|
|
|
0.0 |
% |
|
|
1,569 |
|
|
|
0.2 |
% |
No Rating Available |
|
|
3,596 |
|
|
|
0.5 |
% |
|
|
3,110 |
|
|
|
0.5 |
% |
Total |
|
$ |
656,762 |
|
|
|
100.0 |
% |
|
$ |
649,334 |
|
|
|
100.0 |
% |
|
(1) |
The credit ratings in the table above have been reclassified from the prior periods’ consolidated financial statements to conform to the current periods’ presentation. |
The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc., Moody’s Investors Service,
Inc. and Fitch Ratings, Inc. The Company modified the presentation of this table by presenting the highest rating of the three rating agencies for each investment position.
9
The following table summarizes the amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||||||||||
|
|
Amortized |
|
|
|
|
|
|
Amortized |
|
|
|
|
|
||
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
||||
Mortgage-backed Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
$ |
140,252 |
|
|
$ |
137,247 |
|
|
$ |
118,014 |
|
|
$ |
116,014 |
|
Non-agency |
|
|
29,023 |
|
|
|
28,608 |
|
|
|
17,676 |
|
|
|
17,488 |
|
Asset-backed Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loan receivables |
|
|
30,187 |
|
|
|
29,845 |
|
|
|
35,105 |
|
|
|
34,962 |
|
Credit card receivables |
|
|
16,258 |
|
|
|
16,074 |
|
|
|
38,844 |
|
|
|
38,719 |
|
Other receivables |
|
|
26,772 |
|
|
|
25,658 |
|
|
|
12,317 |
|
|
|
12,269 |
|
Total |
|
$ |
242,492 |
|
|
$ |
237,432 |
|
|
$ |
221,956 |
|
|
$ |
219,452 |
|
The following table summarizes the fair value and gross unrealized losses on available-for-sale debt securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented (dollars in thousands):
|
June 30, 2018 |
|
|||||||||||||||||||||
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
||||||||||||||||||
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
||||
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
||||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
9 |
|
|
$ |
35,148 |
|
|
$ |
(608 |
) |
|
|
8 |
|
|
$ |
22,564 |
|
|
$ |
(766 |
) |
Corporate bonds |
|
346 |
|
|
|
266,868 |
|
|
|
(5,103 |
) |
|
|
33 |
|
|
|
31,018 |
|
|
|
(1,087 |
) |
Mortgage-backed and asset-backed securities |
|
100 |
|
|
|
135,607 |
|
|
|
(2,172 |
) |
|
|
61 |
|
|
|
84,444 |
|
|
|
(2,919 |
) |
Municipal bonds |
|
7 |
|
|
|
3,521 |
|
|
|
(81 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redeemable preferred stock |
|
66 |
|
|
|
3,808 |
|
|
|
(143 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
528 |
|
|
$ |
444,952 |
|
|
$ |
(8,107 |
) |
|
|
102 |
|
|
$ |
138,026 |
|
|
$ |
(4,772 |
) |
|
December 31, 2017 |
|
|||||||||||||||||||||
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
||||||||||||||||||
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
||||
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
||||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
7 |
|
|
$ |
35,464 |
|
|
$ |
(301 |
) |
|
|
9 |
|
|
$ |
24,140 |
|
|
$ |
(576 |
) |
Corporate bonds |
|
159 |
|
|
|
142,208 |
|
|
|
(792 |
) |
|
|
39 |
|
|
|
29,796 |
|
|
|
(516 |
) |
Mortgage-backed and asset-backed securities |
|
83 |
|
|
|
137,481 |
|
|
|
(955 |
) |
|
|
37 |
|
|
|
70,218 |
|
|
|
(1,568 |
) |
Municipal bonds |
|
36 |
|
|
|
28,265 |
|
|
|
(246 |
) |
|
|
30 |
|
|
|
48,370 |
|
|
|
(941 |
) |
Redeemable preferred stock |
|
21 |
|
|
|
2,464 |
|
|
|
(65 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
306 |
|
|
$ |
345,882 |
|
|
$ |
(2,359 |
) |
|
|
115 |
|
|
$ |
172,524 |
|
|
$ |
(3,601 |
) |
Evaluating Investments for Other Than Temporary Impairment (“OTTI”)
As of June 30, 2018, the Company held available-for-sale debt securities that were in an unrealized loss position as presented in the table above. For available-for-sale debt securities with significant declines in value, the Company performs quarterly fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data. For available-for-sale debt securities, the Company considers whether it has the intent and ability to hold the available-for-sale debt securities for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the security’s decline in fair value is considered other than temporary and is recorded in earnings. Based on our analysis, our fixed income portfolio is of high quality and we believe that we will recover the amortized cost basis of our available-for-sale debt securities. We continually monitor the credit quality of our investments in available-for-sale debt securities to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. Additionally, the Company considers management’s intent and ability to
10
hold the available-for-sale debt securities until recovery and its credit analysis of the individual issuers of the securities. Based on this process and analysis, management has no reason to believe the unrealized losses of the available-for-sale debt securities as of June 30, 2018 are other than temporary.
The following table presents the amortized cost and fair value of investments with contractual maturities as of the date presented (in thousands):
|
June 30, 2018 |
|
|||||
|
Amortized Cost |
|
|
Fair Value |
|
||
Due in one year or less |
$ |
49,496 |
|
|
$ |
49,286 |
|
Due after one year through five years |
|
216,335 |
|
|
|
211,886 |
|
Due after five years through ten years |
|
124,206 |
|
|
|
121,788 |
|
Due after ten years |
|
24,577 |
|
|
|
24,433 |
|
Mortgage-backed and asset-backed securities |
|
242,492 |
|
|
|
237,432 |
|
Perpetual maturity securities |
|
11,762 |
|
|
|
11,937 |
|
Total |
$ |
668,868 |
|
|
$ |
656,762 |
|
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without penalty.
The following table provides certain information related to available-for-sale debt securities and equity securities during the periods presented (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2018 |
|