##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file number 0-8738
 BANCINSURANCE CORPORATION
 
  Ohio
    
    31-0790882(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)250 East Broad Street, Columbus, Ohio
    
    43215(Address of principal executive offices)
    
    (Zip Code)
 (614)220-5200
  Title of each class
    
    Name of each exchangeon which registeredNONE
    
    NONE
   
  o þ
 o þ
  o þ
 þ
  o o þ
  o þ




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##### 



PagePART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    8Item 3. Legal Proceedings
    
    
    8Item 4. Submission of Matters to a Vote of Security Holders
    
    
    8PART IIItem 5. Market for the Registrants Common Shares, Related
Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    9Item 6. Selected Financial Data
    
    
    10Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    26Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    52Item 9A. Controls and Procedures
    
    
    53Item 9B. Other Information
    
    
    53PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    54Item 11. Executive Compensation
    
    
    57Item 12. Security Ownership of Certain Beneficial Owners and Management
And Related Shareholder Matters
    
    
    60Item 13. Certain Relationships and Related Transactions
    
    
    62Item 14. Principal Accounting Fees and Services
    
    
    62PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    63Exhibit 21Exhibit 23(A)Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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PART I
 
 ITEM 1. BUSINESS
 GENERAL/OVERVIEW
   Accounting Investigations and Restatements
 Audit Committee Independent Investigation.
        3




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##### Table of Contents



SEC Investigation.
  Restatements.
   PRODUCTS
 Ohio Indemnity Company
  Lender/Dealer Products ®
 4




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##### Table of Contents



Unemployment Compensation Products. ® ®
  Waste Surety Bond Program.
    5




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##### Table of Contents



American Legal Publishing Corporation
    Ultimate Services Agency, LLC
  COMPETITION
    REINSURANCE
     6




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##### Table of Contents



REGULATION
 Insurance Company Regulation
       Ohio Insurance Holding Company System Regulation
  7




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##### Table of Contents



National Association of Insurance Commissioners
   PENDING LEGISLATION
  EMPLOYEES
  SERVICE MARKS
  
 ITEM
2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
    
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  8




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 MARKET INFORMATION
  Fiscal Quarter Ended
    
    Low Sale
    
    High SaleDecember 31, 2004
    
    
    7.02
    
    
    
    7.42September 30, 2004
    
    
    7.27
    
    
    
    7.72June 30, 2004
    
    
    7.65
    
    
    
    8.10March 31, 2004
    
    
    7.77
    
    
    
    8.34December 31, 2003
    
    
    6.20
    
    
    
    7.67September 30, 2003
    
    
    5.52
    
    
    
    6.58June 30, 2003
    
    
    4.58
    
    
    
    6.00March 31, 2003
    
    
    4.45
    
    
    
    5.15
  HOLDERS
  DIVIDENDS
  9




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  2004
    
    2003
    
    2002
    
    2001(1)
    
    2000Income Statement DataNet premiums earned
    
    $
    50,064,185
    
    
    $
    50,071,966
    
    
    $
    42,590,321
    
    
    $
    33,152,888
    
    
    $
    25,074,841Net investment income
    
    
    2,164,115
    
    
    
    1,599,064
    
    
    
    1,236,138
    
    
    
    1,450,761
    
    
    
    1,628,306Net realized gain (loss) on investments
    
    
    1,094,174
    
    
    
    822,161
    
    
    
    (1,220,477
    )
    
    
    22,542
    
    
    
    (320,742
    )Codification and subscription fees
    
    
    4,005,415
    
    
    
    3,819,221
    
    
    
    3,324,037
    
    
    
    2,652,231
    
    
    
    1,884,067Management fees
    
    
    33,710
    
    
    
    114,094
    
    
    
    749,442
    
    
    
    846,446
    
    
    
    659,929Other revenue
    
    
    43,123
    
    
    
    81,653
    
    
    
    197,278
    
    
    
    161,544
    
    
    
    1,531,679Total revenues
    
    
    57,404,722
    
    
    
    56,508,159
    
    
    
    46,876,739
    
    
    
    38,286,412
    
    
    
    30,614,022Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (1,481,858
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (8,500,620
    )
    
    
    3,909,817
    
    
    
    889,613
    
    
    
    3,075,190
    
    
    
    3,918,357Balance Sheet Data at Year EndTotal cash and investments
    
    $
    86,580,595
    
    
    $
    76,929,462
    
    
    $
    57,293,361
    
    
    $
    51,758,885
    
    
    $
    36,938,985Total assets
    
    
    117,060,472
    
    
    
    115,869,736
    
    
    
    72,703,204
    
    
    
    64,670,677
    
    
    
    45,900,984Notes payable
    
    
    540,198
    
    
    
    53,276
    
    
    
    2,166,355
    
    
    
    5,696,839
    
    
    
    5,142,000Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000
    
    
    
    8,248,000
    
    
    
    
    
    
    
    Shareholders equity
    
    
    24,846,288
    
    
    
    33,365,028
    
    
    
    28,901,838
    
    
    
    31,391,909
    
    
    
    28,535,359Common shares outstanding
    
    
    4,972,700
    
    
    
    4,920,050
    
    
    
    5,000,291
    
    
    
    5,770,185
    
    
    
    5,769,235Per Common Share DataDiluted income (loss) before cumulative
effect of change in accounting principle
    
    $
    (1.72
    )
    
    $
    .77
    
    
    $
    .41
    
    
    $
    .53
    
    
    $
    .66Diluted net income (loss)
    
    
    (1.72
    )
    
    
    .77
    
    
    
    .16
    
    
    
    .53
    
    
    
    .66Year-end book value
    
    
    5.00
    
    
    
    6.78
    
    
    
    5.78
    
    
    
    5.44
    
    
    
    4.95GAAP RatiosLoss ratio
    
    
    95.1
    %
    
    
    66.1
    %
    
    
    67.0
    %
    
    
    65.9
    %
    
    
    60.7
    %Expense ratio
    
    
    36.2
    %
    
    
    26.3
    %
    
    
    26.3
    %
    
    
    28.1
    %
    
    
    28.3
    %Combined ratio
    
    
    131.3
    %
    
    
    92.4
    %
    
    
    93.3
    %
    
    
    94.0
    %
    
    
    89.0
    %Statutory RatiosLoss ratio
    
    
    95.1
    %
    
    
    66.1
    %
    
    
    67.0
    %
    
    
    65.9
    %
    
    
    60.7
    %Expense ratio
    
    
    33.4
    %
    
    
    26.2
    %
    
    
    26.8
    %
    
    
    19.3
    %
    
    
    22.5
    %Combined ratio
    
    
    128.5
    %
    
    
    92.3
    %
    
    
    93.8
    %
    
    
    85.2
    %
    
    
    83.2
    %Net premiums written to statutory surplus
    
    
    1.9
    x
    
    
    1.6
    x
    
    
    1.4
    x
    
    
    1.5
    x
    
    
    .9
    x
 
 (1)
    
    The selected consolidated financial data for 2001 has been derived from our unaudited
consolidated financial statements which have been prepared on the same basis as our audited
financial statements. 10




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 OVERVIEW
  Products and Services
 Property/Casualty Insurance.
 ®
 ® ®
    11




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Municipal Code Publishing.
 Insurance Agency.
 Discontinued Bond Program
        12




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Reinsurance Transactions
       Economic Factors, Opportunities, Challenges and Risks
  13




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SUMMARY RESULTS
  Period-to-Period Increase (Decrease)Years ended December 31,2003-2004
    
    2002-2003Amount
    
    % Change
    
    Amount
    
    % ChangeNet premiums earned
    
    $
    (7,781
    )
    
    
    
    
    
    $
    7,481,645
    
    
    
    17.6
    %Net realized gain (loss) on investments
    
    
    272,013
    
    
    
    33.1
    %
    
    
    2,042,638
    
    
    
    167.4
    %Total revenues
    
    
    896,563
    
    
    
    1.6
    %
    
    
    9,631,420
    
    
    
    20.5
    %Losses and loss adjustment expenses
    
    
    14,154,143
    
    
    
    42.8
    %
    
    
    4,786,916
    
    
    
    16.8
    %Commissions and other insurance expenses
    
    
    4,441,713
    
    
    
    34.5
    %
    
    
    1,839,379
    
    
    
    16.7
    %Income (loss) before federal income taxes and cumulative
effect of change in accounting principle
    
    
    (18,792,034
    )
    
    
    (340.2
    )%
    
    
    2,211,981
    
    
    
    66.8
    %Net income (loss)
    
    
    (12,410,437
    )
    
    
    (317.4
    )%
    
    
    3,020,204
    
    
    
    339.5
    %
    2004
    
    2003
    
    2002GAAP:Loss ratio
    
    
    95.1
    %
    
    
    66.1
    %
    
    
    67.0
    %Expense ratio
    
    
    36.2
    %
    
    
    26.3
    %
    
    
    26.3
    %Combined ratio
    
    
    131.3
    %
    
    
    92.4
    %
    
    
    93.3
    %Statutory:Loss ratio
    
    
    95.1
    %
    
    
    66.1
    %
    
    
    67.0
    %Expense ratio
    
    
    33.4
    %
    
    
    26.2
    %
    
    
    26.8
    %Combined ratio
    
    
    128.5
    %
    
    
    92.3
    %
    
    
    93.8
    %
 14




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RESULTS OF OPERATIONS
 2004 Compared to 2003
 Net Premiums Earned.
      ®
 Investment Income.
  Codification and Subscription Fees.
 Management Fees. ®
 15




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##### Table of Contents



Losses and Loss Adjustment Expenses.
       Commissions and Other Insurance Expenses. ®
 Codification and Subscription Expenses.
 Interest Expense.
 Goodwill Impairment.
 Federal Income (Benefit)/Taxes.
 GAAP Combined Ratio.
 16




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2003 Compared to 2002
 Net Premiums Earned.
    Investment Income.
  Codification and Subscription Fees.
 Management Fees.
 Losses and Loss Adjustment Expenses.
   17




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Commissions and Other Insurance Expenses.
 Codification and Subscription Expenses.
 Interest Expense.
 Federal Income Taxes.
 GAAP Combined Ratio.
 BUSINESS OUTLOOK
  LIQUIDITY AND CAPITAL RESOURCES
  2004
    
    
    2003
    
    
    2002Trust preferred debt issued to BIC Statutory Trust I
    
    $
    8,248,000
    
    
    $
    8,248,000
    
    
    $
    8,248,000Trust preferred debt issued to BIC Statutory Trust II
    
    
    7,217,000
    
    
    
    7,217,000
    
    
    
    Bank note payable
    
    
    500,000
    
    
    
    
    
    
    
    2,100,000Total debt obligations
    
    
    15,965,000
    
    
    
    15,465,000
    
    
    
    10,348,000Total shareholders equity
    
    
    24,846,288
    
    
    
    33,365,028
    
    
    
    28,901,838Total capitalization
    
    $
    40,811,288
    
    
    $
    48,830,028
    
    
    $
    39,249,838Ratio of total debt obligations to total capitalization
    
    
    39.1
    %
    
    
    31.7
    %
    
    
    26.4
    %
  18




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19




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CONTRACTUAL OBLIGATIONS
  Payments Due By PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsContractual Obligations:Trust preferred debt issued to affiliates(1)
    
    $
    15,465,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,465,000Bank note payable
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    Operating leases
    
    
    1,311,730
    
    
    
    251,688
    
    
    
    627,507
    
    
    
    432,535
    
    
    
    Loss and LAE reserves(2)
    
    
    30,766,467
    
    
    
    11,338,852
    
    
    
    19,427,615
    
    
    
    
    
    
    
    Total
    
    $
    47,543,197
    
    
    $
    11,590,540
    
    
    $
    20,555,122
    
    
    $
    432,535
    
    
    $
    15,465,000
 
 (1)
    
    In accordance with the provisions of the debt agreements, the BIC Trust I and BIC Trust
II debt obligations are redeemable at par on December 4, 2007 and September 30, 2008,
respectively. The table above assumes payout at maturity date rather than redemption date.(2)
    
    Our loss and LAE reserves do not have contractual maturity dates; however, based on
historical payment patterns, we have included an estimate of when we expect our loss and
LAE reserves to be paid in the above table. The exact timing of the payment of claims
cannot be predicted with certainty. The actual payment amounts and the related timing of
those payments could differ significantly from these estimates. INFLATION
  CRITICAL ACCOUNTING POLICIES
  20




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Other-Than-Temporary Impairment of Investments
   Fixed Maturities.
 
    
    the length of time and extent to which the estimated fair value has been less than book
value;
    
    the degree to which any appearance of impairment is attributable to an overall change in
market conditions (e.g., interest rates);
    
    the degree to which an issuer is current or in arrears in making principal and
interest/dividend payments on the securities in question;
    
    the financial condition and future prospects of the issuer, including any specific
events that may influence the issuers operations and its ability to make future scheduled
principal and interest payments on a timely basis;
    
    the independent auditors report on the issuers most recent financial statements;
    
    buy/hold/sell recommendations of investment advisors and analysts;
    
    relevant rating history, analysis and guidance provided by rating agencies and analysts; and
    
    our ability and intent to hold the security for a period of time sufficient to allow for recovery in the market value.
 Equity Securities.
 
    
    the length of time and extent to which the estimated fair value has been less than book value;
    
    whether the decline appears to be related to general market or industry conditions or is issuer-specific;
    
    the financial condition and future prospects of the issuer, including any specific
events that may influence the issuers operations;
    
    the recent income or loss of the issuer;
    
    the independent auditors report on the issuers most recent financial statements;
    
    buy/hold/sell recommendations of investment advisors and analysts;
    
    rating agency announcements; and
    
    our ability and intent to hold the security for a period of time sufficient to allow for recovery in the market value.
  Loss and Loss Adjustment Expense Reserves
   Assumed Business.
 21




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Direct Business.
  
    
    ULI limited liability
    
    ULI  non-limited liability
    
    CPI
    
    GAP
   
  22




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##### Table of Contents



Loss and LAE Reserves at Year End.
 December 31, 2004
    
    
    December 31, 2003IBNR
    
    
    Case
    
    
    IBNR
    
    
    CaseULI  limited liability
    
    $
    2,788,585
    
    
    $
    455,346
    
    
    $
    4,217,091
    
    
    $
    372,881ULI  non-limited liability
    
    
    1,864,668
    
    
    
    1,175,363
    
    
    
    2,760,000
    
    
    
    1,083,113CPI
    
    
    669,840
    
    
    
    70,162
    
    
    
    726,994
    
    
    
    851,756GAP
    
    
    2,272,747
    
    
    
    65,164
    
    
    
    1,537,226
    
    
    
    75,969UC
    
    
    1,310,504
    
    
    
    643,867
    
    
    
    2,326,153
    
    
    
    Waste surety bond program
    
    
    224,259
    
    
    
    
    
    
    
    
    
    
    
    Discontinued bond program
    
    
    12,297,247
    
    
    
    6,906,109
    
    
    
    414,963
    
    
    
    Other
    
    
    19,106
    
    
    
    3,500
    
    
    
    16,273
    
    
    
    3,500Total
    
    $
    21,446,956
    
    
    $
    9,319,511
    
    
    $
    11,998,700
    
    
    $
    2,387,219
      23




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Codification and Subscription Revenue and Expense Recognition
  Goodwill
    OFF-BALANCE SHEET TRANSACTIONS
  FORWARD-LOOKING INFORMATION
  24




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Investments.
  Projected Cash FlowsDecember 31, 2004There-
    
    
    
    
    
    Estimated2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    after
    
    Total
    
    Fair ValueAssetsFixed maturity securities:Held to maturity
    
    $
    225,000
    
    
    $
    1,850,000
    
    
    $
    530,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,215,000
    
    
    $
    4,820,000
    
    
    $
    5,034,173Available for sale
    
    $
    8,584,839
    
    
    $
    10,381,001
    
    
    $
    6,690,270
    
    
    $
    6,527,777
    
    
    $
    5,852,241
    
    
    $
    14,523,316
    
    
    $
    52,559,444
    
    
    $
    54,139,496Weighted-average interest rate:Fixed maturity securities
    
    
    3.77
    %
    
    
    4.29
    %
    
    
    4.56
    %
    
    
    4.17
    %
    
    
    4.46
    %
    
    
    4.83
    %
    
    
    4.42
    %
 Debt.
 Credit Risk
  Equity Risk
  25




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##### Table of Contents



ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
 
     
 26




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##### Table of Contents



BANCINSURANCE CORPORATION AND SUBSIDIARIES
 Consolidated
Statements of Operations
 Years ended December 31,2004
    
    
    2003
    
    
    2002Revenues:Net premiums earned
    
    $
    50,064,185
    
    
    $
    50,071,966
    
    
    $
    42,590,321Net investment income
    
    
    2,164,115
    
    
    
    1,599,064
    
    
    
    1,236,138Net realized gains (losses) on investments
    
    
    1,094,174
    
    
    
    822,161
    
    
    
    (1,220,477
    )Codification and subscription fees
    
    
    4,005,415
    
    
    
    3,819,221
    
    
    
    3,324,037Management fees
    
    
    33,710
    
    
    
    114,094
    
    
    
    749,442Other income
    
    
    43,123
    
    
    
    81,653
    
    
    
    197,278Total revenues
    
    
    57,404,722
    
    
    
    56,508,159
    
    
    
    46,876,739Expenses:Losses and loss adjustment expenses
    
    
    27,076,212
    
    
    
    32,650,827
    
    
    
    27,833,877Discontinued bond program losses and loss adjustment expenses
    
    
    20,161,103
    
    
    
    432,345
    
    
    
    480,379Commission expense
    
    
    11,285,050
    
    
    
    7,891,016
    
    
    
    7,230,636Other insurance operating expenses
    
    
    6,030,136
    
    
    
    4,982,456
    
    
    
    3,803,457Codification and subscription expenses
    
    
    3,551,544
    
    
    
    3,269,714
    
    
    
    2,889,981General and administrative expenses
    
    
    920,529
    
    
    
    1,216,571
    
    
    
    1,195,085Interest expense
    
    
    894,463
    
    
    
    541,248
    
    
    
    131,323Goodwill impairment
    
    
    753,737
    
    
    
    
    
    
    
    Total expenses
    
    
    70,672,774
    
    
    
    50,984,177
    
    
    
    43,564,738Income (loss) before federal income taxes and cumulative effect of change in
accounting principle
    
    
    (13,268,052
    )
    
    
    5,523,982
    
    
    
    3,312,001Federal income tax expense (benefit)
    
    
    (4,767,432
    )
    
    
    1,614,165
    
    
    
    940,530Income (loss) before cumulative effect of change in accounting principle
    
    
    (8,500,620
    )
    
    
    3,909,817
    
    
    
    2,371,471Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    (1,481,858
    )Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613Basic net income (loss) per share:Before cumulative effect of change in accounting principle
    
    $
    (1.72
    )
    
    $
    .79
    
    
    $
    .42Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (.26
    )Basic net income (loss) per share
    
    $
    (1.72
    )
    
    $
    .79
    
    
    $
    .16Diluted net income (loss) per share:Before cumulative effect of change in accounting principle
    
    $
    (1.72
    )
    
    $
    .77
    
    
    $
    .41Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (.26
    )Diluted net income (loss) per share
    
    $
    (1.72
    )
    
    $
    .77
    
    
    $
    .16
 See accompanying notes to consolidated financial statements.
 27




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##### Table of Contents



BANCINSURANCE CORPORATION AND SUBSIDIARIES
 Consolidated Balance Sheets
 December 31,2004
    
    
    2003AssetsInvestments:Held to maturity:Fixed maturities, at amortized cost (fair value $5,034,173 in 2004 and $5,066,125 in 2003)
    
    $
    4,909,873
    
    
    $
    4,872,012Available for sale:Fixed maturities, at fair value (amortized cost $53,406,973 in 2004 and $28,622,634 in 2003)
    
    
    54,139,496
    
    
    
    28,918,149Equity securities, at fair value (cost $8,545,757 in 2004 and $7,621,880 in 2003)
    
    
    10,312,382
    
    
    
    10,235,858Short-term investments, at cost which approximates fair value
    
    
    12,712,577
    
    
    
    28,904,680Other invested assets
    
    
    715,000
    
    
    
    1,049,136Total investments
    
    
    82,789,328
    
    
    
    73,979,835Cash
    
    
    3,791,267
    
    
    
    2,949,627Premiums receivable
    
    
    7,911,379
    
    
    
    10,661,766Accounts receivable, net
    
    
    710,525
    
    
    
    993,093Reinsurance recoverables
    
    
    1,943,602
    
    
    
    4,926,446Prepaid reinsurance premiums
    
    
    2,859,710
    
    
    
    12,244,588Deferred policy acquisition costs
    
    
    7,223,995
    
    
    
    4,962,150Estimated earnings in excess of billings on uncompleted codification contracts
    
    
    182,441
    
    
    
    283,336Loans to affiliates
    
    
    836,022
    
    
    
    770,466Goodwill
    
    
    
    
    
    
    753,737Intangible assets, net
    
    
    845,531
    
    
    
    920,048Accrued investment income
    
    
    887,467
    
    
    
    541,519Current federal income taxes
    
    
    3,688,228
    
    
    
    Deferred federal income taxes
    
    
    1,637,813
    
    
    
    Taxes, licenses and fees receivable
    
    
    72,520
    
    
    
    Other assets
    
    
    1,680,644
    
    
    
    1,883,125Total assets
    
    $
    117,060,472
    
    
    $
    115,869,736
 See
accompanying notes to consolidated financial statements.
 28




---



##### Table of Contents



BANCINSURANCE
CORPORATION AND SUBSIDIARIES
 Consolidated Balance Sheets, Continued
 December 31,2004
    
    
    2003Liabilities and Shareholders EquityReserve for unpaid losses and loss adjustment expenses
    
    $
    11,563,111
    
    
    $
    13,970,956Discontinued bond program reserve for unpaid losses and loss adjustment expenses
    
    
    19,203,356
    
    
    
    414,963Unearned premiums
    
    
    27,719,148
    
    
    
    25,124,137Ceded reinsurance premiums payable
    
    
    493,963
    
    
    
    1,721,963Experience rating adjustments payable
    
    
    1,456,403
    
    
    
    6,997,784Retrospective premium adjustments payable
    
    
    7,276,225
    
    
    
    5,370,273Funds held under reinsurance treaties
    
    
    1,253,796
    
    
    
    2,646,693Contract funds on deposit
    
    
    811,358
    
    
    
    1,908,184Taxes, licenses and fees payable
    
    
    
    
    
    
    1,315,443Current federal income taxes
    
    
    
    
    
    
    511,091Deferred federal income taxes
    
    
    
    
    
    
    852,625Deferred ceded commissions
    
    
    1,034,931
    
    
    
    1,224,938Commissions payable
    
    
    4,022,811
    
    
    
    2,660,979Billings in excess of estimated earnings on uncompleted codification contracts
    
    
    60,227
    
    
    
    143,888Notes payable
    
    
    540,198
    
    
    
    53,276Other liabilities
    
    
    1,313,657
    
    
    
    2,122,515Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000Total liabilities
    
    
    92,214,184
    
    
    
    82,504,708Commitments and contingenciesShareholders equity:Non-voting preferred shares:Class A Serial Preference shares without par value; authorized 100,000 shares; no shares issued
or outstanding
    
    
    
    
    
    
    Class B Serial Preference shares without par value; authorized 98,646 shares; no shares issued
or outstanding
    
    
    
    
    
    
    Common shares without par value; authorized 20,000,000 shares; 6,170,341 shares issued at December 31,
2004 and 2003, 4,972,700 shares outstanding at December 31, 2004 and 4,920,050 shares outstanding at
December 31, 2003
    
    
    1,794,141
    
    
    
    1,794,141Additional paid-in capital
    
    
    1,336,073
    
    
    
    1,337,138Accumulated other comprehensive income
    
    
    1,649,439
    
    
    
    1,920,265Retained earnings
    
    
    25,838,712
    
    
    
    34,339,33230,618,365
    
    
    
    39,390,876Less: Treasury shares, at cost (1,197,641 common shares at December 31, 2004 and
1,250,291 common shares at December 31, 2003)
    
    
    (5,772,077
    )
    
    
    (6,025,848
    )Total shareholders equity
    
    
    24,846,288
    
    
    
    33,365,028Total liabilities and shareholders equity
    
    $
    117,060,472
    
    
    $
    115,869,736
 See accompanying notes to consolidated financial statements.
 29




---



##### Table of Contents



BANCINSURANCE
CORPORATION AND SUBSIDIARIES
 Consolidated Statements of Shareholders Equity
 AccumulatedAdditional
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Shares
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    shareholdersClass A
    
    
    Class B
    
    
    shares
    
    
    capital
    
    
    income
    
    
    earnings
    
    
    shares
    
    
    equityBalance at December 31, 2001
    
    
    
    
    
    
    
    
    
    $
    1,794,141
    
    
    $
    1,337,242
    
    
    $
    525,048
    
    
    $
    29,539,902
    
    
    $
    (1,804,424
    )
    
    $
    31,391,909Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    889,613
    
    
    
    
    
    
    
    889,613Unrealized gains, net of tax and
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470,138
    
    
    
    
    
    
    
    
    
    
    
    470,138Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,359,751Purchase of 770,494 treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,852,611
    )
    
    
    (3,852,611
    )600 shares issued in connection with
the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    2,893
    
    
    
    2,789Balance at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    1,794,141
    
    
    
    1,337,138
    
    
    
    995,186
    
    
    
    30,429,515
    
    
    
    (5,654,142
    )
    
    
    28,901,838Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,909,817
    
    
    
    
    
    
    
    3,909,817Unrealized gains, net of tax and
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    925,079
    
    
    
    
    
    
    
    
    
    
    
    925,079Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,834,896Purchase of 80,241 treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371,706
    )
    
    
    (371,706
    )Balance at December 31, 2003
    
    
    
    
    
    
    
    
    
    
    1,794,141
    
    
    
    1,337,138
    
    
    
    1,920,265
    
    
    
    34,339,332
    
    
    
    (6,025,848
    )
    
    $
    33,365,028Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,500,620
    )
    
    
    
    
    
    
    (8,500,620
    )Unrealized losses, net of tax and
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270,826
    )
    
    
    
    
    
    
    
    
    
    
    (270,826
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,771,446
    )56,250 shares issued in connection
with
the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,065
    )
    
    
    
    
    
    
    
    
    
    
    253,771
    
    
    
    252,706Balance at December 31, 2004
    
    
    
    
    
    
    
    
    
    $
    1,794,141
    
    
    $
    1,336,073
    
    
    $
    1,649,439
    
    
    $
    25,838,712
    
    
    $
    (5,772,077
    )
    
    $
    24,846,288
 See accompanying notes to consolidated financial statements.
 30




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##### Table of Contents



BANCINSURANCE
CORPORATION AND SUBSIDIARIES
 Consolidated Statements of Cash Flows
 Years ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613Adjustments to reconcile net income (loss) to net cash provided by operating activities:Net realized loss on goodwill impairment
    
    
    753,737
    
    
    
    
    
    
    
    1,660,858Net realized (gains) losses on investments
    
    
    (1,094,174
    )
    
    
    (822,161
    )
    
    
    1,220,477Net realized (gains) losses on disposal of property and equipment
    
    
    (183
    )
    
    
    
    
    
    
    1,073Depreciation and amortization
    
    
    712,002
    
    
    
    457,915
    
    
    
    311,459Deferred federal income tax (benefit) expense
    
    
    (2,350,920
    )
    
    
    294,042
    
    
    
    (269,166
    )Change in assets and liabilities:Premiums receivable
    
    
    2,750,387
    
    
    
    (4,751,047
    )
    
    
    (721,596
    )Accounts receivable, net
    
    
    282,568
    
    
    
    (149,034
    )
    
    
    (253,658
    )Reinsurance recoverables
    
    
    2,982,844
    
    
    
    (4,643,029
    )
    
    
    (161,372
    )Prepaid reinsurance premiums
    
    
    9,384,878
    
    
    
    (11,015,956
    )
    
    
    (327,150
    )Deferred policy acquisition costs
    
    
    (2,261,845
    )
    
    
    (2,308,324
    )
    
    
    (1,131,293
    )Other assets, net
    
    
    (3,070,832
    )
    
    
    (737,559
    )
    
    
    (508,042
    )Reserve for unpaid losses and loss adjustment expenses
    
    
    16,380,548
    
    
    
    6,826,416
    
    
    
    2,686,905Unearned premiums
    
    
    2,595,011
    
    
    
    14,819,368
    
    
    
    4,274,496Ceded reinsurance premiums payable
    
    
    (1,228,000
    )
    
    
    1,671,143
    
    
    
    50,820Experience rating adjustments payable
    
    
    (5,541,381
    )
    
    
    2,233,455
    
    
    
    (1,708,084
    )Retrospective premium adjustments payable
    
    
    1,905,952
    
    
    
    1,418,375
    
    
    
    235,029Funds held under reinsurance treaties
    
    
    (1,392,897
    )
    
    
    1,133,396
    
    
    
    511,777Contract funds on deposit
    
    
    (1,096,826
    )
    
    
    590,521
    
    
    
    (620,261
    )Deferred ceded commissions
    
    
    (190,007
    )
    
    
    1,224,938
    
    
    
    Other liabilities, net
    
    
    (2,362,440
    )
    
    
    3,603,715
    
    
    
    305,496Net cash provided by operating activities
    
    
    8,657,804
    
    
    
    13,755,991
    
    
    
    6,447,381Cash flows from investing activities:Proceeds from held to maturity fixed maturities due to redemption or maturity
    
    
    695,000
    
    
    
    1,405,000
    
    
    
    1,250,400Proceeds from available for sale fixed maturities sold, redeemed or matured
    
    
    16,143,330
    
    
    
    21,430,449
    
    
    
    5,933,115Proceeds from available for sale equity securities sold
    
    
    12,112,580
    
    
    
    16,688,164
    
    
    
    19,056,907Cost of investments purchased:Held to maturity fixed maturities
    
    
    (750,820
    )
    
    
    (1,811,114
    )
    
    
    (1,102,131
    )Available for sale fixed maturities
    
    
    (41,041,113
    )
    
    
    (34,634,639
    )
    
    
    (7,530,214
    )Available for sale equity securities
    
    
    (11,859,943
    )
    
    
    (17,834,184
    )
    
    
    (20,098,251
    )Net change in short-term investments and other invested assets
    
    
    16,192,103
    
    
    
    (4,236,374
    )
    
    
    (19,659,165
    )Other
    
    
    (60,006
    )
    
    
    (647,967
    )
    
    
    (189,345
    )Net cash used in investing activities
    
    
    (8,568,869
    )
    
    
    (19,640,665
    )
    
    
    (22,338,684
    )Cash flows from financing activities:Proceeds from note payable to bank
    
    
    3,500,000
    
    
    
    5,900,000
    
    
    
    20,040,000Repayments of note payable to bank
    
    
    (3,000,000
    )
    
    
    (8,000,000
    )
    
    
    (23,540,000
    )Proceeds from issuance of trust preferred debt to an affiliate
    
    
    
    
    
    
    7,000,000
    
    
    
    8,000,000Acquisition of treasury stock
    
    
    
    
    
    
    (371,706
    )
    
    
    (3,852,611
    )Proceeds from stock options exercised
    
    
    252,705
    
    
    
    
    
    
    
    2,789Net cash provided by financing activities
    
    
    752,705
    
    
    
    4,528,294
    
    
    
    650,178Net increase (decrease) in cash
    
    
    841,640
    
    
    
    (1,356,380
    )
    
    
    (15,241,125
    )Cash at beginning of year
    
    
    2,949,627
    
    
    
    4,306,007
    
    
    
    19,547,132Cash at end of year
    
    $
    3,791,267
    
    
    $
    2,949,627
    
    
    $
    4,306,007Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    886,115
    
    
    $
    540,300
    
    
    $
    100,098Income taxes
    
    $
    1,782,807
    
    
    $
    600,000
    
    
    $
    1,988,102
 See accompanying notes to consolidated financial statements.
 31




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##### Table of Contents



BANCINSURANCE
CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements  December 31, 2004, 2003 and 2002
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Organization
  Property/Casualty Insurance.
 ®
 ® ®
    32




---



##### Table of Contents



Municipal Code Publishing.
 Insurance Agency.
  (b)
    
    Basis of Financial Statement Presentation
   (c)
    
    New Accounting Standards
   (d)
    
    Consolidation Policy
  (e)
    
    Investments
   33




---



##### Table of Contents



(f)
    
    Accounts Receivable
  (g)
    
    Goodwill
     (h)
    
    Intangible Asset
   (i)
    
    Recognition of Revenue and Related Expenses
    (j)
    
    Deferred Policy Acquisition Costs
  34




---



##### Table of Contents



(k)
    
    Reserve for Unpaid Losses and Loss Adjustment Expenses
  (l)
    
    Reinsurance
  (m)
    
    Experience Rating and Retrospective Premium Adjustments
  (n)
    
    Contract Funds on Deposit
  (o)
    
    Depreciation and Amortization
  (p)
    
    Federal Income Taxes
  (q)
    
    Cash and Cash Equivalents
  35




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##### Table of Contents



(r)
    
    Stock Option Accounting
  As Reported
    
    
    Pro Forma2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613
    
    
    $
    (8,589,282
    )
    
    $
    3,822,188
    
    
    $
    833,754Basic net income (loss) per share
    
    $
    (1.72
    )
    
    $
    .79
    
    
    $
    .16
    
    
    $
    (1.74
    )
    
    $
    .77
    
    
    $
    .16Diluted net income (loss) per share
    
    $
    (1.72
    )
    
    $
    .77
    
    
    $
    .16
    
    
    $
    (1.74
    )
    
    $
    .76
    
    
    $
    .15
  (s)
    
    Reclassification
  (2)
    
    INVESTMENTS
  December 31, 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    faircost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Fixed maturities:US Treasury securities and obligations of
US Government corporations and agencies
    
    $
    1,051,927
    
    
    $
    
    
    
    $
    10,427
    
    
    $
    1,041,500Obligations of states and political
subdivisions
    
    
    3,857,946
    
    
    
    140,880
    
    
    
    6,153
    
    
    
    3,992,673Total held to maturity
    
    
    4,909,873
    
    
    
    140,880
    
    
    
    16,580
    
    
    
    5,034,173Available for sale:Fixed maturities:US Treasury securities and obligations of
US Government corporations and agencies
    
    
    500,000
    
    
    
    
    
    
    
    8,750
    
    
    
    491,250Obligations of states and political
subdivisions
    
    
    46,529,714
    
    
    
    835,097
    
    
    
    85,979
    
    
    
    47,278,832Corporate securities
    
    
    1,163,640
    
    
    
    8,945
    
    
    
    6,919
    
    
    
    1,165,666Asset-backed securities
    
    
    3,573,619
    
    
    
    
    
    
    
    23,531
    
    
    
    3,550,088Redeemable preferred stock
    
    
    1,640,000
    
    
    
    13,660
    
    
    
    
    
    
    
    1,653,660Subtotal
    
    
    53,406,973
    
    
    
    857,702
    
    
    
    125,179
    
    
    
    54,139,496Equity securities
    
    
    8,545,757
    
    
    
    1,822,539
    
    
    
    55,914
    
    
    
    10,312,382Total available for sale
    
    
    61,952,730
    
    
    
    2,680,241
    
    
    
    181,093
    
    
    
    64,451,878Total
    
    $
    66,862,603
    
    
    $
    2,821,121
    
    
    $
    197,673
    
    
    $
    69,486,051
 36




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##### Table of Contents



December 31, 2003Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    faircost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Fixed maturities:US Treasury securities and obligations of
US Government corporations and agencies
    
    $
    437,268
    
    
    $
    5,462
    
    
    $
    
    
    
    $
    442,730Obligations of states and political
subdivisions
    
    
    4,434,744
    
    
    
    194,351
    
    
    
    5,700
    
    
    
    4,623,395Total held to maturity
    
    
    4,872,012
    
    
    
    199,813
    
    
    
    5,700
    
    
    
    5,066,125Available for sale:Fixed maturities:US Treasury securities and obligations of
US Government corporations and agencies
    
    
    1,500,000
    
    
    
    4,167
    
    
    
    16,719
    
    
    
    1,487,448Obligations of states and political
subdivisions
    
    
    18,660,506
    
    
    
    300,654
    
    
    
    51,095
    
    
    
    18,910,065Corporate securities
    
    
    628,966
    
    
    
    4,050
    
    
    
    1,432
    
    
    
    631,584Asset-backed securities
    
    
    1,433,162
    
    
    
    
    
    
    
    2,392
    
    
    
    1,430,770Redeemable preferred stock
    
    
    6,400,000
    
    
    
    58,282
    
    
    
    
    
    
    
    6,458,282Subtotal
    
    
    28,622,634
    
    
    
    367,153
    
    
    
    71,638
    
    
    
    28,918,149Equity securities
    
    
    7,621,880
    
    
    
    2,643,545
    
    
    
    29,567
    
    
    
    10,235,858Total available for sale
    
    
    36,244,514
    
    
    
    3,010,698
    
    
    
    101,205
    
    
    
    39,154,007Total
    
    $
    41,116,526
    
    
    $
    3,210,511
    
    
    $
    106,905
    
    
    $
    44,220,132
  December 31, 2004Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    Estimatedcost
    
    
    fair value
    
    
    cost
    
    
    fair valueDue in one year or less
    
    $
    145,778
    
    
    $
    148,073
    
    
    $
    10,000
    
    
    $
    10,116Due after one year but less than five years
    
    
    2,248,259
    
    
    
    2,267,492
    
    
    
    5,107,799
    
    
    
    5,192,340Due after five years but less than ten years
    
    
    1,770,368
    
    
    
    1,839,228
    
    
    
    6,743,426
    
    
    
    6,801,289Due after ten years
    
    
    745,468
    
    
    
    779,380
    
    
    
    36,332,129
    
    
    
    36,932,003Subtotal
    
    
    4,909,873
    
    
    
    5,034,173
    
    
    
    48,193,354
    
    
    
    48,935,748Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,573,619
    
    
    
    3,550,088Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    1,640,000
    
    
    
    1,653,660Total
    
    $
    4,909,873
    
    
    $
    5,034,173
    
    
    $
    53,406,973
    
    
    $
    54,139,496
  2004
    
    
    2003
    
    
    2002Fixed maturities
    
    $
    1,826,432
    
    
    $
    1,240,248
    
    
    $
    995,619Equity securities
    
    
    236,528
    
    
    
    255,672
    
    
    
    251,787Short-term investments
    
    
    225,190
    
    
    
    256,450
    
    
    
    114,477Other
    
    
    25,926
    
    
    
    30,468
    
    
    
    Expenses
    
    
    (149,961
    )
    
    
    (183,774
    )
    
    
    (125,745
    )Net investment income
    
    $
    2,164,115
    
    
    $
    1,599,064
    
    
    $
    1,236,138
  
 37




---



##### Table of Contents



2004
    
    
    2003
    
    
    2002Gross realized gains:Fixed maturities
    
    $
    55,923
    
    
    $
    236,224
    
    
    $
    35,508Equity securities
    
    
    1,781,330
    
    
    
    869,307
    
    
    
    320,661Other
    
    
    983
    
    
    
    162,094
    
    
    
    Total gains
    
    
    1,838,236
    
    
    
    1,267,625
    
    
    
    356,169Gross realized losses:Fixed maturities
    
    
    69,659
    
    
    
    132,574
    
    
    
    79,158Equity securities
    
    
    138,916
    
    
    
    183,161
    
    
    
    565,957Other-than-temporary impairments
    
    
    535,487
    
    
    
    129,729
    
    
    
    931,531Total losses
    
    
    744,062
    
    
    
    445,464
    
    
    
    1,576,646Net realized gains (losses)
    
    $
    1,094,174
    
    
    $
    822,161
    
    
    $
    (1,220,477
    )Changes in unrealized gains (losses) on available for sale
investments:Fixed maturities
    
    $
    437,009
    
    
    $
    (59,736
    )
    
    
    293,520Equity securities
    
    
    (847,352
    )
    
    
    1,461,371
    
    
    
    418,810Net change in unrealized gains (losses)
    
    $
    (410,343
    )
    
    $
    1,401,635
    
    
    $
    712,330
  GrossEstimated
    
    
    unrealizedfair value
    
    
    lossFixed maturities:0-6 months
    
    $
    6,928,569
    
    
    $
    41,5807-12 months
    
    
    6,325,907
    
    
    
    53,498Greater than 12 months
    
    
    2,697,481
    
    
    
    46,681Total fixed maturities
    
    
    15,951,957
    
    
    
    141,759Equities:0-6 months
    
    
    358,153
    
    
    
    16,7047-12 months
    
    
    447,800
    
    
    
    22,110Greater than 12 months
    
    
    429,501
    
    
    
    17,100Total equities
    
    
    1,235,454
    
    
    
    55,914Total
    
    $
    17,187,411
    
    
    $
    197,673
    38




---



##### Table of Contents



(3)
    
    DEFERRED POLICY ACQUISITION COSTS
  2004
    
    
    2003
    
    
    2002Deferred, January 1
    
    $
    4,962,150
    
    
    $
    2,653,826
    
    
    $
    1,522,533Additions:Commissions
    
    
    7,124,437
    
    
    
    5,380,025
    
    
    
    1,904,229Premium tax
    
    
    397,168
    
    
    
    400,315
    
    
    
    135,711Total additions
    
    
    7,521,605
    
    
    
    5,780,340
    
    
    
    2,039,940Amortization to expense
    
    
    5,259,760
    
    
    
    3,472,016
    
    
    
    908,647Deferred, December 31
    
    $
    7,223,995
    
    
    $
    4,962,150
    
    
    $
    2,653,826
 (4)
    
    UNCOMPLETED CONTRACTS
  (5)
    
    GOODWILL AND INTANGIBLE ASSETS
  Property/Casualty
    
    
    Insurance
    
    
    MunicipalInsurance
    
    
    Agency
    
    
    Code Publishing
    
    
    TotalBalance at December 31, 2003
    
    $
    753,737
    
    
    $
    
    
    
    $
    
    
    
    $
    753,737Impairment write-offs
    
    
    (753,737
    )
    
    
    
    
    
    
    
    
    
    
    (753,737
    )Balance at December 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   December 31, 2004
    
    
    December 31, 2003Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    amortization
    
    
    Net
    
    
    Cost
    
    
    amortization
    
    
    NetAmortizing intangibles:Databases
    
    $
    1,008,773
    
    
    $
    (203,440
    )
    
    $
    805,333
    
    
    $
    1,008,773
    
    
    $
    (153,001
    )
    
    $
    855,772Noncompete agreement
    
    
    120,394
    
    
    
    (80,196
    )
    
    
    40,198
    
    
    
    120,394
    
    
    
    (56,118
    )
    
    
    64,276Total intangible assets
    
    $
    1,129,167
    
    
    $
    (283,636
    )
    
    $
    845,531
    
    
    $
    1,129,167
    
    
    $
    (209,119
    )
    
    $
    920,048
 39




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##### Table of Contents



2005
    
    $
    74,5182006
    
    
    66,5182007
    
    
    50,4772008
    
    
    50,4392009
    
    
    50,439$
    292,391
 (6)
    
    NOTES PAYABLE
  (7)
    
    LEASE EXPENSES
   2005
    
    $
    254,2052006
    
    
    305,1852007
    
    
    322,3222008
    
    
    330,2182009
    
    
    102,317$
    1,314,247
 (8)
    
    TRUST PREFERRED DEBT ISSUED TO AFFILIATES
   40




---



##### Table of Contents



(9)
    
    FEDERAL INCOME TAXES
  2004
    
    
    2003Deferred tax assets:Unpaid loss and loss adjustment expense reserves
    
    $
    499,066
    
    
    $
    171,539Unearned premium reserves
    
    
    1,690,442
    
    
    
    1,211,482Net operating loss carryforward
    
    
    2,174,085
    
    
    
    Alternative minimum tax
    
    
    204,862
    
    
    
    Other than temporary impairment of investments
    
    
    40,899
    
    
    
    88,245Deferred ceded commissions
    
    
    351,876
    
    
    
    416,479Other
    
    
    205,934
    
    
    
    121,596Subtotal
    
    
    5,167,164
    
    
    
    2,009,341Deferred tax liabilities:Net unrealized gains on available for sale securities
    
    
    (849,711
    )
    
    
    (989,227
    )Discounting of anticipated salvage and subrogation
    
    
    (3,944
    )
    
    
    (9,609
    )Deferred policy acquisition costs
    
    
    (2,456,158
    )
    
    
    (1,687,131
    )Accrued dividends receivable
    
    
    (12,297
    )
    
    
    (17,950
    )Other
    
    
    (207,241
    )
    
    
    (158,049
    )Subtotal
    
    
    (3,529,351
    )
    
    
    (2,861,966
    )Net deferred tax asset (liability)
    
    $
    1,637,813
    
    
    $
    (852,625
    )
    2004
    
    
    2003
    
    
    2002Current expense (benefit)
    
    $
    (2,416,512
    )
    
    $
    1,320,123
    
    
    $
    1,175,825Deferred expense (benefit)
    
    
    (2,350,920
    )
    
    
    294,042
    
    
    
    (235,295
    )Federal income tax expense (benefit)
    
    $
    (4,767,432
    )
    
    $
    1,614,165
    
    
    $
    940,530
  2004
    
    
    2003
    
    
    2002Federal income tax at statutory rate
    
    $
    (4,511,138
    )
    
    $
    1,878,154
    
    
    $
    1,137,555Dividends received deduction and tax exempt interest
    
    
    (566,581
    )
    
    
    (379,099
    )
    
    
    (326,397
    )Business meals and entertainment
    
    
    35,042
    
    
    
    22,489
    
    
    
    20,238Goodwill impairment
    
    
    256,271
    
    
    
    
    
    
    
    Other
    
    
    18,974
    
    
    
    92,621
    
    
    
    109,134Federal income tax expense (benefit)
    
    $
    (4,767,432
    )
    
    $
    1,614,165
    
    
    $
    940,530
 (10)
    
    BENEFIT PLANS
  41




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##### Table of Contents



(11)
    
    STOCK OPTION PLANS
      2004
    
    
    2003
    
    
    2002Weighted-average
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    Weighted-averageShares
    
    
    exercise price
    
    
    Shares
    
    
    exercise price
    
    
    Shares
    
    
    exercise priceOutstanding at beginning of year
    
    
    586,400
    
    
    $
    4.81
    
    
    
    487,900
    
    
    $
    4.73
    
    
    
    355,500
    
    
    $
    4.81Granted
    
    
    129,000
    
    
    
    7.11
    
    
    
    159,000
    
    
    
    5.23
    
    
    
    164,000
    
    
    
    4.66Exercised
    
    
    (56,000
    )
    
    
    4.90
    
    
    
    (18,000
    )
    
    
    4.92
    
    
    
    (600
    )
    
    
    4.65Expired
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    
    6.00
    
    
    
    
    
    
    
    Canceled
    
    
    (9,000
    )
    
    
    4.85
    
    
    
    (22,500
    )
    
    
    4.95
    
    
    
    (31,000
    )
    
    
    5.33Outstanding at end of year
    
    
    650,400
    
    
    
    5.26
    
    
    
    586,400
    
    
    
    4.81
    
    
    
    487,900
    
    
    
    4.73Shares reserved for issuance
    
    
    917,400
    
    
    
    
    
    
    
    982,400
    
    
    
    
    
    
    
    1,042,900Options available for future grant
    
    
    267,000
    
    
    
    
    
    
    
    396,000
    
    
    
    
    
    
    
    555,000Weighted-average fair value of options
granted during the year
    
    $
    2.4990
    
    
    
    
    
    
    $
    1.7068
    
    
    
    
    
    
    $
    1.7135
  42




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-average
    
    
    Weighted-average
    
    
    Number
    
    
    Weighted-averageoutstanding
    
    
    remaining
    
    
    exercise
    
    
    exercisable
    
    
    exerciseRange of Exercise Prices
    
    at 12/31/04
    
    
    contractual life (years)
    
    
    price
    
    
    at 12/31/04
    
    
    price$2.50 - 2.875
    
    
    14,500
    
    
    
    0.90
    
    
    $
    2.55
    
    
    
    14,500
    
    
    $
    2.553.375 - 3.875
    
    
    27,000
    
    
    
    1.96
    
    
    
    3.84
    
    
    
    27,000
    
    
    
    3.844.00 - 4.85
    
    
    248,000
    
    
    
    5.77
    
    
    
    4.57
    
    
    
    164,640
    
    
    
    4.615.00 - 5.375
    
    
    217,900
    
    
    
    7.37
    
    
    
    5.24
    
    
    
    95,180
    
    
    
    5.296.00 - 6.75
    
    
    14,000
    
    
    
    6.99
    
    
    
    6.07
    
    
    
    14,000
    
    
    
    6.077.04 - 8.00
    
    
    129,000
    
    
    
    9.93
    
    
    
    7.11
    
    
    
    
    
    
    
    2.50 - 8.00
    
    
    650,400
    
    
    
    6.89
    
    
    
    5.26
    
    
    
    315,320
    
    
    
    4.72
 (12)
    
    STATUTORY RESTRICTIONS
   (13)
    
    STATUTORY SURPLUS AND NET INCOME
   Shareholders Equity/Surplus
    
    
    Net Income2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Statutory
    
    $
    30,879,673
    
    
    $
    36,293,102
    
    
    $
    32,353,218
    
    
    $
    (11,300,632
    )
    
    $
    2,427,321
    
    
    $
    1,751,827Reconciling items:Non-admitted assets
    
    
    586,668
    
    
    
    33,682
    
    
    
    91,723
    
    
    
    
    
    
    
    
    
    
    
    Deferred policy acquisition costs
    
    
    7,223,995
    
    
    
    4,962,150
    
    
    
    2,653,826
    
    
    
    2,261,845
    
    
    
    2,308,324
    
    
    
    1,131,292Deferred ceded commissions
    
    
    (465,457
    )
    
    
    (371,323
    )
    
    
    
    
    
    
    (94,134
    )
    
    
    (371,323
    )
    
    
    Deferred taxes
    
    
    (2,539,073
    )
    
    
    (1,660,512
    )
    
    
    (1,023,087
    )
    
    
    2,004,269
    
    
    
    (37,523
    )
    
    
    166,270Unrealized gain on available for sale fixed
maturities and redeemable preferred stock
    
    
    709,323
    
    
    
    293,031
    
    
    
    355,249
    
    
    
    
    
    
    
    
    
    
    
    Provision for reinsurance
    
    
    
    
    
    
    47,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subsequent capital contribution from parent
    
    
    (4,200,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GAAP
    
    $
    32,195,129
    
    
    $
    39,597,130
    
    
    $
    34,430,929
    
    
    $
    (7,128,652
    )
    
    $
    4,326,799
    
    
    $
    3,049,389
 (14)
    
    OTHER COMPREHENSIVE INCOME
  Year ended December 31, 2004Before-tax
    
    
    Income
    
    
    Net-of-taxamount
    
    
    tax effect
    
    
    amountNet unrealized holding gains (losses) on securities:Unrealized holding gains arising during 2004
    
    $
    1,017,968
    
    
    $
    346,109
    
    
    $
    671,859Less: reclassification adjustments for gains realized in net income
    
    
    1,428,311
    
    
    
    485,626
    
    
    
    942,685Net unrealized holding losses
    
    
    (410,343
    )
    
    
    (139,517
    )
    
    
    (270,826
    )Other comprehensive income (loss)
    
    $
    (410,343
    )
    
    $
    (139,517
    )
    
    $
    (270,826
    )
 43




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##### Table of Contents



Year ended December 31, 2003Before-tax
    
    
    Income
    
    
    Net-of-taxamount
    
    
    tax effect
    
    
    amountNet unrealized holding gains on securities:Unrealized holding gains arising during 2003
    
    $
    2,061,702
    
    
    $
    700,979
    
    
    $
    1,360,723Less: reclassification adjustments for
gains realized in net income
    
    
    660,067
    
    
    
    224,423
    
    
    
    435,644Net unrealized holding gains
    
    
    1,401,635
    
    
    
    476,556
    
    
    
    925,079Other comprehensive income
    
    $
    1,401,635
    
    
    $
    476,556
    
    
    $
    925,079
 Year ended December 31, 2002Before-tax
    
    
    Income
    
    
    Net-of-taxamount
    
    
    tax effect
    
    
    amountNet unrealized holding gains (losses) on securities:Unrealized holding losses arising during 2002
    
    $
    (321,214
    )
    
    $
    (109,213
    )
    
    $
    (212,001
    )Less: reclassification adjustments for
losses realized in net income
    
    
    (1,033,544
    )
    
    
    (351,405
    )
    
    
    (682,139
    )Net unrealized holding gains
    
    
    712,330
    
    
    
    242,192
    
    
    
    470,138Other comprehensive income
    
    $
    712,330
    
    
    $
    242,192
    
    
    $
    470,138
 (15)
    
    RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
  2004
    
    
    2003
    
    
    2002Balance at January 1
    
    $
    14,386
    
    
    $
    7,559
    
    
    $
    4,873Less reinsurance recoverables
    
    
    4,926
    
    
    
    283
    
    
    
    90Net Balance at January 1
    
    
    9,460
    
    
    
    7,276
    
    
    
    4,783Incurred related to:Current year
    
    
    52,620
    
    
    
    35,888
    
    
    
    29,121Prior years
    
    
    (5,383
    )
    
    
    (2,805
    )
    
    
    (807
    )Total incurred
    
    
    47,237
    
    
    
    33,083
    
    
    
    28,314Paid related to:Current year
    
    
    23,680
    
    
    
    21,120
    
    
    
    21,103Prior years
    
    
    4,185
    
    
    
    9,779
    
    
    
    4,718Total paid
    
    
    27,865
    
    
    
    30,899
    
    
    
    25,821Net Balance at December 31
    
    
    28,822
    
    
    
    9,460
    
    
    
    7,276Plus reinsurance recoverables
    
    
    1,944
    
    
    
    4,926
    
    
    
    283Balance at December 31
    
    $
    30,766
    
    
    $
    14,386
    
    
    $
    7,559
   (16)
    
    REINSURANCE
   44




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##### Table of Contents



2004
    
    
    2003
    
    
    2002Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiumswritten
    
    
    earned
    
    
    written
    
    
    earned
    
    
    written
    
    
    earnedDirect
    
    $
    56,234,221
    
    
    $
    54,069,958
    
    
    $
    85,697,160
    
    
    $
    72,120,769
    
    
    $
    46,876,953
    
    
    $
    42,687,037Assumed
    
    
    4,301,004
    
    
    
    2,569,293
    
    
    
    367,466
    
    
    
    409,024
    
    
    
    495,762
    
    
    
    411,179Ceded
    
    
    (2,126,555
    )
    
    
    (6,575,066
    )
    
    
    (28,537,419
    )
    
    
    (22,457,827
    )
    
    
    (835,045
    )
    
    
    (507,895
    )$
    58,408,670
    
    
    $
    50,064,185
    
    
    $
    57,527,207
    
    
    $
    50,071,966
    
    
    $
    46,537,670
    
    
    $
    42,590,321
  Discontinued Bond Program
 Reinsurance Program.
   45




---



##### Table of Contents



Arbitrations.
 Aegis Arbitration.
 Sirius Arbitration.
 Harco Arbitration.
  Loss and LAE Reserves.
  46




---



##### Table of Contents



(17)
    
    RELATED PARTIES
     (18)
    
    CONCENTRATIONS
  2004
    
    
    2003
    
    
    2002Product  Customer TypeLender/Dealer-Managing General Agent
    
    $
    11,081,680
    
    
    $
    10,877,002
    
    
    $
    9,516,186Lender/Dealer-Managing General Agent
    
    
    7,266,209
    
    
    
    6,508,717
    
    
    
    5,878,719
 (19)
    
    COMMON SHARE REPURCHASE PROGRAM
  47




---



##### Table of Contents



(20)
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS
  Short-term investments:
 Fixed maturities and equity securities:
 Accounts
receivable:
 Notes payable:
 Trust preferred debt issued to affiliates:
  2004
    
    
    2003Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimatedamount
    
    
    fair value
    
    
    amount
    
    
    fair valueAssets:Held to maturity fixed maturities
    
    $
    4,909,873
    
    
    $
    5,034,173
    
    
    $
    4,872,012
    
    
    $
    5,066,125Available for sale fixed maturities
    
    
    54,139,496
    
    
    
    54,139,496
    
    
    
    28,918,149
    
    
    
    28,918,149Available for sale equity securities
    
    
    10,312,382
    
    
    
    10,312,382
    
    
    
    10,235,858
    
    
    
    10,235,858Short-term investments
    
    
    12,712,577
    
    
    
    12,712,577
    
    
    
    28,904,680
    
    
    
    28,904,680Cash
    
    
    3,791,267
    
    
    
    3,791,267
    
    
    
    2,949,627
    
    
    
    2,949,627Liabilities:Notes payable
    
    
    540,198
    
    
    
    540,198
    
    
    
    53,276
    
    
    
    53,276Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000
    
    
    
    15,465,000
    
    
    
    15,465,000
 (21)
    
    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  2004First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter*
    
    
    Quarter*
    
    
    QuarterTotal revenues
    
    $
    12,806,688
    
    
    $
    16,350,722
    
    
    $
    14,344,451
    
    
    $
    13,902,861Income (loss) before federal income taxes
    
    
    1,603,438
    
    
    
    (6,014,337
    )
    
    
    (5,236,153
    )
    
    
    (3,621,000
    )Net income (loss)
    
    
    1,158,593
    
    
    
    (3,846,066
    )
    
    
    (3,320,829
    )
    
    
    (2,492,318
    )Net income (loss) per common share:Basic
    
    
    .24
    
    
    
    (.79
    )
    
    
    (.67
    )
    
    
    (0.50
    )Diluted
    
    
    .22
    
    
    
    (.79
    )
    
    
    (.67
    )
    
    
    (0.50
    )
 2003First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal revenues
    
    $
    11,197,370
    
    
    $
    16,150,010
    
    
    $
    17,572,834
    
    
    $
    11,587,945Income before federal income taxes
    
    
    1,437,535
    
    
    
    1,622,924
    
    
    
    927,856
    
    
    
    1,535,667Net income
    
    
    1,029,003
    
    
    
    1,146,128
    
    
    
    750,175
    
    
    
    984,511Net income per common share:Basic
    
    
    .21
    
    
    
    .23
    
    
    
    .15
    
    
    
    .20Diluted
    
    
    .20
    
    
    
    .23
    
    
    
    .15
    
    
    
    .19
  (22)
    
    LITIGATION
  48




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(23)
    
    SUPPLEMENTAL DISCLOSURE FOR EARNINGS PER SHARE
 2004
    
    
    2003
    
    
    2002Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613Income (loss) available to common shareholders,
assuming dilution
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613Weighted-average common shares outstanding
    
    
    4,950,437
    
    
    
    4,941,731
    
    
    
    5,376,465Dilutive effect of outstanding options
    
    
    
    
    
    
    108,282
    
    
    
    34,649Diluted common shares
    
    
    4,950,437
    
    
    
    5,050,013
    
    
    
    5,411,114Basic net income (loss) per common share
    
    $
    (1.72
    )
    
    $
    .79
    
    
    $
    .16Diluted net income (loss) per common share
    
    $
    (1.72
    )
    
    $
    .77
    
    
    $
    .16
 (24)
    
    SEGMENT INFORMATION
  December 31, 2004Municipal
    
    
    
    
    
    
    ReportableProperty/Casualty
    
    
    Code
    
    
    Insurance
    
    
    SegmentInsurance
    
    
    Publishing
    
    
    Agency
    
    
    TotalRevenues from external customers
    
    $
    51,126,855
    
    
    $
    4,005,415
    
    
    $
    68,080
    
    
    $
    55,200,350Intersegment revenues
    
    
    5,880
    
    
    
    
    
    
    
    377,893
    
    
    
    383,773Interest revenue
    
    
    2,266,867
    
    
    
    
    
    
    
    349
    
    
    
    2,267,216Interest expense
    
    
    (262
    )
    
    
    1,921
    
    
    
    
    
    
    
    1,659Depreciation and amortization
    
    
    376,016
    
    
    
    93,410
    
    
    
    
    
    
    
    469,426Segment profit (loss)
    
    
    (11,569,336
    )
    
    
    503,702
    
    
    
    402,592
    
    
    
    (10,663,042
    )Federal income tax expense (benefit)
    
    
    (4,440,684
    )
    
    
    180,608
    
    
    
    136,212
    
    
    
    (4,123,864
    )Segment assets
    
    
    107,524,584
    
    
    
    2,687,373
    
    
    
    729,932
    
    
    
    110,941,889
 December 31, 2003Municipal
    
    
    
    
    
    
    ReportableProperty/Casualty
    
    
    Code
    
    
    Insurance
    
    
    SegmentInsurance
    
    
    Publishing
    
    
    Agency
    
    
    TotalRevenues from external customers
    
    $
    51,203,340
    
    
    $
    3,819,221
    
    
    $
    3,735
    
    
    $
    55,026,296Intersegment revenues
    
    
    5,880
    
    
    
    
    
    
    
    370,871
    
    
    
    376,751Interest revenue
    
    
    1,685,726
    
    
    
    
    
    
    
    9
    
    
    
    1,685,735Interest expense
    
    
    549
    
    
    
    2,032
    
    
    
    
    
    
    
    2,581Depreciation and amortization
    
    
    222,280
    
    
    
    92,609
    
    
    
    
    
    
    
    314,889Segment profit
    
    
    6,072,662
    
    
    
    457,490
    
    
    
    310,813
    
    
    
    6,840,965Federal income tax expense
    
    
    1,745,863
    
    
    
    187,881
    
    
    
    106,564
    
    
    
    2,040,308Segment assets
    
    
    105,342,377
    
    
    
    2,551,413
    
    
    
    547,206
    
    
    
    108,440,996
 December 31, 2002Municipal
    
    
    
    
    
    
    ReportableProperty/Casualty
    
    
    Code
    
    
    Insurance
    
    
    SegmentInsurance
    
    
    Publishing
    
    
    Agency
    
    
    TotalRevenues from external customers
    
    $
    42,530,881
    
    
    $
    3,324,037
    
    
    $
    8,463
    
    
    $
    45,863,381Intersegment revenues
    
    
    5,880
    
    
    
    
    
    
    
    155,181
    
    
    
    161,061Interest revenue
    
    
    1,220,686
    
    
    
    
    
    
    
    116
    
    
    
    1,220,802Interest expense
    
    
    15,477
    
    
    
    11,420
    
    
    
    1,327
    
    
    
    28,224Depreciation and amortization
    
    
    113,591
    
    
    
    100,455
    
    
    
    28,000
    
    
    
    242,046Segment profit (loss)
    
    
    4,141,969
    
    
    
    522,636
    
    
    
    (141,397
    )
    
    
    4,523,208Federal income tax expense
    
    
    1,094,048
    
    
    
    243,066
    
    
    
    18,049
    
    
    
    1,355,163Segment assets
    
    
    66,692,915
    
    
    
    2,153,838
    
    
    
    299,257
    
    
    
    69,146,010
 49




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##### Table of Contents



2004
    
    
    2003
    
    
    2002RevenueTotal revenues for reportable segments
    
    $
    57,851,339
    
    
    $
    57,088,782
    
    
    $
    47,245,244Parent company loss
    
    
    (62,844
    )
    
    
    (203,872
    )
    
    
    (207,444
    )Elimination of intersegment revenues
    
    
    (383,773
    )
    
    
    (376,751
    )
    
    
    (161,061
    )Total consolidated revenue
    
    $
    57,404,722
    
    
    $
    56,508,159
    
    
    $
    46,876,739ProfitTotal profit (loss) for reportable segments
    
    $
    (10,663,042
    )
    
    $
    6,840,965
    
    
    $
    4,523,208Parent company loss
    
    
    (2,605,010
    )
    
    
    (1,316,983
    )
    
    
    (1,211,207
    )Income (loss) before income taxes and change in accounting principle
    
    $
    (13,268,052
    )
    
    $
    5,523,982
    
    
    $
    3,312,001AssetsTotal assets for reportable segments
    
    $
    110,941,889
    
    
    $
    108,440,996
    
    
    $
    69,146,010Parent company assets
    
    
    11,096,804
    
    
    
    8,122,851
    
    
    
    11,950,233Elimination of intersegment receivables
    
    
    (4,978,221
    )
    
    
    (694,111
    )
    
    
    (8,393,039
    )Consolidated assets
    
    $
    117,060,472
    
    
    $
    115,869,736
    
    
    $
    72,703,204
 (25)
    
    SUBSEQUENT EVENTS
      50




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51




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
          52




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##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES
      
 ITEM 9B. OTHER INFORMATION
  53




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 DIRECTORS
  Current Position
    
    DirectorName
    
    Age
    
    with Company
    
    SinceSi Sokol
    
    77
    
    Chief Executive Officer, Chairman of the Board, Chairman of Executive Committee
    
    1970John S. Sokol
    
    43
    
    President, Director
    
    1990Daniel D. Harkins
    
    75
    
    Director, Chairman of Audit Committee, member of Executive Committee
    
    1981Saul Sokol
    
    85
    
    Director, member of Executive Committee
    
    1982William S. Sheley
    
    43
    
    Director, member of Audit Committee, member of Compensation Committee
    
    2000Matthew D. Walter
    
    36
    
    Director, Chairman of Compensation Committee
    
    2001Kenton R. Bowen
    
    42
    
    Director, member of Audit Committee
    
    2002Douglas G. Borror
    
    50
    
    Director, member of Compensation Committee
    
    2004
 Si Sokol
 John S. Sokol
 Daniel D. Harkins
 Saul Sokol
 William S. Sheley
 54




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##### Table of Contents



Matthew D. Walter
 Kenton R. Bowen
 Douglas G. Borror
     EXECUTIVE OFFICERS OF THE COMPANY
  Daniel J. Stephan
 55




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##### Table of Contents



Stephen J. Toth
 Matthew C. Nolan,
 Stephen G. Wolf,
 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
  CODE OF ETHICS
  56




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
 SUMMARY
COMPENSATION TABLE
  Long-TermAnnual
    
    
    CompensationCompensation(6)
    
    
    AwardsSecurities
    
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Underlying
    
    
    CompensationPosition
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    Options (#)
    
    
    ($)Si Sokol
    
    
    2004
    
    
    
    301,154
    
    
    
    32,573
    
    
    
    
    
    
    
    85,919
    (1)Chairman and
    
    
    2003
    
    
    
    301,154
    
    
    
    50,000
    
    
    
    
    
    
    
    83,719
    (1)Chief Executive Officer
    
    
    2002
    
    
    
    301,154
    
    
    
    50,000
    
    
    
    
    
    
    
    82,319
    (1)John S. Sokol
    
    
    2004
    
    
    
    286,409
    
    
    
    32,573
    
    
    
    100,000
    
    
    
    14,200
    (2)President
    
    
    2003
    
    
    
    264,259
    
    
    
    102,191
    
    
    
    100,000
    
    
    
    12,000
    (2)2002
    
    
    
    240,414
    
    
    
    92,631
    
    
    
    100,000
    
    
    
    10,600
    (2)Daniel J. Stephan
    
    
    2004
    
    
    
    148,768
    
    
    
    22,315
    
    
    
    10,000
    
    
    
    11,951
    (3)Senior Vice President of
    
    
    2003
    
    
    
    142,295
    
    
    
    109,013
    
    
    
    15,000
    
    
    
    10,618
    (3)Marketing of Ohio
    
    
    2002
    
    
    
    135,519
    
    
    
    75,000
    
    
    
    15,000
    
    
    
    8,529
    (3)IndemnityStephen J. Toth
    
    
    2004
    
    
    
    99,924
    
    
    
    15,808
    
    
    
    5,000
    
    
    
    7,246
    (4)Vice President of
    
    
    2003
    
    
    
    94,290
    
    
    
    28,907
    
    
    
    5,000
    
    
    
    5,863
    (4)Operations of Ohio
    
    
    2002
    
    
    
    89,493
    
    
    
    18,316
    
    
    
    5,000
    
    
    
    5,697
    (4)IndemnityStephen G. Wolf
    
    
    2004
    
    
    
    94,846
    
    
    
    8,286
    
    
    
    
    
    
    
    7,365
    (5)President of ALPC
    
    
    2003
    
    
    
    89,865
    
    
    
    13,864
    
    
    
    5,000
    
    
    
    5,710
    (5)2002
    
    
    
    84,868
    
    
    
    22,486
    
    
    
    
    
    
    
    5,645
    (5)
 
 (1)
    
    With respect to Si Sokol, All Other Compensation includes: (a) the Companys
matching contribution under the Ohio Indemnity Company Employee 401(k) and Profit Sharing
Plan (the 401(k) Plan) in the amount of $14,200, $12,000, and $10,600 for the 2004,
2003 and 2002 fiscal years, respectively; and (b) $3,728, $2,574 and $2,185 for the 2004,
2003 and 2002 fiscal years, respectively, for the term portion of the premium for a split
dollar life insurance policy for the benefit of Si Sokol and his wife; and (c) $67,991,
$69,145, and $69,534 for the 2004, 2003 and 2002 fiscal years, respectively, for the
whole life portion of the premium for such split dollar life insurance policy.(2)
    
    With respect to John S. Sokol, All Other Compensation consists of the Companys
matching contribution under the 401(k) Plan. Does not include dues and expenses paid by
the Company related to membership in professional organizations of $12,870, $27,398 and
$5,816 for the 2004, 2003 and 2002 fiscal years, respectively.(3)
    
    With respect to Daniel J. Stephan, All Other Compensation consists of the
Companys matching contribution under the 401(k) Plan.(4)
    
    With respect to Stephen J. Toth, All Other Compensation consists of the Companys
matching contribution under the 401(k) Plan.(5)
    
    With respect to Stephen G. Wolf, All Other Compensation consists of the Companys
matching contribution under the 401(k) Plan.(6)
    
    Does not include certain perquisites provided to certain executive officers
including: additional memberships and fees for country and/or social clubs and a monthly
automobile allowance. The aggregate of all perquisites received by the executive officers
during 2004, 2003 and 2002 did not exceed the lesser of $50,000 or 10% of the executive
officers total salary and bonus for that year. 57




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##### Table of Contents



OPTION GRANTS IN LAST FISCAL YEAR
  Individual Grants(1)
    
    Potential RealizableValue at AssumedNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Annual Rates ofSecurities
    
    % of Total
    
    
    
    
    
    
    
    
    
    Stock PriceUnderlying
    
    Options Granted
    
    Exercise
    
    
    
    
    
    Appreciation forOptions
    
    to Employees in
    
    Price
    
    Expiration
    
    Option Term(3)Name
    
    Granted(#)
    
    Fiscal Year
    
    ($/Sh)(2)
    
    Date
    
    5% ($)
    
    10% ($)Si Sokol
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John S. Sokol
    
    
    100,000
    
    
    
    77.52
    %
    
    
    7.04
    
    
    
    12/20/14
    
    
    
    442,742
    
    
    
    1,121,995Daniel J. Stephan
    
    
    10,000
    
    
    
    7.75
    %
    
    
    8.00
    
    
    
    5/16/14
    
    
    
    50,312
    
    
    
    127,499Stephen J. Toth
    
    
    5,000
    
    
    
    3.88
    %
    
    
    7.04
    
    
    
    12/20/14
    
    
    
    22,137
    
    
    
    56,100Stephen G. Wolf
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    All options were granted pursuant to the Companys 2002 Stock Incentive Plan and
vest 20% per year over the first five years after the date of grant.(2)
    
    Pursuant to the Companys 2002 Stock Incentive Plan, the exercise price for all
options granted during the 2004 fiscal year is the fair market value of the Companys
common shares on the date of grant (i.e., the closing sales price of the common shares on
the Nasdaq National Market on that date).(3)
    
    The dollar amounts in these columns are the product of (a) the difference between
(i) the product of the per share market price on the date of grant and the sum of one
plus the assumed rate of appreciation (5% and 10%)compounded annually over the term of
the option (ten years)) and (ii) the per share market price on the date of grant and (b)
the number of common shares underlying the grant. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
  Number of Shares
    
    Value ofUnderlying
    
    UnexercisedUnexercised
    
    In-The-MoneyShares
    
    Value
    
    Options at Fiscal
    
    Options at FiscalAcquired on
    
    Realized
    
    Year End (#)
    
    Year End ($)(1)Name
    
    Exercise (#)
    
    ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableSi Sokol
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    128,500
    
    
    
    John S. Sokol
    
    
    10,000
    
    
    
    29,100
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    529,975
    
    
    
    267,400Daniel J. Stephan
    
    
    
    
    
    
    
    
    
    
    39,000
    
    
    
    26,000
    
    
    
    102,530
    
    
    
    43,540Stephen J. Toth
    
    
    
    
    
    
    
    
    
    
    21,500
    
    
    
    11,000
    
    
    
    57,985
    
    
    
    16,040Stephen G. Wolf
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    4,000
    
    
    
    14,900
    
    
    
    9,000
 
 (1)
    
    Represents the total gain which would be realized if all in-the-money options held
at December 31, 2004 were exercised on that date, which total gain equals the product of
(a) the number of common shares underlying the options and (b) the difference between the
closing price of the common shares on the Nasdaq National Market on December 31, 2004
($7.32) and the exercise price of such options. EMPLOYMENT AGREEMENT
  58




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##### Table of Contents



COMPENSATION OF DIRECTORS
  COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
  59




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
 EQUITY COMPENSATION PLAN INFORMATION
  (a)
    
    
    (b)
    
    
    (c)Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuancebe issued upon exercise
    
    
    exercise price of
    
    
    under equity compensation plansof outstanding options,
    
    
    outstanding options,
    
    
    (excluding securities reflected inPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation plans
approved by security holders
    
    
    650,400
    
    
    $
    5.26
    
    
    
    267,000Equity compensation plans
not approved by security holders
    
    None
        
    None
        
    NoneTotal
    
    
    650,400
    
    
    $
    5.26
    
    
    
    267,000
 PRINCIPAL SHAREHOLDERS
  Name
    
    Number of Common
    
    Percentof Beneficial
    
    Shares Beneficially
    
    ofOwner
    
    Owned(1)
    
    ClassSi Sokol
    
    
    2,425,468
    (2, 3, 7)
    
    
    48.29
    %Barbara K. Sokol
    
    
    2,425,468
    (2, 4)
    
    
    48.29
    %John S. Sokol
    
    
    2,157,013
    (2, 5, 7)
    
    
    41.54
    %Douglas G. Borror
    
    
    
    
    
    
    Kenton R. Bowen
    
    
    12,000
    (7)
    
    
    (8
    )Daniel D. Harkins
    
    
    59,150
    (7)
    
    
    1.19
    %William S. Sheley
    
    
    11,000
    (7)
    
    
    (8
    )Saul Sokol
    
    
    268,337
    (6, 7)
    
    
    5.38
    %Matthew D. Walter
    
    
    31,000
    (7)
    
    
    (8
    )Daniel J. Stephan
    
    
    39,000
    (7)
    
    
    (8
    )Stephen J. Toth
    
    
    23,500
    (7)
    
    
    (8
    )Stephen G. Wolf
    
    
    6,000
    (7)
    
    
    (8
    )Matthew C. Nolan
    
    
    1,600
    (7)
    
    
    (8
    )All directors and executive officers
as a group (12 persons)
    
    
    3,284,068
    
    
    
    61.35
    %Dimensional Fund Advisors Inc.
    
    
    268,055
    (9)
    
    
    5.39
    %1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
 60




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##### Table of Contents



(1)
    
    Except as otherwise noted, the beneficial owners have sole voting and dispositive
power over the common shares shown.(2)
    
    Falcon Equity Partners, L.P., an Ohio limited partnership (Falcon Equity Partners)
whose sole partners are members of the Si Sokol family, owns of record 1,750,000 common
shares. Si Sokol and Barbara K. Sokol each own a 35.7 percentage interest in Falcon Equity
Partners and their children, John S. Sokol, James K. Sokol and Carla A. Sokol, each own a
9.5 percentage interest in Falcon Equity Partners. As the sole managing general partner,
Si Sokol has sole power to dispose or direct the disposition of the Common Shares owned of
record by Falcon Equity Partners. As the general partners, Si Sokol, Barbara K. Sokol and
John S. Sokol share the power to vote or direct the vote with respect to the common shares
owned of record by Falcon Equity Partners.(3)
    
    1,750,000 of these common shares are beneficially owned by Si Sokol as the sole
managing general partner and a general partner of Falcon Equity Partners, as more fully
described in note (2) above. 314,476 of these common shares are owned of record or through
a broker by Si Sokol. 310,992 of these common shares are owned of record or through a
broker by Barbara K. Sokol, Si Sokols wife, as more fully described in note (4) below.
Si Sokol disclaims beneficial ownership of the common shares owned by Barbara K. Sokol.(4)
    
    1,750,000 of these common shares are beneficially owned by Barbara K. Sokol as a
general partner of Falcon Equity Partners, as more fully described in note (2) above.
310,992 of these common shares are owned of record or through a broker by Barbara K.
Sokol. 314,476 of these common shares are owned of record or through a broker by Si Sokol,
Barbara K. Sokols husband, as more fully described in note (3) above. Barbara K. Sokol
disclaims beneficial ownership of the common shares owned by Si Sokol.(5)
    
    1,750,000 of these common shares are beneficially owned by John S. Sokol as a general
partner of Falcon Equity Partners, as more fully described in note (2) above. 165,316 of
these common shares are owned of record or through a broker by John S. Sokol. 19,597 of
these common shares are held by John S. Sokol, as custodian for his minor children. 2,100
of these common shares are owned of record or through a broker by John S. Sokols wife as
to which he disclaims beneficial ownership.(6)
    
    Saul Sokol is the sole trustee of The Saul Sokol and Phyllis D. Sokol Family Trust,
which trust holds 252,337 common shares and is for the benefit of their children. As the
sole trustee, Saul Sokol is empowered to exercise all rights with regard to such common
shares, revoke the trust and amend the trust.(7)
    
    Includes 50,000, 220,000, 10,000, 16,000, 6,000, 6,000, 2,000, 39,000, 23,500, 6,000
and 1,600 common shares that underlie currently exercisable options or options exercisable
within 60 days of December 20, 2005 held by Si Sokol, John S. Sokol, Daniel D. Harkins,
Saul Sokol, William S. Sheley, Matthew D. Walter, Kenton Bowen, Daniel J. Stephan, Stephen
J. Toth, Stephen G. Wolf and Matthew C. Nolan, respectively.(8)
    
    Represents ownership of less than 1% of the outstanding common shares.(9)
    
    Based on the information set forth in a Schedule 13G dated February 9, 2005, which
was filed by Dimensional Fund Advisors Inc., a registered investment advisor, on behalf of
its advisory clients.  61




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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 INDEPENDENT AUDITOR FEES
  2004
    
    
    2003Audit Fees(1)
    
    $
    101,000
    
    
    $
    92,000Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    101,000
    
    
    $
    92,000
 
 (1)
    
    Audit Fees  These are fees for professional services performed by Daszkal for the audit
of the Companys annual consolidated financial statements and review of the consolidated
financial statements included in the Companys Form 10-Q/A filings for the quarterly periods
ended June 30, 2004 and September 30, 2004. AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
   62




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  Page in thisReport(1)
    
    
    
    Financial StatementsThe following financial statements, which are included in Item 8 of Part II of this report:Report of Independent Registered Public Accounting Firm
    
    
    26Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
    
    
    27Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    28Consolidated Statements of Shareholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    30Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    31Notes to Consolidated Financial Statements
    
    
    32(2)
    
    
    
    Financial Statement SchedulesThe following financial statement schedules are included in this Item 15 of Part IV of this report:Schedule I  Summary of investments  other than investments in related parties
    
    
    66Schedule II  Condensed financial information of Bancinsurance Corporation (Parent Company Only)
    
    
    67All other schedules are omitted because of the absence of conditions under which they are
required or the required information is given in the consolidated financial statements or
notes thereto.(3)
    
    
    
    ExhibitsThe following exhibits required by Item 601 of Regulation S-K are filed as part of this
report. For convenience of reference, the exhibits are listed according to the numbers
appearing in the Exhibit Table to Item 601 of Regulation S-K.
 3(a)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation
(reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31,
1984 (file number 0-8738), which is incorporated herein by reference).3(b)
    
    Certificate of Amendment to the Amended and Restated Articles of
Incorporation of Bancinsurance Corporation dated March 10, 1993 (reference is made to
Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 2001 (file number
0-8738), which is incorporated herein by reference).3(c)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation
(reflecting amendments through March 10, 1993) (for SEC reporting purposes only)
(reference is made to Exhibit 3(c) of Form 10-K for the fiscal year ended December 31,
2001 (file number 0-8738), which is incorporated herein by reference).3(d)
    
    Amended and Restated Code of Regulations of Bancinsurance Corporation
(reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31,
1984 (file number 0-8738), which is incorporated herein by reference).4(a)
    
    Credit Agreement dated January 25, 1993 by and between Bancinsurance
Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to Exhibit
4(a) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).4(b)
    
    First Amendment to Credit Agreement dated November 5, 1993 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(b) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738), which is incorporated herein
by reference).
 63




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##### Table of Contents



4(c)
    
    Second Amendment to Credit Agreement dated October 19, 1994 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(c) of Form 10-K for the fiscal year ended December 31, 2001 (file
number 0-8738), which is incorporated herein by reference).4(d)
    
    Third Amendment to Credit Agreement dated November 24, 1999 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(d) of Form 10-K for the fiscal year ended December 31, 2001 (file
number 0-8738), which is incorporated herein by reference).4(e)
    
    Fourth Amendment to Credit Agreement dated December 11, 2000 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(e) of Form 10-K for the fiscal year ended December 31, 2001 (file
number 0-8738), which is incorporated herein by reference).4(f)
    
    Fifth Amendment to Credit Agreement dated July 1, 2002 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(f) of Form 10-Q for the fiscal quarter ended June 30, 2002 (file
number 0-8738), which is incorporated herein by reference).4(g)
    
    Sixth Amendment to Credit Agreement dated October 20, 2003 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4(a) of Form 10-Q for the fiscal quarter ended September 30, 2003
(file number 0-8738), which is incorporated herein by reference).4(h)
    
    Indenture dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National
Association (reference is made to Exhibit 4(g) of Form 10-K for the fiscal year ended
December 31, 2002 (file number 0-8738), which is incorporated herein by reference).4(i)
    
    Amended and Restated Declaration of Trust dated as of December 4, 2002 by and
among Bancinsurance Corporation, State Street Bank and Trust Company of Connecticut,
National Association, John Sokol, Si Sokol and Sally Cress (reference is made to
Exhibit 4(h) of Form 10-K for the fiscal year ended December 31, 2002 (file number
0-8738), which is incorporated herein by reference).4(j)
    
    Guarantee Agreement dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National
Association (reference is made to Exhibit 4(i) of Form 10-K for the fiscal year ended
December 31, 2002 (file number 0-8738), which is incorporated herein by reference).4(k)
    
    Indenture dated as of September 30, 2003 by and between Bancinsurance
Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(b) of Form 10-Q
for the fiscal quarter ended September 30, 2003 (file number 0-8738), which is
incorporated herein by reference).4(l)
    
    Amended and Restated Declaration of Trust dated as of September 30, 2003 by
and among Bancinsurance Corporation, JPMorgan Chase Bank, Chase Manhattan Bank USA,
National Association, John Sokol, Si Sokol and Sally Cress (reference is made to
Exhibit 4(c) of Form 10-Q for the fiscal quarter ended September 30, 2003 (file number
0-8738), which is incorporated herein by reference).4(m)
    
    Guarantee Agreement dated as of September 30, 2003 by and between
Bancinsurance Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(d)
of Form 10-Q for the fiscal quarter ended September 30, 2003 (file number 0-8738),
which is incorporated herein by reference).10(a)
    
    Amended Tax Allocation Agreement by and between Bancinsurance Corporation
and Ohio Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the
fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein
by reference).10(b)#
    
    Bancinsurance Corporation 1984 Stock Option Plan (reference is made to Exhibit 10(d)
of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which
is incorporated herein by reference).10(c)#
    
    Bancinsurance Corporation 1994 Stock Option Plan (reference is made to Exhibit 10(f)
of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is
incorporated herein by reference).
 64




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##### Table of Contents



10(d)#
    
    Employment Agreement dated May 17, 2000 by and between Ohio Indemnity Company and
Daniel J. Stephan (reference is made to Exhibit 10(g) of Form 10-Q for the fiscal
quarter ended March 31, 2002 (file number 0-8738), which is incorporated herein by
reference).10(e)#
    
    Bancinsurance Corporation 2002 Stock Incentive Plan (reference is made to Exhibit 10
of Form S-8 dated June 28, 2002 (file number 333-91396), which is incorporated herein
by reference).10(f)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and Si
Sokol (reference is made to Exhibit 99.1 of Current Report on Form 8-K filed April 15,
2005 (file number 0-8738), which is incorporated herein by reference).10(g)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and
John S. Sokol (reference is made to Exhibit 99.2 of Current Report on Form 8-K filed
April 15, 2005 (file number 0-8738), which is incorporated herein by reference).10(h)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and
Sally J. Cress (reference is made to Exhibit 99.3 of Current Report on Form 8-K filed
April 15, 2005 (file number 0-8738), which is incorporated herein by reference).10(i)#
    
    First Amendment to Undertaking Agreement dated October 17, 2005 between
Bancinsurance Corporation and Sally J. Cress (reference is made to Exhibit 99.1 of
Current Report on Form 8-K filed October 21, 2005 (file number 0-8738), which is
incorporated herein by reference).21*
    
    Subsidiaries of the Registrant as of December 31, 2004.23(a)*
    
    Consent of Daszkal Bolton LLP.31.1*
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed with this Annual Report on Form 10-K.#
    
    Constitutes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K. (b)
    
    ExhibitsSee Item 15(a)(3).(c)
    
    Financial Statement SchedulesSee Item 15(a)(2).
 65




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##### Table of Contents



Column A
    
    Column B
    
    
    Column C
    
    
    Column DType of Investment
    
    Cost (1)
    
    
    Estimated
    
    
    Amount at whichfair
    
    
    shown in thevalue
    
    
    balance sheetHeld to maturity:Fixed maturities:Governments
    
    $
    1,051,927
    
    
    $
    1,041,500
    
    
    $
    1,051,927States, territories and
possessions
    
    
    707,372
    
    
    
    738,027
    
    
    
    707,372Political subdivisions
    
    
    2,084,321
    
    
    
    2,147,402
    
    
    
    2,084,321Special revenue and assessments
    
    
    1,066,253
    
    
    
    1,107,244
    
    
    
    1,066,253Total held to maturity
    
    
    4,909,873
    
    
    
    5,034,173
    
    
    
    4,909,873Available for sale:Fixed maturities:Governments
    
    
    500,000
    
    
    
    491,250
    
    
    
    491,250States, territories and
possessions
    
    
    3,821,927
    
    
    
    3,896,058
    
    
    
    3,896,058Political subdivisions
    
    
    2,227,673
    
    
    
    2,295,966
    
    
    
    2,295,966Special revenue and assessments
    
    
    40,480,114
    
    
    
    41,086,808
    
    
    
    41,086,808Industrial and miscellaneous
    
    
    1,163,640
    
    
    
    1,165,666
    
    
    
    1,165,666Asset-backed securities
    
    
    3,573,619
    
    
    
    3,550,088
    
    
    
    3,550,088Redeemable preferred stock
    
    
    1,640,000
    
    
    
    1,653,660
    
    
    
    1,653,660Total available for sale fixed
maturities
    
    
    53,406,973
    
    
    
    54,139,496
    
    
    
    54,139,496Equity securities:Nonredeemable preferred stock:Public utilities
    
    
    585,055
    
    
    
    577,804
    
    
    
    577,804Banks, trusts and insurance
companies
    
    
    1,099,190
    
    
    
    1,385,620
    
    
    
    1,385,620Industrial and miscellaneous
    
    
    151,800
    
    
    
    143,880
    
    
    
    143,880Common stock:Public utilities
    
    
    152,794
    
    
    
    191,929
    
    
    
    191,929Banks, trusts and insurance
companies
    
    
    2,981,852
    
    
    
    3,486,727
    
    
    
    3,486,727Industrial and miscellaneous
    
    
    3,575,066
    
    
    
    4,526,422
    
    
    
    4,526,422Total available for sale equity securities
    
    
    8,545,757
    
    
    
    10,312,382
    
    
    
    10,312,382Short-term investments
    
    
    12,712,577
    
    
    
    12,712,577
    
    
    
    12,712,577Other invested assets
    
    
    715,000
    
    
    
    337,064
    
    
    
    715,000Total investments
    
    $
    80,290,180
    
    
    $
    82,535,692
    
    
    $
    82,789,328
 
 (1)
    
    Original cost of equity securities, adjusted for any write downs, and, as to fixed maturities
and short-term investments, original cost reduced by repayments, write downs and adjusted for
amortization of premiums or accrual of discounts. 66




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##### Table of Contents



December 31,2004
    
    
    2003AssetsCash
    
    $
    196,950
    
    
    $
    51,978Unaffiliated investments
    
    
    4,456,457
    
    
    
    4,227,772Investments in subsidiaries (at equity)
    
    
    35,261,696
    
    
    
    42,874,293Federal income tax recoverable
    
    
    3,688,228
    
    
    
    Receivable from subsidiaries, net
    
    
    
    
    
    
    480,006Other
    
    
    2,755,169
    
    
    
    2,510,38346,358,500
    
    
    
    50,144,432Liabilities and Shareholders EquityNote payable to bank
    
    
    500,000
    
    
    
    Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000Federal income tax payable
    
    
    
    
    
    
    511,091Payable to subsidiaries, net
    
    
    4,918,119
    
    
    
    Other
    
    
    629,093
    
    
    
    803,313Shareholders equity
    
    
    24,846,288
    
    
    
    33,365,028$
    46,358,500
    
    
    $
    50,144,432
 67




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##### Table of Contents



Years ended December 31,2004
    
    
    2003
    
    
    2002Other income
    
    $
    406,318
    
    
    $
    388,406
    
    
    $
    138,285Dividends from subsidiaries
    
    
    
    
    
    
    
    
    
    
    1,290,000Interest expense
    
    
    (892,804
    )
    
    
    (538,667
    )
    
    
    (104,144
    )General and administrative expenses
    
    
    (1,364,788
    )
    
    
    (1,165,677
    )
    
    
    (1,246,394
    )Income (loss) before tax benefit
and equity in earnings of
subsidiaries
    
    
    (1,851,274
    )
    
    
    (1,315,938
    )
    
    
    77,747Income tax benefit
    
    
    643,568
    
    
    
    426,143
    
    
    
    368,232Income (loss) before equity in
earnings of subsidiaries
    
    
    (1,207,706
    )
    
    
    (889,795
    )
    
    
    445,979Equity in undistributed earnings of
subsidiaries
    
    
    (7,292,914
    )
    
    
    4,799,612
    
    
    
    443,634Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613
 68




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##### Table of Contents



Years ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    (8,500,620
    )
    
    $
    3,909,817
    
    
    $
    889,613Adjustments to reconcile net income (loss) to net cash used in
operating activities:Equity in undistributed net earnings of subsidiaries
    
    
    7,292,914
    
    
    
    (4,799,612
    )
    
    
    (443,634
    )Net realized (gains) losses on disposal of furniture and equipment
    
    
    (183
    )
    
    
    
    
    
    
    6,014Net realized (gains) losses on sale of investments
    
    
    286,313
    
    
    
    (164,674
    )
    
    
    186,934Depreciation and amortization
    
    
    147,428
    
    
    
    143,025
    
    
    
    69,415Deferred federal income tax benefit
    
    
    (306,506
    )
    
    
    139,762
    
    
    
    (83,752
    )Change in operating assets and liabilities:Notes receivable
    
    
    58,664
    
    
    
    57,109
    
    
    
    205,071Loans to affiliates
    
    
    (71,719
    )
    
    
    (71,719
    )
    
    
    (71,719
    )Accounts receivable/payable from/to subsidiaries
    
    
    5,398,125
    
    
    
    (413,090
    )
    
    
    (271,844
    )Other assets
    
    
    (3,731,229
    )
    
    
    225,393
    
    
    
    (1,141,111
    )Other liabilities
    
    
    (685,312
    )
    
    
    283,870
    
    
    
    (35,963
    )Net cash used in operating activities
    
    
    (112,125
    )
    
    
    (690,119
    )
    
    
    (690,976
    )Cash flows from investing activities:Proceeds from available for sale fixed maturities
sold, redeemed or matured
    
    
    764,257
    
    
    
    174,250
    
    
    
    Proceeds from available for sale equity
securities sold
    
    
    735,683
    
    
    
    677,083
    
    
    
    Cost of investments purchased:Available for sale fixed maturities
    
    
    (964,535
    )
    
    
    (958,062
    )
    
    
    Available for sale equity securities
    
    
    (859,367
    )
    
    
    (2,512,513
    )
    
    
    Other
    
    
    (171,646
    )
    
    
    (1,137,855
    )
    
    
    Net cash used in investing activities
    
    
    (495,608
    )
    
    
    (3,757,097
    )
    
    
    Cash flows from financing activities:Proceeds from note payable to bank
    
    
    3,500,000
    
    
    
    5,900,000
    
    
    
    20,040,000Repayments of note payable to bank
    
    
    (3,000,000
    )
    
    
    (8,000,000
    )
    
    
    (23,540,000
    )Proceeds from stock options exercised
    
    
    252,705
    
    
    
    
    
    
    
    2,789Acquisition of treasury stock
    
    
    
    
    
    
    (371,706
    )
    
    
    (3,852,611
    )Proceeds from issuance of trust preferred debt
to affiliates
    
    
    
    
    
    
    7,000,000
    
    
    
    8,000,000Net cash provided by financing activities
    
    
    752,705
    
    
    
    4,528,294
    
    
    
    650,178Net increase (decrease) in cash
    
    
    144,972
    
    
    
    81,078
    
    
    
    (40,798
    )Cash (overdraft) at beginning of year
    
    
    51,978
    
    
    
    (29,100
    )
    
    
    11,698Cash (overdraft) at end of year
    
    $
    196,950
    
    
    $
    51,978
    
    
    $
    (29,100
    )Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    884,457
    
    
    $
    539,390
    
    
    $
    69,768Income taxes
    
    $
    1,782,807
    
    
    $
    600,000
    
    
    $
    1,988,102
 69




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##### Table of Contents



Signatures
  Bancinsurance CorporationDated: January 25, 2006
    
    By
    
    /s/    Si SokolSi SokolChairman of Board of Directorsand Chief Executive Officer(Principal Executive Officer)
  Dated: January 25, 2006
    
    /s/   Si Sokol
    
    
    
    Dated: January 25, 2006
    
    /s/    John S. SokolSi Sokol
    
    
    
    
    
    John S. SokolChairman of Board of Directors
    
    
    
    
    
    President and Directorand Chief Executive Officer(Principal Executive Officer)Dated: January 25, 2006
    
    /s/   Kenton R. Bowen
    
    
    
    Dated: January 25, 2006
    
    /s/    Daniel D. HarkinsKenton R. Bowen
    
    
    
    
    
    Daniel D. HarkinsDirector
    
    
    
    
    
    DirectorDated: January 25, 2006
    
    /s/   William S. Sheley
    
    
    
    Dated: January 25, 2006
    
    /s/    Saul SokolWilliam S. Sheley
    
    
    
    
    
    Saul SokolDirector
    
    
    
    
    
    DirectorDated: January 25, 2006
    
    /s/   Matthew D. Walter
    
    
    
    Dated: January 25, 2006
    
    /s/     Douglas G. BorrorMatthew D. Walter
    
    
    
    
    
    Douglas G. BorrorDirector
    
    
    
    
    
    DirectorDated: January 25, 2006
    
    /s/   Matthew C. NolanMatthew C. NolanChief Financial Officer,Treasurer and Secretary(Principal Financial Officerand Principal Accounting Officer)
 70




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##### Table of Contents



INDEX OF EXHIBITS
  Exhibit No.
    
    Description3(a)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reference
is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file
number 0-8738), which is incorporated herein by reference).3(b)
    
    Certificate of Amendment to the Amended and Restated Articles of Incorporation of
Bancinsurance Corporation dated March 10, 1993 (reference is made to Exhibit 3(b) of Form
10-K for the fiscal year ended December 31, 2001 (file number 0-8738), which is
incorporated herein by reference).3(c)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reflecting
amendments through March 10, 1993) (for SEC reporting purposes only) (reference is made to
Exhibit 3(c) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).3(d)
    
    Amended and Restated Code of Regulations of Bancinsurance Corporation (reference is
made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number
0-8738), which is incorporated herein by reference).4(a)
    
    Credit Agreement dated January 25, 1993 by and between Bancinsurance Corporation and
The Fifth Third Bank of Columbus, Ohio (reference is made to Exhibit 4(a) of Form 10-K for
the fiscal year ended December 31, 2001 (file number 0-8738), which is incorporated herein
by reference).4(b)
    
    First Amendment to Credit Agreement dated November 5, 1993 by and between Bancinsurance
Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to Exhibit 4(b)
of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738), which is
incorporated herein by reference).4(c)
    
    Second Amendment to Credit Agreement dated October 19, 1994 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to
Exhibit 4(c) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).4(d)
    
    Third Amendment to Credit Agreement dated November 24, 1999 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to
Exhibit 4(d) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).4(e)
    
    Fourth Amendment to Credit Agreement dated December 11, 2000 by and between
Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to
Exhibit 4(e) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).4(f)
    
    Fifth Amendment to Credit Agreement dated July 1, 2002 by and between Bancinsurance
Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to Exhibit 4(f)
of Form 10-Q for the fiscal quarter ended June 30, 2002 (file number 0-8738), which is
incorporated herein by reference).4(g)
    
    Sixth Amendment to Credit Agreement dated October 20, 2003 by and between Bancinsurance
Corporation and The Fifth Third Bank of Columbus, Ohio (reference is made to Exhibit 4(a)
of Form 10Q for the fiscal quarter ended September 30, 2003 (file number 0-8738), which is
incorporated herein by reference).4(h)
    
    Indenture dated as of December 4, 2002 by and between Bancinsurance Corporation and
State Street Bank and Trust Company of Connecticut, National Association (reference is made
to Exhibit 4(g) of Form 10-K for the fiscal year ended December 31, 2002 (file number
0-8738), which is incorporated herein by reference).4(i)
    
    Amended and Restated Declaration of Trust dated as of December 4, 2002 by and among
Bancinsurance Corporation, State Street Bank and Trust Company of Connecticut, National
Association, John Sokol, Si Sokol and Sally Cress (reference is made to Exhibit 4(h) of
Form 10-K for the fiscal year ended December 31, 2002 (file number 0-8738), which is
incorporated herein by reference).
 71




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##### Table of Contents



Exhibit No.
    
    Description4(j)
    
    Guarantee Agreement dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National Association
(reference is made to Exhibit 4(i) of Form 10-K for the fiscal year ended December 31, 2002
(file number 0-8738), which is incorporated herein by reference).4(k)
    
    Indenture dated as of September 30, 2003 by and between Bancinsurance Corporation and
JPMorgan Chase Bank (reference is made to Exhibit 4(b) of Form 10-Q for the fiscal quarter
ended September 30, 2003 (file number 0-8738), which is incorporated herein by reference).4(l)
    
    Amended and Restated Declaration of Trust dated as of September 30, 2003 by and among
Bancinsurance Corporation, JPMorgan Chase Bank, Chase Manhattan Bank USA, National
Association, John Sokol, Si Sokol and Sally Cress (reference is made to Exhibit 4(c) of
Form 10-Q for the fiscal quarter ended September 30, 2003 (file number 0-8738), which is
incorporated herein by reference).4(m)
    
    Guarantee Agreement dated as of September 30, 2003 by and between Bancinsurance
Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(d) of Form 10-Q for the
fiscal quarter ended September 30, 2003 (file number 0-8738), which is incorporated herein
by reference).10(a)
    
    Amended Tax Allocation Agreement by and between Bancinsurance Corporation and Ohio
Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year
ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference).10(b)#
    
    Bancinsurance Corporation 1984 Stock Option Plan (reference is made to Exhibit 10(d) of
Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is
incorporated herein by reference).10(c)#
    
    Bancinsurance Corporation 1994 Stock Option Plan (reference is made to Exhibit 10(f) of
Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is
incorporated herein by reference).10(d)#
    
    Employment Agreement dated May 17, 2000 by and between Ohio Indemnity Company and Daniel
J. Stephan (reference is made to Exhibit 10(g) of Form 10-Q for the fiscal quarter ended
March 31, 2002 (file number 0-8738), which is incorporated herein by reference).10(e)#
    
    Bancinsurance Corporation 2002 Stock Incentive Plan (reference is made to Exhibit 10 of
Form S-8 dated June 28, 2002 (file number 333-91396), which is incorporated herein by
reference).10(f)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and Si Sokol
(reference is made to Exhibit 99.1 of Current Report on Form 8-K filed April 15, 2005 (file
number 0-8738), which is incorporated herein by reference).10(g)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and John S.
Sokol (reference is made to Exhibit 99.2 of Current Report on Form 8-K filed April 15, 2005
(file number 0-8738), which is incorporated herein by reference).10(h)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and Sally J.
Cress (reference is made to Exhibit 99.3 of Current Report on Form 8-K filed April 15, 2005
(file number 0-8738), which is incorporated herein by reference).10(i)#
    
    First Amendment to Undertaking Agreement dated October 17, 2005 between Bancinsurance
Corporation and Sally J. Cress (reference is made to Exhibit 99.1 of Current Report on Form
8-K filed October 21, 2005 (file number 0-8738), which is incorporated herein by
reference).21*
    
    Subsidiaries of the Registrant as of December 31, 2004.23(a)*
    
    Consent of Daszkal Bolton LLP.31.1*
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2*
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1*
    
    Certification of Principal Executive Officer and Principal Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed with this Annual Report on Form 10-K.#
    
    Constitutes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K. 72