Our home office is located in Southfield, Michigan, where we occupy approximately 30,000 square feet of office space for use in all of our business segments. We lease 14,816 square feet of office space in Jacksonville, Florida for use in our specialty commercial lines business segment. This lease expires in June 2010. We lease nearly 13,000 square feet of office space in Lombard, Illinois, all of which was sublet to unrelated third parties when we closed our Chicago operation in April 2003. We also lease space for small offices in East Lansing, Michigan; Coral Gables, Florida (opened September 2006); and Wilmette, Illinois, all of which are used in our specialty commercial lines business segment. During 2006, we closed the Cooper City, Florida office, which was used in our homeowners insurance business. In January 2007, we opened an office in Sacramento, California where we occupy approximately 3,091 square feet for use in our personal lines business.
The primary offices for the Capital City companies, which were acquired in July 2007, are located in Columbia, South Carolina. We lease two buildings with approximately 20,000 square feet of office space each. Both of these leases expire in 2010. In addition to the properties described above, we lease additional space throughout the Southeastern United States for our agency and insurance company operations.
The information as of December 31, 2007, 2006, 2005, 2004, and 2003 and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 was derived from our audited consolidated financial statements.
Our audited consolidated financial statements as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 are incorporated elsewhere in this Annual Report on Form 10-K.
Extraordinary items reflect income generated through the recognition of negative goodwill resulting from acquisitions of companies purchased for less than the aggregate fair value of their net assets. We acquired Queensway International (subsequently renamed North Pointe Casualty Insurance Company) on February 28, 2004 for $11.0 million, resulting in an extraordinary gain of $2.9 million.
In 2007, North Pointe Insurance, North Pointe Casualty, Capital City Insurance and Midfield contributed $5.0 million, $1.0 million, $3.0 million and $3.0 million, respectively, to their parent. These contributions were made to facilitate the Capital City acquisition and to pay down outstanding debt. As of December 31, 2007, combined statutory capital and surplus included $36.1 million for Capital City Insurance which was acquired in July 2007 but did not include the capital and surplus of Home Pointe Insurance which was classified as discontinued operations for the year.
In 2006, we contributed a total of $9.0 million to our insurance company subsidiaries. $5.0 million was contributed to North Pointe Casualty and $4.0 million was contributed to Home Pointe Insurance.
Insurance, North Pointe Casualty, Home Pointe Insurance and Midfield, respectively. These contributions were funded from initial public offering proceeds, holding company funds and new debt.
the impact of the current credit crisis on our investment portfolio, level of investment income, and level of impairment;
The $4.5 million increase in net income from continuing operations for the year ended December 31, 2007 was primarily attributable to a $27.5 million increase in net premiums earned ($22.2 million attributable to Capital City) and $5.3 million increase in fees and other income ($5.2 million attributable to Capital City). Theses increases were offset by a $22.7 million increase in loss and loss adjustment expenses ($13.2 million attributable to Capital City) and a $6.2 million increase in other underwriting and operating expenses ($8.1 million attributable to Capital City).
Our loss ratios from continuing operations for the years 2007, 2006, and 2005 were 53.1%, 45.4% and 50.8%, respectively. The loss ratio from continuing operations for the commercial lines in 2007 was 58.1% compared to 39.9% for 2006. The increase in the loss ratio from continuing operations is primarily the result of the Capital City Insurance acquisition. Loss ratios for Capital City have been traditionally higher than those reported historically by North Pointe. The higher loss ratio produced by Capital City is a significant factor in the increase in the overall loss ratio from continuing operations. The loss ratio from continuing operations for North Pointe’s personal lines for 2007 was 37.7 as compared to 99.0% for 2006. This decrease was primarily attributable to favorable reserve development in the personal automobile lines and homeowners lines.
In December 2006, A.M. Best upgraded North Pointe Insurance’s financial strength rating from “B++” to “A−.” Simultaneously, A.M. Best reaffirmed North Pointe Casualty’s financial strength rating of “B+,” and upgraded the issuer credit rating of North Pointe Holdings to “bb+” from “bb”.
In February 2006, we issued $20.0 million of 30-year, mandatorily redeemable trust preferred securities (the “Trust Preferreds”) through a newly formed, unconsolidated wholly-owned subsidiary, NP Capital Trust I (the “Trust”).
We prepare our financial statements in conformity with generally accepted accounting principles in the United States of America, or GAAP. Under GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements. As additional information becomes available, these estimates and assumptions can change and impact amounts reported in the future. We have identified below accounting policies that we use to
make these estimates and assumptions. We consider these policies to be critical due to the amount of judgment and uncertainty inherent in their application.
Unpaid loss and loss adjustment expense reserves represent our best estimate of the ultimate liability for losses and loss adjustment expenses that occurred prior to, but were unpaid at, the end of any given accounting period. At December 31, 2007 and 2006, we had $172.3 million and $89.8 million, respectively, of gross loss and loss adjustment expense reserves. Evaluation of these gross reserves requires the estimation of loss development over an extended period of time. Numerous factors will affect the ultimate settlement values of claims, including tort reform, expected future inflationary trends, medical costs and jury awards. These factors, coupled with the character of the business we write (much of which is small volume specialty commercial lines), continual changes in the mix of business we write, as well as ongoing rate and underwriting modifications, require that significant judgment be used in the reserve setting process. Changes in our mix of business, among other less substantial changes, create additional uncertainty in estimating the ultimate loss costs.
Due either to insufficient experience or volume in a particular line of business, we are often required to consider industry loss ratios for establishing credible loss ratio expectations. However, industry loss ratios have tended to run higher than our historical experience partly due to the fact that available industry statistics generally include risks which we do not cover, such as environmental and asbestos liabilities, or they are not specific enough to our particular specialty lines.
We review our reserves by product line, coverage and state on an annual, semiannual, or quarterly basis, depending on the size of the product line or emerging issues related to the coverage. We also identify and measure variances in trend by state, line of business and coverage that would not otherwise be seen on a consolidated basis.
In July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) which is effective for fiscal years beginning after December 15, 2006. This Interpretation clarifies the uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes (“SFAS 109”). FIN No. 48 requires that we evaluate our tax positions within the scope of SFAS 109 in each tax jurisdiction for all open tax years and determine whether our tax positions are more-likely-than-not of being sustained based solely on technical merits. FIN No. 48 then requires that we measure the tax benefit or liability to be recognized and record an adjustment to income and retained earnings according to the Interpretation. We adopted FIN 48 on January 1, 2007.
Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines. This evaluation reflects our assessments of current conditions, as well as predictions of uncertain future events, that may have a material impact on the financial statements related to security valuation.
See “Business - Investments,” and Note 6 to our audited consolidated financial statements, all of which are included elsewhere in this annual report on Form 10-K.
Significant judgment is required in determining the fair values of net assets acquired. In our evaluation of the fair values of the net assets acquired pursuant to the Capital City acquisition, we took into account a combination of factors, including the likelihood of recoveries on various assets, as well as the anticipated timing of recoveries. In the case of the investment portfolio securities, we utilized market values. In determining the fair value of unpaid losses and loss adjustment expenses we developed assumptions for the discounting of cash flows and estimates of risk loads a hypothetical arms-length buyer would require to assume such liabilities. Substantially all other assets and liabilities were short term in nature reducing the amount of judgment involved in determining estimated fair value. See Note 1 to our consolidated financial statements, included elsewhere in this annual report on Form 10-K.
be greater or less than the amount accrued. At December 31, 2007 and 2006, reinsurance recoverables on paid and unpaid losses and LAE and pre-paid reinsurance premiums were $64.2 million and $49.4 million, respectively.
Unless otherwise noted, the following discussion relates only to results from continuing operations.
Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Gross premiums written for 2007 were $119.3 million as compared to $90.2 million for 2006, an increase of $29.1 million, or 32.3%.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Gross premiums written for 2006 were $90.2 million as compared to $111.0 million for 2005, a decrease of $20.8 million, or 18.7%.
and a variety of other reinsurance treaties, including catastrophe, corporate clash, and facultative coverage. See “Business - Reinsurance,” incorporated elsewhere within this Annual Report on Form 10-K.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Net premiums written for 2006 were $61.1 million as compared to $86.1 million in 2005, a decrease of $25.0 million, or 29.0%. The decrease in net premiums written was primarily attributable to a decrease in gross premiums written (discussed above) and an increase in the cost of reinsurance. Ceded premiums written for 2006 were $29.1 million as compared to $24.9 million in 2005, an increase of $4.2 million, or 16.9%. Of the $4.2 million increase in ceded premiums written, approximately $10.5 million was attributable to our crop fronting program in which we ceded 98.0% of our gross premiums and 100.0% of the losses. We wrote our first crop policies in the first quarter of 2006. Offsetting the increase in the crop fronting program were smaller decreases, primarily resulting from policy cancellations in our Florida small business line.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Net premiums earned for 2006 were $66.7 million as compared to $84.7 million for 2005, a decrease of $18.0 million, or 21.3%. The decrease in net premiums earned was consistent with the decrease in net premiums written discussed above.
Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Net investment income for 2007 was $8.7 million as compared to $5.7 million for 2006, an increase of $3.0 million, or 52.6%. The increase was primarily attributable to Capital City Insurance which earned net investment income of $2.9 million since acquisition in July 2007. The average duration of our debt securities portfolio was 3.7 and 2.5 years as of December 31, 2007 and 2006, respectively.
Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Realized gains, net of realized losses, on the disposition of investments for 2007 were $3.3 million for 2007 as compared to net realized losses of $214,000 for 2006, an increase of $3.5 million. The majority of these gains were recognized in our equities portfolio during the fourth quarter when our investment advisors capitalized on the positive market conditions.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Realized losses, net of realized gains, on the disposition of investments for 2006 were $214,000 as compared to $168,000 for 2005, an increase of $46,000, or 27.4%. Substantially all of the realized losses were generated from the sales or calls of debt securities which experienced decreases in fair values attributable to increases in prevailing market interest rates.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Fees and other income for 2006 was $1.4 million as compared to $1.9 million for 2005, a decrease of $532,000, or 28.0%. During 2006, the Florida homeowner’s book of business was transferred from North Pointe Casualty to Home Pointe Insurance. This book of business generated a large portion of our fees and other income balance, and is included in income from discontinued operations for 2006.
Losses and loss adjustment expenses represent our largest expense item and include payments made to settle claims, estimates for future claim payments and changes in those estimates for current and prior periods, as well as adjusting costs incurred in connection with settling claims. Losses and loss adjustment expenses for a given period are influenced by the number of exposures covered in the current year, trends in claim frequency and severity, changes in the cost of adjusting claims, changes in the legal environment and the re-estimation of prior years’ reserves in the current year. Gross losses and loss adjustment expenses are those amounts before consideration of ceded losses. See “Business - Reinsurance.” Net losses and loss adjustment expenses are gross losses and loss adjustment expenses less ceded losses and loss adjustment expenses. We report our losses and loss adjustment expenses net of reinsurance.
Losses and loss adjustment expenses include an increase or reduction in those expenses resulting from continued reassessment of reserves established in prior periods. In 2007, 2006, and 2005, losses and loss adjustment expenses included an increase of $3.3 million and decreases of $2.5 million, and $5.4 million, respectively, as a result of development from reserve changes relating to prior periods. See “Business - Unpaid Losses and Loss Adjustment Expenses,” incorporated elsewhere within this Annual Report on Form 10-K.
The increase in the loss and loss adjustment expenses was primarily attributable to the acquisition of Capital City Insurance and adverse development in the Florida commercial lines of business. For the year ended December 31, 2007, we incurred adverse development in the RBT and bowling, Florida small business, and commercial automobile lines of $1.1 million, $1.6 million and $958,000, respectively. The loss and loss adjustment expenses attributable to Capital City as of December 31, 2007 were $13.2 million.
The loss ratio for our commercial lines for 2007 was 58.1% as compared to 39.9% for 2006. Like the increase in the expenses, the increase in loss ratio is also the result of the acquisition of Capital City Insurance and adverse reserve development. Loss ratios for Capital City have been traditionally higher than those we historically reported. Loss and loss adjustment expenses attributable to Capital City in 2007 represented 24.6% and premiums earned represented 23.6% of the respective totals. The higher loss ratio produced by Capital City combined with its comparative size is a significant factor in the increase in the overall ratio. The adverse development experienced in 2007 contributed 4.9 percentage points to the increase in the loss ratio for the commercial lines; conversely the 2006 favorable development decreased the total by 6.6 percentage points.
The decrease in the loss and loss adjustment expenses was primarily attributable to a decrease in hurricane losses. For the year ended December 31, 2006, we incurred $746,000 of unfavorable development in our reserves for 2005 hurricanes of which $629,000 and $117,000 was attributable to our commercial and personal lines, respectively. Four hurricanes struck Florida, Texas and the U.S. Gulf Coast, which increased our overall 2005 loss ratio by 15.1 percentage points, from 35.7% to 50.8%. We did not have any development in 2006 on reserves in our commercial lines segment related to 2004 hurricanes.
The loss ratio for our commercial lines for 2006 was 39.9% as compared to 47.8% for 2005. This decrease in loss ratio resulted from no hurricanes in 2006, as well as, improved loss experience from non-catastrophic risks. The total hurricane net losses and loss adjustment expenses incurred in our commercial lines for the years ended December 31, 2006 and 2005 were $629,000 and $4.8 million, respectively, plus $2.0 million of accelerated reinsurance reinstatement charges in 2005 recorded as a reduction of net premiums earned. The $629,000 unfavorable development related to the 2005 hurricanes had an immaterial impact on our 2006 commercial loss ratio of 39.9%, whereas hurricanes and reinstatement charges in 2005 increased our commercial lines loss ratio from 38.3% to 47.8%.
The impact of the hurricane losses and reserve development on our loss ratios for our commercial lines for the years ended December 31, 2007, 2006 and 2005 are as follows:
The loss ratio for our personal lines for 2007 was 37.7% as compared to 99.0% for 2006. This decrease was primarily attributable to favorable reserve development. Favorable reserve development of $303,000 in 2007 for the personal automobile lines represented a significant shift from the adverse development in this line of $1,779,000 in 2006. Favorable development related to the homeowners lines of $705,000 in 2007 compared to the 2006 favorable development of $320,000 also contributed to the decrease in the overall loss ratio. This development resulted in a decrease in the loss ratio for personal lines of 17.5 percentage points in 2007 compared to an increase of 20.5 percentage points in 2006. The personal automobile lines have been in runoff since the sale of renewal rights on these policies in 2004.
The impact of the hurricane losses and reserve development on our loss ratios for our personal lines segment for the years ended December 31, 2007, 2006 and 2005 are provided as follows:
The unfavorable reserve adjustments in our personal lines in 2006 were primarily attributable to our personal automobile line (currently in run-off) in which we experienced worse than expected loss development in the liability coverages. The favorable reserve adjustment in our personal line in 2005 was primarily attributable to greater than expected loss development in the liability coverage at that time.
Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Policy acquisition costs for 2007 were $21.7 million as compared to $19.0 million for 2006, an increase of $2.7 million or 14.2%. The increase was primarily attributable to an increase in gross premiums earned.
Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Other underwriting and operating expenses for the year ended December 31, 2006 were $21.8 million as compared to $17.8 million for the year ended December 31, 2005, an increase of $4.0 million, or 22.5%. The increase was primarily attributable to increased personnel and external services costs associated with being a public company. In addition, in 2006, we incurred $2.7 million of operating expenses attributable to the FIGA assessment which stemmed from the insolvency of POE Financial Insurance Group in early 2006.
Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Interest expense for 2007 was $3.3 million as compared to $1.7 million for 2006, an increase of $1.6 million, or 94.1%. The increase in interest expense was primarily attributable to the utilization of the senior credit facility related to the acquisition of Capital City.
Year Ended December 31, 2006. Federal income tax expense on income from continuing operations for 2006 was $10,000, representing an effective tax rate of 7.4%. The statutory rate is 34.0%. Our effective rate was lower than the statutory rate because of a $36,000 reduction for dividends received deductions.
As of December 31, 2007, we had an aggregate of $5.7 million in unrealized NOL carryforwards. Federal income tax regulations limit our utilization of these amounts to $960,000 annually in years 2008 through 2011, $922,000 for the year 2012, $819,000 for the year 2013 and $20,000 in years 2014 through 2020.
The primary obligations of our non-insurance companies are salary and administrative expenses and debt service obligations. Our non-insurance companies incurred salary and administrative expenses of $21.7 million, $12.8 million, and $10.6 million for the years ended December 31, 2007, 2006 and 2005, respectively. Our minimum principal and interest payments on our bank debt were $3.2 million, $1.8 million, and $4.5 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Net cash provided by financing activities for the year ended December 31, 2007 was $19.0 million, net borrowings exceeding debt repayments, which was attributable to $23.3 million of net borrowings for the purchase of Capital City, partially offset by $2.1 million used to repurchase our common stock.
Net cash provided by financing activities for the year ended December 31, 2006 was $17.4 million and was attributable to $19.9 million in proceeds (net of $690,000 of issuance costs) received from the issuance of the subordinated debentures (in conjunction with the issuance of the trust preferred securities), partially offset by a $2.5 million decrease in the net senior debt borrowings.
We believe that existing cash and investment balances, as well as cash flows from operation, will be adequate to meet the capital and liquidity needs of North Pointe Holdings and each of its subsidiaries during the 12-month period following the filing of this Annual Report on Form 10-K. We currently anticipate meeting our long-term capital and liquidity needs through a combination of cash flows from operations and possible future debt or equity financings. No assurances can be given, however, that we will generate cash flows from operations sufficient to meet our ongoing financial requirements or that debt or equity financing will be available to us upon acceptable terms, if at all, in the future.
Risk Based Capital: The National Association of Insurance Commissioners, or NAIC, has adopted risk-based capital, or RBC, requirements that require insurance companies to calculate and report information under an RBC formula. The RBC formula attempts to measure statutory capital and surplus needs based on the risks in an insurance company’s mix of products and investment portfolio. The RBC formula is used by state insurance regulators to monitor trends in an insurance company’s statutory capital and surplus, for the purpose, if necessary, of initiating regulatory action. Our insurance companies, except for Midfield, are required to submit a report of their RBC levels to the insurance departments of their states of domicile as of the end of the previous calendar year. As of December 31, 2007, all of our insurance companies had RBC levels in excess of an amount that would require any regulatory intervention.
Regulations on Dividends Paid by Insurance Companies: State insurance laws restrict the ability of our insurance company subsidiaries to declare dividends to us. Michigan, Florida and South Carolina have regulations, outlined below, which provide guidance as to when an insurance company may pay a dividend. The District of Columbia does not have detailed regulations, but provides a broader guideline which leaves much of the judgment in the hands of the insurance commissioner in the District of Columbia. In addition to the regulations outlined below, insurance departments will also look to financial measurements such as writings-to-surplus ratios, RBC levels or IRIS ratios when determining whether to approve a dividend. In 2007, North Pointe Insurance, North Pointe Casualty and Midfield paid ordinary dividends of $5.0 million, $1.0 million and $3.0 million, respectively. In 2006, North Pointe Insurance declared a $500,000 stock dividend. In 2005, North Pointe Insurance paid a $3.3 million ordinary dividend.
Under the Michigan holding company law, our Michigan insurance company, North Pointe Insurance, can only declare or pay dividends from its earned surplus, unless the Michigan insurance regulator approves the dividend prior to payment. In addition, our Michigan insurance company must obtain prior approval from the Michigan insurance regulator before it may pay extraordinary dividends or distributions to its shareholder, North Pointe Financial. In Michigan, an extraordinary dividend or distribution includes any dividend or distribution of cash or
other property if the fair market value of the cash or other property, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) 10% of the insurer’s surplus as of December 31 of the preceding year or (2) the net income of the insurer, not including realized capital gains, for the twelve-month period ending December 31 of the preceding year, in each case determined in accordance with statutory accounting practices. Dividends or distributions falling below this threshold are considered ordinary shareholder dividends. Ordinary shareholder dividends declared by our Michigan insurer must be reported to the Michigan insurance regulator at least ten days before they are paid, but these dividends are not subject to prior approval. Michigan’s insurance law would allow North Pointe Insurance to pay up to $3.9 million in ordinary dividends in 2008. Nonetheless, the Michigan insurance regulator retains the right to deny any dividend, extraordinary or otherwise. Accordingly, we typically obtain prior approval on all dividend distributions from North Pointe Insurance.
Under the Florida Holding Company Law, our Florida insurance company (North Pointe Casualty) can only declare or pay dividends out of that part of its available and accumulated surplus funds that is derived from its realized net operating profits on its business and net realized capital gains. In addition, North Pointe Casualty must obtain prior approval from the Florida insurance regulator before it may pay extraordinary dividends or distributions to its shareholder, North Pointe Financial. In Florida, an extraordinary dividend or distribution includes any dividend or distribution that exceeds either of the following two thresholds:
The larger of (1) 10% of the insurer’s surplus derived from realized net operating profits on its business and net realized capital gains; or (2) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year. This threshold applies if the insurer provides prior notice of the dividend to the Florida insurance regulator, which notice certifies that, following payment of the dividend, the insurer’s surplus will equal or exceed 115% of the surplus required under the applicable Florida statutes.
The Credit Agreement provides that Comerica will issue, on behalf of the Company, letters of credit in amounts up to $5,000,000. The amount of any outstanding letters of credit by Comerica will reduce, dollar for dollar, the aggregate amount available under the revolving credit line.
The borrowings under the Credit Agreement may be used to finance certain permitted acquisitions and to fund working capital needs of the Company. The obligations under the Credit Agreement are unconditionally guaranteed by certain of the Company’s subsidiaries and are secured by (1) a pledge by the Company of 100% of the issued and outstanding stock of certain subsidiaries of the Company and (2) a security interest in substantially all of the tangible and intangible assets of certain subsidiaries of the Company.
adjusted capital and surplus will be in excess of 275% of authorized control level risk-based capital as of each fiscal year end;
there shall be no more than four IRIS calculations that result in unusual values at each fiscal year end;
the ratio of net premiums written to statutory capital and surplus will not exceed more than 4.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 2.5 to 1.0 in the case of North Pointe Insurance Company; and 2.5 to 1.0 in the case of Capital City Insurance Company; and
the ratio of gross premiums written to statutory surplus will not exceed more than 10.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 3.0 to 1.0 in the case of North Pointe Insurance Company and 3.0 to 1.0 in the case of Capital City Insurance Company.
The Credit Agreement contains negative covenants restricting the Company’s ability to, among other things, enter into a merger or consolidation, sell, lease or otherwise dispose of its assets, acquire the stock or assets of another entity or declare or pay any dividends, guaranty the obligations of a third party, incur indebtedness, and make certain investments.
The Trust Preferreds mature on March 15, 2036, but may be redeemed at our option beginning on March 15, 2011. The Trust Preferreds require quarterly distributions at a fixed rate of 8.70% per annum for five years and thereafter at a variable rate, reset quarterly, at the three-month LIBOR rate plus 3.64%. Distributions are cumulative and will accrue from the date of original issuance, but may be deferred for up to 20 consecutive quarterly periods.
The Company acquired the following additional trust preferred securities as part of the Capital City acquisition:
9.62% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust I) - These debentures mature in December 2032. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after December 4, 2007.
9.66% $6,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust II) - These debentures mature in May 2033. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after May 15, 2008.
9.49% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust III) - These debentures mature in June 2034. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after June 17, 2009.
In July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) which clarifies the uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 effective January 1,
As a result of these factors, period-to-period comparison of our revenues and operating results may not be meaningful. You should not rely on these comparisons as indicators of future performance. We cannot assure you that quarterly results will not fluctuate, causing a material adverse effect on our business, results of operations and financial condition.