Texas Republic Capital Corporation (“we” “us”, “our”, “TRCC” or the “Company”) was incorporated in May 2012 as a financial services holding company. Between May 2012 and November 2013, we conducted an organizational offering and three private placements of our common stock. From the organizational offering and private placements, we raised $10,336,500, incurred $1,215,569 of offering costs and issued 12,865,000 shares of our common stock. During 2012, the funds raised, offering costs incurred and shares subscribed from the private placements were $5,051,300, $180,835 and 10,636,840, respectively. During 2013, the funds raised, offering costs incurred and shares subscribed from the private placements were $5,285,200, $1,034,734 and 2,228,160, respectively.
We began an intrastate public offering of our common stock at a price per share of $5.00 on April 2, 2014 and through the 33 month period ended December 31, 2016, we raised $8,108,235, purchased $10,000 of treasury stock and incurred $1,233,863 of offering costs through the issuance of 1,074,147 shares of common stock and stock subscriptions for 547,500 common shares less treasury stock of 2,000 shares from the intrastate public stock offering.
During 2014, the funds raised, offering costs incurred and shares subscribed from the offering were $3,143,800, $576,613 and 628,760, respectively. During 2015, the funds raised, offering costs incurred and shares subscribed from the offering were $1,901,925, $326,734 and 380,385. From January 1, 2016 through December 31, 2016, the funds raised, offering costs incurred and shares subscribed from the offering were $3,062,510, $330,516 and 612,502. Of the 1,621,647 shares subscribed during the intrastate public offering, the Company issued 1,074,147 shares of its common stock. During 2016 we paid $10,000 for 2,000 shares of the Company’s common stock (treasury stock).
On August 1, 2016, Texas Republic Life Insurance Company’s charter to become a life insurance company was approved by the Texas Department of Insurance. TRLIC is a 100% owned subsidiary of the Company. TRLIC was capitalized with $3,000,000 cash by the Company and is expected to begin the sale of life insurance products in 2017.
We are a financial services holding company and have incurred significant net losses since our inception. As of December 31, 2016, we had an accumulated deficit of $2,882,616. These losses have resulted primarily from costs incurred while raising capital. We expect to continue to incur operating losses until we achieve a volume of inforce life insurance policies that provides premiums that are sufficient to cover our operating costs.
Likewise, if a change occurs in the Company’s intent to sell temporarily impaired securities prior to maturity or recovery in value, or if it becomes more likely than not that the Company will be required to sell such securities prior to recovery in value or maturity, a future impairment charge could result. If an other-than-temporary impairment related to a credit loss occurs with respect to a bond, the Company amortizes the reduced book value back to the security’s expected recovery value over the remaining term of the bond. The Company continues to review the security for further impairment that would prompt another write-down in the value.
Total revenues were $92,206 for the year ended December 31, 2016, an increase of $424 from $91,782 for the year ended December 31, 2015.
The net loss was $931,496, or $(0.07) per share, for the year ended December 31, 2016 compared to a net loss of $654,081, or $(0.05) per share, for the year ended December 31, 2015. The $277,415 increase in the net loss was primarily attributable to the increase in expenses described above. We expect our losses to increase in the future as we incur increased costs to enter and grow into the life insurance business. The weighted average common shares outstanding and subscribed were 14,113,976 and 13,687,880 for the years ended December 31, 2016 and 2015, respectively.
The $64,734 increase in available-for-sale fixed maturity securities for the year ended December 31, 2016 is primarily due to an increase in unrealized appreciation of $62,862.
Total shareholder equity of the Company increased from $11,303,028 as of December 31, 2015 to $13,156,388 as of December 31, 2016, an increase of $1,853,360. The increase is due to proceeds from the public stock offering of $3,062,510 and increase in unrealized appreciation of $62,862. Offsetting the gains in equity was a net loss from operations of $931,496, offering costs of $330,516 and treasury stock of $10,000.
We had cash and cash equivalents totaling $10,780,672 and $8,975,991 as of December 31, 2016 and 2015, respectively. The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures interest and non-interest bearing accounts up to $250,000. Uninsured balances aggregate $8,754,470 and $7,846,083 as of December 31, 2016 and December 31, 2015 respectively. Other funds are invested in mutual funds that invest in U.S. government securities. We monitor the solvency of all financial institutions in which we have funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts.
Texas Republic Capital Corporation (the “Company”) is the parent holding company of Texas Republic Life Insurance Company (“TRLIC”). The Company was incorporated in Texas on May 15, 2012, for the primary purpose of forming and capitalizing a life insurance company subsidiary.
The State of Texas Department of Insurance approved TRLIC’s charter on August 1, 2016. The Company capitalized TRLIC with $3,000,000 cash. The Company owns 100% of TRLIC.
The Company raised $10,336,500 and incurred $1,215,569 of offering costs through the issuance and subscription of 12,865,000 shares from an organizational offering and three private placement offerings. Through December 31, 2016, the Company has raised $8,108,235, purchased $10,000 of treasury stock and incurred $1,233,863 of offering costs through the issuance of 1,074,147 shares of common stock, subscriptions of 547,500 shares less treasury stock of 2,000 shares from the intrastate public stock offering.
The consolidated financial statements include the accounts and operations of the Company and its subsidiary. All intercompany accounts and transactions are eliminated in consolidation.
Property and equipment are carried at cost less accumulated depreciation or amortization. Office furniture, equipment and EDP equipment is recorded at cost or fair value at acquisition less accumulated depreciation or amortization using the straight-line method over the estimated useful life of the respective assets of three to seven years.
During 2015 the Company entered into an administrative service agreement with First Trinity Financial Corporation (“FTFC”) for accounting and other services incidental to the operations of the Company. The Company paid FTFC $54,668 and $13,550 in 2016 and 2015, respectively. The Chairman of the Company is also the Chairman, President and Chief Executive Officer of FTFC.
During the period of January 1, 2017 through March 16, 2017, the Company sold subscription of 277,200 shares for $1,386,000 in the current intrastate stock offering. This offering will conclude on March 31, 2017.
If conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans that are intended to mitigate those conditions. The guidance is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. The adoption of this guidance will not have a material effect on the Company’s results of operations, financial position or liquidity since there are no uncertainties about the Company’s ability to continue as a going concern.
In February 2016, the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than 12 months. The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements. The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.
Investments in fixed maturity securities available-for-sale as of December 31, 2016 and 2015 are summarized as follows:
For securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of December 31, 2016 and 2015 are summarized as follows:
As of December 31, 2016 and 2015, all of the fixed maturity securities had a fair value to amortized cost ratio equal to or greater than 92% and 72%, respectively. Two fixed maturity securities with a par value of $250,000 are below investment grade as rated by Standard and Poor’s as of December 31, 2016. One fixed maturity security with a par value of $150,000 is below investment grade as rated by Standard and Poor’s as of December 31, 2015.
Based on management’s review, the Company experienced no other-than-temporary impairments during the years ended December 31, 2016 and 2015.
Fair values for Level 2 assets for the Company’s fixed maturity securities available-for-sale are primarily based on prices supplied by a third party investment service. The third party investment service provides quoted prices in the market which use observable inputs in developing such rates.
The Company analyzes market valuations received to verify reasonableness and to understand the key assumptions used and the sources. Since the fixed maturity securities owned by the Company do not trade on a daily basis, the third party investment service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. As the fair value estimates of the Company’s fixed maturity securities are based on observable market information rather than market quotes, the estimates of fair value on these fixed maturity securities are included in Level 2 of the hierarchy. The Company’s Level 2 investments include corporate bonds.
The Company’s fixed maturity securities available-for-sale portfolio is highly liquid and allows for a high percentage of the portfolio to be priced through pricing services.
Property and equipment as of December 31, 2016 and 2015 is summarized as follows:
The Company files a federal income tax return but does not file a consolidated tax return with TRLIC. In 2016 TRLIC had no insurance sales or reserves, however TRLIC will begin insurance operations on April 3, 2017 and will taxed as a life insurance company under the provisions of the Internal Revenue Code. Life insurance companies must file separate tax returns until they have been a member of the consolidated filing group for five years. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes.
The Company has net operating loss carryforwards of approximately of $2.8 million expiring in 2032 through 2036. A valuation allowance of $937,013 has been established for the amount of net operating losses arising from 2012 through 2016 since the Company has not demonstrated the ability to generate taxable income. The utilization of those losses is restricted by the tax laws and some or all of the losses may not be available for use.
The Company has no known uncertain tax benefits within its provision for income taxes. In addition, the Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, have not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The 2013 through 2016 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.
The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures non-interest bearing accounts up to $250,000. Uninsured balances aggregate $8,754,470 as of December 31, 2016. The Company monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. The Company has not experienced any losses in this account and believes it is not exposed to any significant credit risk on cash and cash equivalents.
The Company entered into a lease with a third party lessor in 2014 for utilization of office space in Austin, Texas. The lease agreement was for the period May 1, 2014 through May 31, 2017. The lease required a deposit in the amount of $3,992 and also abated the first month’s rent. The monthly rental payments are $2,432 for the first twelve months with annual increases of approximately 3% thereafter and the Company also pays a pro rata share of the operating expenses of the building. Rent expense under the lease agreement was $50,583 and $45,502 for the years ended December 31, 2016 and 2015, respectively. Future minimum lease payments and a pro rata share of the buildings operating expenses to be paid under non-cancellable lease agreements are $21,533 in 2017.