The Company rents office space for certain administrative operations under an agreement that expires in 2022. The lease includes an option to extend or renew the lease term. The operating lease liability includes lease payments related to options to extend or renew the lease term only if the Company is reasonably certain of exercising those options. The exercise of the renewal option is at the Company's discretion; at this time there is uncertainty as to the Company exercising its renewal option so the option is not included in the determination of the present value calculation. In determining the present value of lease payments, the Company uses its incremental borrowing rate obtained from its main commercial bank.
Future payments under operating lease arrangements accounted for under ASC Topic 842 as of December 31, 2019 are as follows:
The Texas Department of Insurance approved TRLIC’s life insurance charter on August 1, 2016. The Company capitalized TRLIC with $3,000,000 and owns 100% of TRLIC. TRLIC began insurance operations on April 3, 2017 and is currently selling life and annuity products in the state of Texas. During 2018 the Company made capital contributions of $2,000,000 and $750,000 to TRLIC. During the second quarter of 2019 the Company made an additional capital contribution to TRLIC of mortgage loans valued at $857,133. During the third quarter of 2019 the Company made an additional capital contribution of $1,300,000 in cash to TRLIC bringing the total capitalization of TRLIC to $7,907,133. TRLS, an insurance agency, was incorporated February 1, 2017. The Company capitalized TRLS with $50,000 and owns 100% of TRLS. During 2018 the Company made an additional capital contribution of $100,000 bringing the total capitalization of TRLS to $150,000.
We are a financial services holding company and have incurred significant net losses since our inception. As of December 31, 2019, we had an accumulated deficit of $7,237,665. These losses have resulted from costs incurred while raising capital and start-up costs related to our insurance operations. We expect to continue to incur operating losses until we achieve a volume of inforce life insurance policies that provides premiums and investment income which are sufficient to cover our operating costs.
The Company’s mortgage loan portfolio is comprised of residential properties with the average loan to appraised value ratios at 61% (excluding construction loans). Mortgage loans are carried at current book value. The fair values for mortgage loans are estimated using discounted cash flow analyses. For residential mortgage loans, the discount rate used was indexed to the LIBOR yield curve adjusted for an appropriate credit spread.
Results of Operations - Years Ended December 31, 2019 and 2018
Our revenues are from the initial sales of insurance products and investment income from investments in fixed maturity available-for-sale securities, mortgages and other assets. Revenue included $377,580 and $363,515 from sales of life insurance for the twelve months ended December 31, 2019 and 2018, respectively. The Company also accepted annuity considerations of $14,427,022 and $1,838,464 during 2019 and 2018, respectively. Annuity considerations will generate revenue on investments but are not classified as revenue for GAAP reporting.
Investment income was $692,626 for the year ended December 31, 2019 compared to $348,264 for the year ended December 31, 2018. During 2019 the Company invested in mortgage loans on real estate, lottery bonds and corporate bonds to increase investment yields to support interest expense on our annuity deposits. The Company also moved all non-operating cash to interest bearing money market accounts. Total revenues were $1,307,537 for the year ended December 31, 2019, an increase of $540,465 from $767,072 for the year ended December 31, 2018.
The net loss was $1,792,030, or $(0.12) per share, for the year ended December 31, 2019 compared to a net loss of $1,227,436, or $(0.08) per share, for the year ended December 31, 2018. The $564,594 increase in the net loss was primarily attributable to the increase in expenses described above. We expect our losses to increase in the near future as we incur increased costs to grow the life insurance business. The weighted average common shares outstanding were 14,806,943 and 14,861,514 for the years ending December 31, 2019 and 2018, respectively. The total shares outstanding were 14,764,587 and 14,850,097 at December 31, 2019 and 2018, respectively.
Total assets of the Company increased from $15,732,993 as of December 31, 2018 to $30,285,566 as of December 31, 2019, an increase of $14,552,573 or 92.5% and was attributable to annuity sales in 2019.
Policyholder liabilities include benefit reserves for both life and annuity policies, claim reserves, deposit funds and advance premiums. Policyholder liabilities increased $15,631,250 at December 31, 2019 compared to December 31, 2018. The increase is directly related to the increase of annuity deposits and to a lesser extent the increase of inforce life insurance.
Total shareholder equity of the Company decreased from $12,028,873 as of December 31, 2018 to $10,672,815 as of December 31, 2019, a decrease of $1,356,058. The decrease is mainly due to the net loss from operations of $1,792,030 and the net change in the cost of treasury shares of $54,485. The net other comprehensive income increased equity by $490,457. The Company currently has accumulated other comprehensive income of $327,676 for the year ended December 2019 and accumulated other comprehensive loss of $162,781 for the year ended December 31, 2018.
Since inception, our operations have been financed primarily through an organizational offering, three private placement offerings and an intrastate public stock offering. Through December 31, 2019, we received $20,346,985 from the sale of 14,867,097 shares and incurred offering costs of $2,659,696. During 2019 and 2018 we paid $5,000 and $10,000 for 1,000 and 2,000 shares of Company’s common stock that is held as treasury stock, respectively. During 2018 the Company’s subsidiary, TRLIC purchased 14,000 shares for distribution under its Stock Incentive Plan. During 2019 TRLIC purchased an additional 97,000 shares for distribution under its Stock Incentive Plan. As of December 31, 2019, TRLIC distributed 11,490 shares under its Stock Incentive Plan. The remaining 99,510 shares held by TRLIC and the 3,000 shares held by TRCC total 102,510 shares. These shares are held as treasury shares in the consolidated financials. Our operations have not been profitable and have generated significant operating losses since we were incorporated in 2012.
We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures for at least 12 months. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growth of TRLIC may require additional capital as it continues to grow. As discussed above, the Company capitalized TRLIC with $3,000,000 cash during the third quarter of 2016 and capitalized TRLS with $50,000 during the second quarter of 2018. During 2018 TRCC made capital contributions of $2,000,000 and $750,000 to TRLIC. During the second quarter of 2019 the Company made an additional capital contribution to TRLIC of mortgage loans valued at $857,133. During the third quarter of 2019 the Company made an additional capital contribution of $1,300,000 in cash to TRLIC bringing the total capitalization of TRLIC to $7,907,133. During 2018 TRCC made a capital contribution of $100,000 to TRLS bringing the total capitalization of TRLS to $150,000.
the effect of increased claims activity from natural or man-made catastrophes, pandemic disease, or other events resulting in catastrophic loss of life;
The Company’s mortgage loan portfolio is comprised of residential properties with loan to appraised value ratios at or below 90%. Mortgage loans are carried at current book value.
In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. The Company’s home office lease has a term greater than one year, and the Company recognizes on the balance sheet as of January 1, 2019 a right of use (“ROU”) operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The Company has a lease asset and liability of $248,298 as of December 31, 2019.
The Company’s liability for policyholders’ account balances represents the contract value that has accrued to the benefit of the policyholder as of the financial statement date. This liability is generally equal to the accumulated account deposits plus applicable bonus and interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Interest crediting rates for individual annuities range from 3.11% to 5.00%.
Future policy benefit reserves have been computed by the net level premium method with assumptions as to investment yields, mortality and withdrawals based upon the Company’s experience. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of policy liabilities and the increase in future policy benefit reserves. Management’s judgments and estimates for future policy benefit reserves provide for possible unfavorable deviation.
Net loss per common share is calculated using the weighted average number of common shares outstanding during the year. Shares sold during the period are considered to be outstanding for one half of the month in which they were sold. The weighted average common shares outstanding were 14,806,943 and 14,861,514 for the years ending December 31, 2019 and 2018, respectively.
The Company adopted ASU 2016-02, as of January 1, 2019. The Company elected to utilize the cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also elected to apply all practical expedients applicable to the Company in the updated guidance for transition for the lease in effect at adoption, including using hindsight to determine the lease term of the existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The Company increased assets and liabilities by $331,065 at the adoption date.
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, 2019 and 2018 are summarized as follows:
As of December 31, 2019, seven of the eight fixed maturity securities in a loss position had a fair value to amortized cost ratio greater than 97%. As of December 31, 2018, 33 of the 37 fixed maturity securities in a loss position had a fair value to amortized cost ratio equal to or greater than 90%. The one fixed security that was below 97% at December 31, 2019 was at 72%. The five securities in a less than 12-month loss position had an average fair value to amortized cost ratio of over 98%. The two of the three securities in a loss position greater than 12-months had a fair value to amortized cost ratio of over 98% of December 31, 2019. The remaining security mentioned just above had a fair value to amortized cost ratio of over 72%. 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, 2019 and December 31, 2018.
Based on management’s review, the Company experienced no other-than-temporary impairments during the years ended December 31, 2019 and 2018.
Management believes that the Company will fully recover its cost basis in the securities held as of December 31, 2019, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.
Net unrealized gains included in accumulated other comprehensive income (loss) for investments classified as available-for-sale are summarized as follows:
There were 8 loans with a remaining principal balance of $698,090 that were 90 days or more past due and still accruing interest as of December 31, 2019. There were no loans 90 days or more past due as of December 31, 2018.
Major categories of net investment income for the years ended December 31, 2019 and 2018 are summarized as follows:
The Company and its subsidiaries have 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 2016 through 2018 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.