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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38945

 

VERICITY, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

46-2348863

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

8700 W. Bryn Mawr Avenue, Suite 900S, Chicago Illinois

 

60631

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (312) 288-0073

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name on each exchange on which registered

Common Stock, Par Value $0.001 per share

 

VERY

 

NASDAQ Capital Market

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO

The number of shares of Registrant’s Common Stock outstanding as of November 11, 2022 was 14,875,000.

 

 


Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

PART I –

 

Financial Information

 

 

1

Item 1.

 

Financial Statements (Unaudited) (at September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

 

1

 

 

 

 

 

 

 

Interim Condensed Consolidated Balance Sheets

 

1

 

 

Interim Condensed Consolidated Statements of Operations

 

2

 

 

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

 

3

 

 

Interim Condensed Consolidated Statements of Changes in Shareholders' Equity

 

4

 

 

Interim Condensed Consolidated Statements of Cash Flows

 

5

 

 

Notes to the Interim Condensed Consolidated Financial Statements

 

6

 

 

 

Note 1 – Summary of Significant Accounting Policies

 

6

 

 

 

Note 2 – Investments

 

7

 

 

 

Note 3 – Policy Liabilities

 

11

 

 

 

Note 4 – Reinsurance

 

12

 

 

 

Note 5 – Closed Block

 

12

 

 

 

Note 6 – Commitments and Contingencies

 

14

 

 

 

Note 7 – Assets and Liabilities Measured at Fair Value

 

15

 

 

 

Note 8 – Long and Short-term Debt

 

18

 

 

 

Note 9– Accumulated Other Comprehensive (Loss) Income

 

19

 

 

 

Note 10 – Business Segments

 

19

 

 

 

Note 11 – Subsequent Events

 

20

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

PART II –

 

Other Information

 

34

Item 1.

 

Legal Proceedings

 

34

Item 1A.

 

Risk Factors

 

34

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

 

Default upon Senior Securities

 

35

Item 4.

 

Mine Safety Disclosures

 

35

Item 5.

 

Other Information

 

35

Item 6.

 

Exhibits

 

36

Signature

 

 

 

37

 

 


Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

(Audited)

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities – available-for-sale – at fair value (amortized cost; $328,365
   and $
326,591)

 

$

293,213

 

 

$

352,383

 

Mortgage loans (net of valuation allowances of $87 and $69)

 

 

46,839

 

 

 

47,487

 

Policyholder loans

 

 

6,660

 

 

 

6,371

 

Other invested assets

 

 

3,644

 

 

 

2,140

 

Total investments

 

 

350,356

 

 

 

408,381

 

Cash, cash equivalents and restricted cash

 

 

12,703

 

 

 

22,399

 

Accrued investment income

 

 

3,547

 

 

 

2,590

 

Reinsurance recoverables (net of allowances of $149 and $149)

 

 

212,063

 

 

 

184,131

 

Deferred policy acquisition costs

 

 

92,186

 

 

 

95,715

 

Commissions and agent balances (net of allowances of $340 and $432)

 

 

33,408

 

 

 

28,689

 

Intangible assets

 

 

1,635

 

 

 

1,635

 

Deferred income tax assets, net

 

 

27,504

 

 

 

12,700

 

Other assets

 

 

34,090

 

 

 

31,767

 

Total assets

 

 

767,492

 

 

 

788,007

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Future policy benefits and claims

 

 

443,396

 

 

 

416,039

 

Policyholder account balances

 

 

78,511

 

 

 

80,494

 

Other policyholder liabilities

 

 

46,757

 

 

 

49,202

 

Policy dividend obligations

 

 

9,394

 

 

 

12,669

 

Reinsurance liabilities and payables

 

 

8,032

 

 

 

6,927

 

Long-term debt

 

 

28,310

 

 

 

22,412

 

Short-term debt

 

 

6,472

 

 

 

3,966

 

Other liabilities

 

 

27,805

 

 

 

23,394

 

Total liabilities

 

 

648,677

 

 

 

615,103

 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Common stock, $.001 par value, 30,000,000 shares authorized, 14,875,000 shares, issued and outstanding

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

39,840

 

 

 

39,840

 

Retained earnings

 

 

109,024

 

 

 

122,120

 

Accumulated other comprehensive (loss) income

 

 

(30,064

)

 

 

10,929

 

Total shareholders' equity

 

 

118,815

 

 

 

172,904

 

Total liabilities and shareholders' equity

 

$

767,492

 

 

$

788,007

 

 

See notes to interim condensed consolidated financial statements

1


Vericity, Inc.

Interim Condensed Consolidated Statements of Operations

(dollars in thousands, except earnings per share)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Net insurance premiums

 

$

24,468

 

 

$

24,932

 

 

$

73,474

 

 

$

75,662

 

Net investment income

 

 

4,126

 

 

 

3,377

 

 

 

11,390

 

 

 

10,241

 

Net (losses) gains on investments

 

 

(1,272

)

 

 

(126

)

 

 

490

 

 

 

2,687

 

Other-than-temporary-impairments (OTTI)

 

 

(298

)

 

 

 

 

 

(401

)

 

 

(3

)

Earned commissions

 

 

11,267

 

 

 

11,632

 

 

 

32,792

 

 

 

34,062

 

Insurance lead sales

 

 

1,259

 

 

 

2,057

 

 

 

3,773

 

 

 

5,289

 

Other income

 

 

144

 

 

 

65

 

 

 

419

 

 

 

202

 

Total revenues

 

 

39,694

 

 

 

41,937

 

 

 

121,937

 

 

 

128,140

 

Benefits and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Life, annuity, and health claim benefits

 

 

17,505

 

 

 

19,192

 

 

 

47,622

 

 

 

58,574

 

Interest credited to policyholder account balances

 

 

646

 

 

 

746

 

 

 

2,100

 

 

 

2,219

 

Operating costs and expenses

 

 

23,133

 

 

 

24,537

 

 

 

72,859

 

 

 

70,613

 

Amortization of deferred policy acquisition costs

 

 

4,086

 

 

 

3,297

 

 

 

13,237

 

 

 

10,475

 

Total benefits and expenses

 

 

45,370

 

 

 

47,772

 

 

 

135,818

 

 

 

141,881

 

(Loss) income before income tax

 

 

(5,676

)

 

 

(5,835

)

 

 

(13,881

)

 

 

(13,741

)

Income tax (benefit) expense

 

 

(591

)

 

 

(248

)

 

 

(785

)

 

 

(924

)

Net (loss) income

 

$

(5,085

)

 

$

(5,587

)

 

$

(13,096

)

 

$

(12,817

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share for the periods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Weighted average shares outstanding, basic and diluted

 

 

14,875,000

 

 

 

14,875,000

 

 

 

14,875,000

 

 

 

14,875,000

 

Basic earnings per share

 

$

(0.34

)

 

$

(0.38

)

 

$

(0.88

)

 

$

(0.86

)

Diluted earnings per share

 

$

(0.34

)

 

$

(0.38

)

 

$

(0.88

)

 

$

(0.86

)

 

See notes to interim condensed consolidated financial statements

2


Vericity, Inc.

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

(dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net (loss) income

 

$

(5,085

)

 

$

(5,587

)

 

$

(13,096

)

 

$

(12,817

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (losses) gains on investments

 

 

(10,964

)

 

 

(1,292

)

 

 

(40,993

)

 

 

(4,607

)

Total other comprehensive (loss) income

 

 

(10,964

)

 

 

(1,292

)

 

 

(40,993

)

 

 

(4,607

)

Total comprehensive (loss) income

 

$

(16,049

)

 

$

(6,879

)

 

$

(54,089

)

 

$

(17,424

)

 

See notes to interim condensed consolidated financial statements

3


Vericity, Inc.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

15

 

 

$

15

 

 

$

15

 

 

$

15

 

Balance – end of period

 

$

15

 

 

$

15

 

 

$

15

 

 

$

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

Balance – end of period

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

114,109

 

 

$

131,547

 

 

$

122,120

 

 

$

138,777

 

Net (loss) income

 

 

(5,085

)

 

 

(5,587

)

 

 

(13,096

)

 

 

(12,817

)

Balance – end of period

 

$

109,024

 

 

$

125,960

 

 

$

109,024

 

 

$

125,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

(19,100

)

 

$

13,286

 

 

$

10,929

 

 

$

16,601

 

Other comprehensive (loss) income

 

 

(10,964

)

 

 

(1,292

)

 

 

(40,993

)

 

 

(4,607

)

Balance – end of period

 

$

(30,064

)

 

$

11,994

 

 

$

(30,064

)

 

$

11,994

 

Total shareholders' equity

 

$

118,815

 

 

$

177,809

 

 

$

118,815

 

 

$

177,809

 

 

See notes to interim condensed consolidated financial statements

4


Vericity, Inc.

Interim Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(13,096

)

 

$

(12,817

)

Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization and other non-cash items

 

 

3,187

 

 

 

2,477

 

Interest credited to policyholder account balances

 

 

2,100

 

 

 

2,219

 

Deferred income tax

 

 

(3,908

)

 

 

(924

)

Net gains (losses) on investments

 

 

(490

)

 

 

(2,687

)

Other-than-temporary-impairments

 

 

401

 

 

 

3

 

Interest expense

 

 

931

 

 

 

1,149

 

Change in:

 

 

 

 

 

 

Equity securities

 

 

 

 

 

4,887

 

Accrued investment income

 

 

(957

)

 

 

45

 

Reinsurance recoverables

 

 

(27,932

)

 

 

(17,616

)

Deferred policy acquisition costs

 

 

3,529

 

 

 

(6,528

)

Commissions and agent balances

 

 

(4,719

)

 

 

(11,538

)

Other assets

 

 

(2,407

)

 

 

(1,186

)

Insurance liabilities