SEC Filing | Vericity

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10-Q

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 June 30, 2023

☐ 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.)
1350 E Touhy Avenue, Suite 205W, Des Plaines, Illinois		60018
(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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 August 12, 2023 was 14,875,000.

Table of Contents


			Page

PART I –	Financial Information		1
Item 1.	Financial Statements (Unaudited) (at June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022		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	12
		Note 4 – Reinsurance	13
		Note 5 – Closed Block	13
		Note 6 – Commitments and Contingencies	15
		Note 7 – Assets and Liabilities Measured at Fair Value	16
		Note 8 – Long and Short-term Debt	19
		Note 9– Accumulated Other Comprehensive (Loss) Income	20
		Note 10 – Business Segments	20
		Note 11 – Subsequent Events	22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 4.	Controls and Procedures		36

PART II –	Other Information		36
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Default upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		38
Signature			39

Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)


	June 30,			December 31,
	2023			2022
	(Unaudited)			(Audited)
Assets
Investments:
Fixed maturities – available-for-sale – at fair value (amortized cost; $332,423 and $331,946, net of allowances for credit losses of $0 and $0)	$	303,514		$	298,138
Mortgage loans (net of allowances for credit losses of $280 and $83)		42,911			45,270
Policyholder loans		6,991			6,699
Other invested assets		3,048			3,693
Total investments		356,464			353,800
Cash, cash equivalents and restricted cash		6,611			9,776
Accrued investment income		3,701			3,006
Reinsurance recoverables (net of allowances for credit losses of $126 and $126)		223,973			214,862
Deferred policy acquisition costs		88,262			90,189
Commissions and agent balances (net of allowances for credit losses of $336 and $338)		48,782			34,766
Intangible assets		1,635			1,635
Deferred income tax assets, net		29,039			28,437
Other assets		34,454			33,607
Total assets		792,921			770,078
Liabilities and Shareholders' Equity
Liabilities
Future policy benefits and claims		473,042			453,763
Policyholder account balances		73,395			77,443
Other policyholder liabilities		35,501			47,486
Policy dividend obligations		9,506			9,515
Reinsurance liabilities and payables		6,741			6,246
Long-term debt		34,525			30,213
Short-term debt		8,618			6,976
Other liabilities		36,213			27,093
Total liabilities		677,541			658,735
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		101,571			101,660
Accumulated other comprehensive (loss) income		(26,046	)		(30,172	)
Total shareholders' equity		115,380			111,343
Total liabilities and shareholders' equity	$	792,921		$	770,078

See notes to interim condensed consolidated financial statements

Vericity, Inc.

Interim Condensed Consolidated Statements of Operations

(dollars in thousands, except earnings per share)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Net insurance premiums	$	23,743		$	26,846		$	48,081		$	49,006
Net investment income		4,489			3,798			8,836			7,264
Net (losses) gains on investments		(337	)		110			(876	)		1,659
Earned commissions		15,432			10,488			30,181			21,525
Insurance lead sales		804			1,276			2,026			2,514
Other income		606			213			1,111			275
Total revenues		44,737			42,731			89,359			82,243
Benefits and expenses
Life, annuity, and health claim benefits		12,613			15,319			28,984			30,117
Interest credited to policyholder account balances		684			726			1,373			1,454
Operating costs and expenses		25,716			24,573			51,484			49,726
Amortization of deferred policy acquisition costs		2,982			4,239			6,630			9,151
Total benefits and expenses		41,995			44,857			88,471			90,448
Income (loss) before income tax		2,742			(2,126	)		888			(8,205	)
Income tax expense (benefit)		763			223			790			(194	)
Net income (loss)	$	1,979		$	(2,349	)	$	98		$	(8,011	)


Earnings per share for the periods
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(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	$	0.13		$	(0.16	)	$	0.01		$	(0.54	)
Diluted earnings per share	$	0.13		$	(0.16	)	$	0.01		$	(0.54	)

See notes to interim condensed consolidated financial statements

Vericity, Inc.

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023		2022
	(Unaudited)						(Unaudited)
Net income (loss)	$	1,979		$	(2,349	)	$	98	$	(8,011	)
Other comprehensive (loss) income, net of tax:
Change in net unrealized (losses) gains		(2,187	)		(14,803	)		4,126		(30,029	)
Total other comprehensive (loss) income		(2,187	)		(14,803	)		4,126		(30,029	)
Total comprehensive (loss) income	$	(208	)	$	(17,152	)	$	4,224	$	(38,040	)

See notes to interim condensed consolidated financial statements

Vericity, Inc.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(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	$	99,592		$	116,458		$	101,660		$	122,120
Cumulative effect adjustment from changes in accounting guidance, net of tax		—			—			(187	)		—
Balance after adjustments - beginning of period	$	99,592		$	116,458		$	101,473		$	122,120
Net income (loss)		1,979			(2,349	)		98			(8,011	)
Balance – end of period	$	101,571		$	114,109		$	101,571		$	114,109

Accumulated other comprehensive income (loss)
Balance – beginning of period	$	(23,859	)	$	(4,297	)	$	(30,172	)	$	10,929
Other comprehensive income (loss)		(2,187	)		(14,803	)		4,126			(30,029	)
Balance – end of period	$	(26,046	)	$	(19,100	)	$	(26,046	)	$	(19,100	)
Total shareholders' equity	$	115,380		$	134,864		$	115,380		$	134,864

See notes to interim condensed consolidated financial statements

Vericity, Inc.

Interim Condensed Consolidated Statements of Cash Flows

(dollars in thousands)


	Six Months Ended June 30,
	2023			2022
	(Unaudited)
Cash flows from operating activities
Net income (loss)	$	98		$	(8,011	)
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization and other non-cash items		2,366			2,250
Interest credited to policyholder account balances		1,373			1,454
Deferred income tax		(1,454	)		(1,820	)
Net investment losses (gains)		876			(1,659	)
Interest expense		1,091			730
Change in:
Accrued investment income		(695	)		(434	)
Reinsurance recoverables, net		(9,111	)		(18,024	)
Deferred policy acquisition costs		1,927			3,322
Commissions and agent balances		(14,016	)		(1,617	)
Other assets		1,518			(1,580	)
Insurance liabilities		7,397			16,525