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, 2024

 

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: 000-55621

 

TEXAS REPUBLIC CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Texas

 

45-5311713

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock $0.01 par

-

None

 

13215 Bee Cave Parkway, Ste. A120

Austin, Texas 78738

(Address of principal executive offices)

 

(512) 330-0099

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for 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 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 provide pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: Common stock .01 par value as of August 5, 2024: 15,553,619 shares

 

 

 

 

TEXAS REPUBLIC CAPITAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2024

 

TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION

 

Page Number

 

 

 

Item 1. Consolidated Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Position as of June 30, 2024 (Unaudited) and December 31, 2023

 

3

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

 

4

 

 

 

Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

 

5

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

 

6

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)

 

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

Item 4. Controls and Procedures

 

28

 

 

 

Part II.  OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

29

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

Item 3. Defaults upon Senior Securities

 

29

 

 

 

Item 4. Mine Safety Disclosures

 

29

 

 

 

Item 5. Other Information

 

29

 

 

 

Item 6. Exhibits

 

29

 

 

 

Signatures

 

30

 

Exhibit No. 31.1

Exhibit No. 31.2

Exhibit No. 32.1

Exhibit No. 32.2

Exhibit No. 101.INS

Exhibit No. 101.SCH

Exhibit No. 101.CAL

Exhibit No. 101.DEF

Exhibit No. 101.LAB

Exhibit No. 101.PRE

Exhibit No. 104. FIL

 

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

June 30, 2024

(Unaudited)

   

December 31, 2023

 

Assets

               

Available-for-sale fixed maturity securities at fair value

(Amortized cost: $5,649,194 and $5,878,911 as of

June 30, 2024 and December 31, 2023, respectively)

  $ 5,293,891     $ 5,591,640  

Mortgage loans, net of allowance

    13,169,800       15,042,590  

Policy loans

    10,924       15,016  

Other long-term investments

    2,056,767       2,873,022  

Total investments

    20,531,382       23,522,268  

Cash and cash equivalents

    10,991,126       11,879,163  

Accrued investment income

    167,391       193,035  

Due premium

    96,684       21,214  

Reinsurance recoverable

    1,195,502       871,690  

Deferred policy acquisition costs

    4,088,249       3,380,445  

Deferred sales inducement costs

    114,434       214,885  

Advances and notes receivable, net of allowance

    58,381       235,682  

Leased property - right to use

    298,224       341,866  

Prepaid assets

    101,871       42,621  

Intangible assets, net of accumulated amortization

    221,263       245,847  

Furniture and equipment, net

    15,865       19,509  

Other assets

    1,381,600       1,589,174  

Total assets

  $ 39,261,972     $ 42,557,399  
                 

Liabilities and ShareholdersEquity

               

Policy liabilities

               

Policyholders’ account balances

  $ 23,600,570     $ 28,192,706  

Future policy benefits

    2,734,393       2,235,144  

Policy claims and other benefits

    1,360,068       1,014,951  

Liability for deposit-type contracts

    226,208       225,675  

Other policyholder liabilities

    24,884       28,137  

Total policy liabilities

    27,946,123       31,696,613  

Lease liability

    298,224       341,866  

Other liabilities

    391,999       523,389  

Total liabilities

    28,636,346       32,561,868  
                 

Shareholdersequity

               

Common stock, par value $.01 per share, 25,000,000 shares authorized,

15,600,539 issued as of June 30, 2024 and December 31, 2023, 15,553,619 outstanding as of June 30, 2024 and December 31, 2023, and 497,351 and 359,292 subscribed as of June 30, 2024 and December 31, 2023, respectively

    160,979       159,598  

Additional paid-in capital

    25,549,500       24,519,315  

Treasury stock, at cost (46,920 shares as of June 30, 2024 and December 31, 2023)

    (47,720 )     (47,720 )

Accumulated other comprehensive loss

    (355,303 )     (287,271 )

Accumulated deficit

    (14,681,830 )     (14,348,391 )

Total shareholdersequity

    10,625,626       9,995,531  

Total liabilities and shareholdersequity

  $ 39,261,972     $ 42,557,399  

 

See notes to consolidated financial statements (unaudited).

 

3

 

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Revenues

                               

Premiums and other considerations

  $ 1,099,929     $ 579,127     $ 2,076,287     $ 1,300,650  

Net investment income

    478,899       486,255       1,021,033       1,029,631  

Commission income

    25,808       20,272       43,657       33,344  

Total revenues

    1,604,636       1,085,654       3,140,977       2,363,625  

Benefits, claims and expenses

                               

Increase in future policy benefits

    78,954       34,446       296,681       49,932  

Death and other benefits

    227,350       75,526       344,018       276,298  

Interest credited to policyholders

    267,751       273,863       508,398       843,986  

Total benefits and claims

    574,055       383,835       1,149,097       1,170,216  

Policy acquisition costs deferred

    (590,505 )     (318,763 )     (1,115,838 )     (666,892 )

Policy acquisition costs amortized

    276,171       217,207       408,034       302,201  

Commissions

    717,541       429,485       1,399,512       893,146  

Salaries and employee benefits

    506,289       498,292       995,819       1,033,154  

Office rent

    23,217       24,540       48,054       48,662  

Third-party administration fees

    45,825       13,033       51,228       28,470  

Travel, meals, and entertainment

    15,597       10,953       24,166       24,784  

Professional fees

    153,591       101,541       226,447       294,616  

Other general and administrative expenses

    152,578       91,896       287,897       189,973  

Total benefits, claims and expenses

    1,874,359       1,452,019       3,474,416       3,318,330  
                                 

Net loss

  $ (269,723 )   $ (366,365 )   $ (333,439 )   $ (954,705 )
                                 

Net loss per common share outstanding

  $ (0.02 )   $ (0.02 )   $ (0.02 )   $ (0.06 )

 

See notes to consolidated financial statements (unaudited).

 

4

 

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net loss

  $ (269,723 )   $ (366,365 )   $ (333,439 )   $ (954,705 )

Other comprehensive income (loss)

                               

Total net unrealized gains (losses) arising during the period

    (39,697 )     (64,363 )     (68,032 )     57,493  

Total other comprehensive income (loss)

    (39,697 )     (64,363 )     (68,032 )     57,493  

Total comprehensive loss

  $ (309,420 )   $ (430,728 )   $ (401,471 )   $ (897,212 )

 

See notes to consolidated financial statements (unaudited).

 

5

 

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity

 

Six Months Ended June 30, 2024 and 2023

(Unaudited)

   

Common Stock $.01

Par Value

   

Additional Paid-in

Capital

   

Treasury

Stock

   

Accumulated Other Comprehensive

Loss

   

Accumulated

Deficit

   

Total

Shareholders’ Equity

 

Balance as of January 1, 2023

  $ 156,005     $ 21,854,321     $ (52,130 )   $ (483,593 )   $ (12,959,097 )   $ 8,515,506  

Common stock shares subscribed

    1,959       1,450,854       -       -       -       1,452,813  

Other comprehensive gain

    -       -       -       57,493       -       57,493  

Net loss

    -       -       -       -       (954,705 )     (954,705 )

Balance as of June 30, 2023

  $ 157,964     $ 23,305,175     $ (52,130 )   $ (426,100 )   $ (13,913,802 )   $ 9,071,107  
                                                 

Balance as of January 1, 2024

  $ 159,598     $ 24,519,315     $ (47,720 )   $ (287,271 )   $ (14,348,391 )   $ 9,995,531  

Common stock shares subscribed

    1,381       1,030,185       -       -       -       1,031,566  

Other comprehensive loss

    -       -       -       (68,032 )     -       (68,032 )

Net loss

    -       -       -       -       (333,439 )     (333,439 )

Balance as of June 30, 2024

  $ 160,979     $ 25,549,500     $ (47,720 )   $ (355,303 )   $ (14,681,830 )   $ 10,625,626  

 

Three Months Ended June 30, 2024 and 2023

(Unaudited)

   

Common Stock $.01

Par Value

   

Additional Paid-in

Capital

   

Treasury

Stock

   

Accumulated Other Comprehensive

Loss

   

Accumulated

Deficit

   

Total

Shareholders’ Equity

 

Balance as of April 1, 2023

  $ 157,316     $ 22,824,310     $ (52,130 )   $ (361,737 )   $ (13,547,437 )   $ 9,020,322  

Common stock shares subscribed

    648       480,865       -       -       -       481,513  

Other comprehensive loss

    -       -       -       (64,363 )     -       (64,363 )

Net loss

    -       -       -       -       (366,365 )     (366,365 )

Balance as of June 30, 2023

  $ 157,964     $ 23,305,175     $ (52,130 )   $ (426,100 )   $ (13,913,802 )   $ 9,071,107  
                                                 

Balance as of April 1, 2024

  $ 160,133     $ 24,917,735     $ (47,720 )   $ (315,606 )   $ (14,412,107 )   $ 10,302,435  

Common stock shares subscribed

    846       631,765       -       -       -       632,611  

Other comprehensive loss

    -       -       -       (39,697 )     -       (39,697 )

Net loss

    -       -       -       -       (269,723 )     (269,723 )

Balance as of June 30, 2024

  $ 160,979     $ 25,549,500     $ (47,720 )   $ (355,303 )   $ (14,681,830 )   $ 10,625,626  

 

See notes to consolidated financial statements (unaudited).

 

6

 

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   

Six Months Ended June 30,

 
   

2024

   

2023

 

Operating activities

               

Net loss

  $ (333,439 )   $ (954,705 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Net accretion of discount and amortization of premium on investments

    (117,938 )     (186,587 )

Provision for depreciation and amortization

    28,228       27,922  

Policy acquisition costs deferred

    (1,115,838 )     (666,892 )

Policy acquisition costs amortized

    408,034       302,201  

Mortgage loan origination fees deferred

    -       (93,806 )

Amortization of mortgage loan origination fees

    9,361       8,001  

Provision for estimated mortgage loan losses

    (9,364 )     (4,904 )

Provision for estimated uncollectible advances and notes receivable

    (7,649 )     (3,372 )

Interest credited to policyholders

    508,398       843,986  

Change in assets and liabilities:

               

Accrued investment income

    25,644       21,125  

Due premium

    (75,470 )     (49,986 )

Reinsurance recoverable

    (323,812 )     (115,943 )

Advances and notes receivable

    184,950       (14,477 )

Prepaid assets

    (59,250 )     (58,987 )

Other assets

    207,574       (555,836 )

Future policy benefits

    499,249       2,188  

Policy claims

    345,117       232,685  

Other policy liabilities

    (3,253 )     (8,675 )

Other liabilities

    (131,390 )     106,461  

Net cash provided by (used in) operating activities

    39,152       (1,169,601 )
                 

Investing activities

               

Purchases of furniture and equipment

    -       (2,984 )

Sales of available for sale securities

    225,432       2,055,469  

Purchases of mortgage loans

    -       (5,293,391 )

Payments on mortgage loans

    1,889,035       6,278,155  

Policy loans

    4,092       10,092  

Purchase of other long-term investments

    -       -  

Payments on other long-term investments

    922,236       661,452  

Net cash provided by investing activities

    3,040,795       3,708,793  
                 

Financing activities

               

Proceeds from the subscription of common stock

    1,031,566       1,452,813  

Policyholder deposits

    239,403       171,897  

Policyholder withdrawals

    (5,239,486 )     (1,369,039 )

Deposit-type contracts - deposits

    24,147       -  

Deposit-type contracts - withdrawals

    (23,614 )     (24,449 )

Net cash provided by (used in) financing activities

    (3,967,984 )     231,222  
                 

(Decrease) increase in cash and cash equivalents

    (888,037 )     2,770,414  

Cash and cash equivalents, beginning of period

    11,879,163       4,417,837  

Cash and cash equivalents, end of period

  $ 10,991,126     $ 7,188,251  

 

See notes to consolidated financial statements (unaudited).

 

7

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

1. Organization and Significant Accounting Policies

 

Nature of Operations

 

Texas Republic Capital Corporation (the “Company”) is the parent holding company of Texas Republic Life Insurance Company (“TRLIC”), Texas Republic Life Solutions, Inc. (“TRLS”), and Axis Insurance Solutions, LLC (“AIS”). The Company was incorporated in Texas on May 15, 2012, for the primary purpose of forming and capitalizing a life insurance company subsidiary.

 

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. In 2018, the Company made additional capital contributions totaling $2,750,000 for the entire year. In 2019, the Company made two more capital contributions to TRLIC. The first contribution consisted of mortgage loans valued at $857,133 and the second one was a $1,300,000 cash contribution. In 2021 and 2022, the Company made additional total capital contributions of $2,100,000 and $2,100,000, respectively. In 2023, the Company made $1,750,000 in total capital contributions. Total capitalization of TRLIC was $13,857,133 at June 30, 2024.

 

TRLS, a life and health insurance agency, was incorporated February 1, 2017. The Company capitalized TRLS with $50,000 and owns 100% of TRLS. In 2018 and 2020, the Company made additional capital contributions of $100,000 and $200,000, respectively. In 2021 and 2022, the Company made additional total capital contributions of $50,000 and $150,000, respectively. Total capitalization of TRLS was $550,000 at June 30, 2024.

 

AIS, a property & casualty insurance agency, was formed on April 6, 2021. The Company capitalized AIS with $25,000 and owns 100% of AIS.

 

From incorporation through April 2, 2017, the Company was involved in the sale of common stock to provide working capital. During this time, the Company completed an organizational offering, three private placement stock offerings and an intrastate public stock offering in the state of Texas. The Company raised $10,336,500 and incurred $1,215,569 of offering costs through the issuance of 12,865,000 shares from the organizational offering and three private placement offerings. The intrastate public stock offering was registered to raise $25,000,000 by offering 5,000,000 shares of its common stock and ended on April 2, 2017. Through this offering the Company raised an additional $10,010,485 and incurred another $1,444,127 of offering costs through the sale of 2,002,097 shares of common stock. On May 31, 2022, the Company began a rights offering to existing shareholders only. The rights offering ended on September 30, 2022. Through this rights offering, the Company raised $4,400,652 and incurred $77,615 of offering costs through the sale of 733,442 shares of its common stock.

 

On January 1, 2023, the Company began a six-million-dollar private placement offering with a possible 10% oversubscription. This offering was extended for an additional year and will end on January 1, 2025, unless all of the shares are sold before then or the offering is terminated earlier. These shares will be sold in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “1933 Act”) contained in Securities and Exchange Commission (“SEC”) Regulation D, Rule 506. No underwriter will be involved in connection with the issuance of these shares, and we will not pay finder’s fees in this private placement. The Company has raised $3,730,133 and incurred $29,981 of offering costs from the subscription of 497,351 shares through June 30, 2024 from this offering.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

 

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ended December 31, 2024 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form 10-K for the year ended December 31, 2023.

 

8

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Principles of Consolidation

 

The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

 

Reclassifications

 

Certain reclassifications have been made in the prior year financial statements to conform to current year classifications. These reclassifications had no effect on the previously reported net loss or shareholders’ equity.

 

Investments

 

Fixed maturity securities are comprised of bonds that are classified as available-for-sale and are carried at fair value net of any necessary valuation allowance for credit losses with unrealized gains and losses, net of applicable income taxes, reported in accumulated other comprehensive income (loss). The amortized cost of fixed maturity securities available-for-sale is generally adjusted for amortization of premium and accretion of discount.

 

Interest income, as well as the related amortization of premium and accretion of discount, is included in net investment income under the effective yield method.

 

The Company monitors all fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit loss exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

 

The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down of available-for-sale fixed maturity securities, with the change in allowance reported in net loss on the consolidated statements of operations.

 

Purchases and sales of securities are recorded on a trade-date basis. Interest earned on investments is recorded on the accrual basis and is included in net investment income.

 

The Company’s mortgage loan portfolio is comprised entirely of residential properties with loan to appraised value ratios below 90%. Mortgage loans are carried at current book value. A mortgage loan allowance has been established for any unforeseen losses using an industry approach, which establishes a reserve for possible loan losses charged to expense which represents, in the Company’s judgement, the known and estimated credit losses existing in the loan portfolio. This reserve reduces the carrying value of investment in mortgage loans on the consolidated statement of financial position. The fair values for mortgage loans are estimated using discounted cash flow analysis. The discount rate used to calculate fair values was indexed to the SOFR yield curve adjusted for an appropriate credit spread.

 

9

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned.

 

The Company’s other long-term investments are comprised of lottery prize cash flows holdings held at amortized cost. Payments on these investments are made by state run lotteries. Since state run lotteries are unlikely to default even in the most dire economic situations, no allowance for credit losses are necessary. Interest income and the accretion of discount are included in net investment income.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and money market instruments.

 

Deferred Policy Acquisition Costs

 

Costs that relate to and vary with the successful production of new business are deferred over the life of the policy. Deferred acquisition costs (“DAC”) consist of commissions and policy issuance, underwriting and agency expenses. DAC expenses are amortized primarily over the premium-paying period of life policies and as profits emerge on annuity products. Amortization uses the same assumptions as were used in computing liabilities for future policy benefits. There was $1,115,838 of DAC deferred and $408,034 of DAC amortized for the six months ended June 30, 2024. For the three months ended June 30, 2024, there was $590,505 of DAC deferred and $276,171 of DAC amortized. There was $666,892 of DAC deferred and $302,201 of DAC amortized for the six months ended June 30, 2023. For the three months ended June 30, 2023, there was $318,763 of DAC deferred and $217,207 of DAC amortized.

 

Deferred Sales Inducement Costs

 

Sales inducement costs (“SIC”) are related to policy bonuses issued on some of the Company’s annuity products. SIC is deferred at the issuance of the policy and amortized over the bonus period on a straight-line basis. The amount deferred is based on the difference between the fund value with the bonus and the fund value without the bonus. There was $114,434 and $214,885 of SIC deferred at June 30, 2024 and December 31, 2023, respectively. There was $0 of SIC deferred and $100,451 of SIC amortized for the six months ended June 30, 2024. For the three months ended June 30, 2024, there was $0 of SIC deferred and $55,595 of SIC amortized. There was $0 of SIC deferred and $117,348 SIC amortized for the six months ended June 30, 2023. For the three months ended June 30, 2023, there was $0 of SIC deferred and $58,094 of SIC amortized.

 

Advances and Notes Receivable

 

Advances and notes receivable are recorded at unpaid principal balances. Management evaluates the collectability of advances and notes receivable on the specific identification basis. Management had an allowance for possible uncollectable agent balances of $0 and $7,650 as of June 30, 2024 and December 31, 2023, respectively.

 

Leased Property Right to Use Asset

 

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 had an original term greater than one year, and the Company recognizes on the balance sheet 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 $298,224 as of June 30, 2024 compared to $341,866 as of December 31, 2023.

 

Intangible assets

 

Intangible assets are stated at cost less accumulated amortization and reflect amounts paid for the Company’s computer software costs during the application development stage. The software costs placed in service are amortized using the straight-line method over the seven-year estimated useful life of the software. The asset is tested for impairment at least annually. Subsequent modifications or upgrades to internal-use software are capitalized only to the extent that additional functionality is provided.

 

10

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Furniture and Equipment

 

Furniture and equipment are carried at cost less accumulated depreciation or amortization. Office furniture, equipment and EDP equipment are recorded at cost or fair value at acquisition less accumulated depreciation or amortization using the straight-line method over a period that approximates the estimated useful life of the respective assets of three to seven years. Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization is removed from the related accounts, and the resulting gain or loss, if any, is reflected in income.

 

Policyholders Account Balances

 

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 1.55% to 5.50%.

 

Future Policy Benefits

 

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. Actual experience may emerge differently from that originally estimated. Any such difference would be recognized in the current year’s consolidated statement of operations.

 

Common Stock

 

Common stock is fully paid, non-assessable and has a par value of $.01 per share.

 

Treasury Stock

 

Treasury stock, representing shares of the Company’s common stock that have been reacquired after having been issued and fully paid, are recorded at cost.

 

Federal Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are provided for cumulative temporary differences between balances of assets and liabilities determined under GAAP and balances determined using tax basis.

 

Net Loss Per Common Share Outstanding and Subscribed

 

Net loss per common share is calculated using the weighted average number of common shares outstanding and subscribed during the year. The weighted average common shares outstanding and subscribed were 15,968,758 and 15,670,671 for the six months ended June 30, 2024 and 2023, respectively. The weighted average common shares outstanding and subscribed were 16,005,018 and 15,719,841 for the three months ended June 30, 2024 and 2023, respectively.

 

Related Party Transactions

 

The Company entered into an agreement with First Trinity Financial Corporation (FTFC) where FTFC will use its resources to source mortgage loans on real estate and lottery bonds. FTFC will present to the Company investments based on criteria the Company has established. The Company has the option to purchase the presented investment assets directly from the seller or to decline the purchase based on the Company’s analysis of the investment. The Chairman of the Company is also the Chairman, President, and Chief Executive Officer of FTFC. The Company paid fees for this service to FTFC of $0 for the six months ending June 30, 2024 and $93,806 for the year ending December 31, 2023.

 

11

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

The Company entered into a coinsurance reinsurance agreement with Family Benefit Life Insurance Company (FBLIC), which is a subsidiary of FTFC. The Company will cede a portion of new business from our TrueFlex product related to specific groups to FBLIC as mutually agreed upon in advance. This new agreement became effective on January 1, 2022, and as of June 30, 2024 there have been five groups covered under this agreement.

 

Subsequent Events

 

Management has evaluated subsequent events for recognition and disclosure in the financial statements through the date the financial statements were available to be issued. The Company did not identify any subsequent events requiring recognition or disclosure.

 

Recently Adopted Accounting Pronouncements

 

In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, mortgage loans, lottery prize receivables, trade receivables, and reinsurance recoverables. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the financial statements net of the valuation allowance. This methodology is referred to as the current expected credit loss model. ASU 2016-13 had an original effective date for fiscal years beginning after December 15, 2019. The FASB recently delayed the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s financial condition and results of operations.

 

In March 2022, the FASB issued amendments (Accounting Standards Update 2022-2) for the accounting of troubled debt restructuring and disclosures. The amendments introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgate that an entity must apply specific loan refinancing and restructuring guidance to determine whether a modification results in a new loan or the continuation of an existing loan. The amendments also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The amendments in this guidance are effective for fiscal years beginning after December 15, 2022, and should be applied prospectively. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or liquidity.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update is aimed at improving the Codification related to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. These updates were originally required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020. The FASB has delayed the effective date of ASU 2018-12 to periods beginning after December 15, 2024 for smaller reporting companies, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and results of operations.

 

In December 2022, the FASB issued amendments (Accounting Standards Update 2022-5) to Accounting Standards Update 2018-12 (Targeted Improvements for Long-Duration Contracts) that originally required an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early application was elected. This updated guidance reduces implementation costs and complexity associated with the adoption of targeted improvements in accounting for long-duration contracts that have been derecognized in accordance with Accounting Standards Update 2018-12 before the delayed effective date. Without the amendments in this Update, an insurance entity would be required to reclassify a portion of gains or losses previously recognized in the sale or disposal of insurance contracts or legal entities because of the adoption of a new accounting standard. Because there is no effect on an insurance entity’s future cash flows, this reclassification may not be useful to users of financial information. The amendments in this guidance are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and results of operations.

 

12

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

2. Investments

 

Fixed Maturity Securities Available-For-Sale

 

Investments in fixed maturity securities available-for-sale as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

June 30, 2024 (Unaudited)

 

Cost

   

Gains

   

Losses

   

Value

 

Fixed maturity securities

                               

Corporate bonds

  $ 5,649,194     $ 4,483     $ 359,786     $ 5,293,891  

Total fixed maturity securities

  $ 5,649,194     $ 4,483     $ 359,786     $ 5,293,891  

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

December 31, 2023

 

Cost

   

Gains

   

Losses

   

Value

 

Fixed maturity securities

                               

Corporate bonds

  $ 5,878,911     $ 14,577     $ 301,848     $ 5,591,640  

Total fixed maturity securities

  $ 5,878,911     $ 14,577     $ 301,848     $ 5,591,640  

 

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 June 30, 2024 and December 31, 2023 are summarized as follows:

 

           

Unrealized

   

Number of

 

June 30, 2024 (Unaudited)

 

Fair Value

   

Loss

   

Securities

 

Fixed maturity securities

                       

Less than 12 months

                       

Corporate bonds

  $ 196,006     $ 7,060       1  
                         

Greater than 12 months

                       

Corporate bonds

    4,797,184       352,726       40  

Total fixed maturity securities

  $ 4,993,190       359,786       41  

 

           

Unrealized

   

Number of

 

December 31, 2023

 

Fair Value

   

Loss

   

Securities

 

Fixed maturity securities

                       

Less than 12 months

                       

Corporate bonds

  $ 500,000     $ 7,082       3  
                         

Greater than 12 months

                       

Corporate bonds

    4,578,111       294,766       38  

Total fixed maturity securities

  $ 5,078,111     $ 301,848       41  

 

13

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

2. Investments (continued)

 

As of June 30, 2024, the fixed maturity securities in a loss position had an average fair value to amortized cost ratio of 93.3%. As of December 31, 2023, the fixed maturity securities in a loss position had an average fair value to amortized cost ratio of 94.4%.

 

As of June 30, 2024 and December 31, 2023, there were no fixed maturity securities that were below investment grade as rated by taking the median of Fitch’s, Moody’s, and Standard and Poor’s ratings, respectively.

 

The Company monitors all fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

 

The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down of available-for-sale fixed maturity securities.

 

As of June 30, 2024, the Company determined that no allowances for credit losses were necessary for the fixed maturity securities based on the current holdings, the respective economic factors, and the Company's historical experience.

 

The unrealized depreciation shown herein are primarily the result of the current interest rate environment rather than credit factors.

 

Net unrealized losses included in accumulated other comprehensive income for investments classified as available-for-sale are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Unrealized depreciation on available-for-sale securities

  $ (355,303 )   $ (287,271 )

Net unrealized depreciation on available-for-sale securities

  $ (355,303 )   $ (287,271 )

 

14

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

2. Investments (continued)

 

The amortized cost and fair value of fixed maturity available-for-sale securities as of June 30, 2024, by contractual maturity, are summarized as follows:

 

   

(Unaudited)

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 449,420     $ 444,663  

Due after one year through five years

    2,801,910       2,726,841  

Due after five years through ten years

    461,191       438,073  

Due after ten years

    1,936,673       1,684,314  

Total fixed maturity securities

  $ 5,649,194     $ 5,293,891  

 

For the six months ended June 30, 2024, the Company received $225,432 of proceeds from sales and maturities of investments in available-for-sale securities and did not have any gross gains and gross losses realized, respectively. For the year ended December 31, 2023, the Company received $2,760,920 of proceeds from sales and maturities of investments in available-for-sale securities and had $3,027 of gross gains and $0 of gross losses realized, respectively.

 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

The amortized cost and fair value of other long-term investments (which consists of lottery prize cash flows) as of June 30, 2024, by contractual maturity, are summarized as follows:

 

   

(Unaudited)

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 750,746     $ 781,104  

Due after one year through five years

    1,153,391       1,185,147  

Due after five years through ten years

    152,630       164,398  

Total other long-term investments

  $ 2,056,767     $ 2,130,649  

 

Other long-term investments by geographic distribution:

 

   

(Unaudited)

                         
   

June 30, 2024

   

%

   

December 31, 2023

   

%

 

California

  $ 359,769       17.5 %   $ 352,011       12.3 %

Florida

    184,547       9.0       242,017       8.4  

Georgia

    148,325       7.2       567,542       19.8  

Indiana

    55,903       2.7       63,873       2.2  

Massachusetts

    804,991       39.1       959,906       33.4  

New York

    230,175       11.2       344,214       12.0  

Ohio

    73,882       3.6       96,330       3.3  

Oregon

    47,134       2.3       69,619       2.4  

Pennsylvania

    152,041       7.4       177,510       6.2  

Total

  $ 2,056,767       100.0 %   $ 2,873,022       100.0 %

 

 

15

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

2. Investments (continued)

 

Mortgage Loans on Real Estate

 

The Company utilizes the ratio of the carrying value of individual mortgage loans compared to the individual appraisal value to evaluate the credit quality of its mortgage loans on real estate (commonly referred to as the loan-to-value ratio). Currently, all of the Company’s mortgage loans are loans on residential properties. The Company’s mortgage loans on real estate by credit quality using this ratio as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

Loan-To-Value-Ratio

 

(Unaudited)

June 30, 2024

   

December 31, 2023

 

80% to 90%

  $ 599,820     $ 599,672  

70% to 80%

    3,171,978       4,536,084  

60% to 70%

    5,485,334       5,397,473  

50% to 60%

    1,800,016       2,091,073  

Less than 50%

    2,112,652       2,418,288  

Total

  $ 13,169,800     $ 15,042,590  

 

Mortgage loans by geographic distribution:

 

State

 

(Unaudited)

June 30, 2024

   

%

   

December 31, 2023

   

%

 

Alabama

  $ 1,086,537       8.3 %   $ 1,319,136       8.8 %

Arizona

    131,244       1.0       129,506       0.9  

California

    391,449       3.0       389,274       2.6  

Colorado

    114,060       0.9       149,907       1.0  

Florida

    1,353,513       10.3       1,543,852       10.2  

Georgia

    344,430       2.6       352,107       2.3  

Illinois

    270,470       2.1       508,180       3.4  

Indiana

    626,766       4.7       594,006       4.0  

Kentucky

    710,159       5.4       714,820       4.7  

Louisiana

    378,811       2.9       381,584       2.5  

Maryland

    -       -       255,577       1.7  

Missouri

    1,662,375       12.6       1,937,755       12.9  

North Carolina

    277,232       2.1       277,232       1.8  

New Jersey

    438,395       3.3       434,206       2.9  

Ohio

    166,331       1.3       164,491       1.1  

Pennsylvania

    109,450       0.8       297,612       2.0  

South Carolina

    322,933       2.4       509,537       3.4  

Tennessee

    1,736,834       13.2       1,924,277       12.8  

Texas

    2,993,787       22.7       3,101,034       20.6  

Wisconsin

    55,024       0.4       58,497       0.4  

Total

  $ 13,169,800       100.0 %   $ 15,042,590       100.0 %

 

16

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

2. Investments (continued)

 

There was one mortgage loan with a principal balance of $208,286 that was 90 days or more past due and still accruing interest as of June 30, 2024. This mortgage loan is in the process of foreclosure as of June 30, 2024. The Company expects to fully recover the principal balance outstanding plus any accrued interest along with all fees and expenses. There were two mortgage loans with a combined principal balance of $284,185 that were 90 days or more past due and still accruing interest as of December 31, 2023. The Company had a mortgage loan allowance of $65,299 and $74,663 as of June 30, 2024 and December 31, 2023, respectively.

 

   

(Unaudited)

June 30, 2024

   

December 31, 2023

 

Beginning of year: mortgage loan allowance balance

  $ 74,663     $ 92,777  

Current year change in provision of estimated mortgage loan losses

    (9,364 )     (18,114 )

End of year: mortgage loan allowance balance

  $ 65,299     $ 74,663  

 

Major categories of net investment income for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

   

(Unaudited)

 
   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Fixed maturity securities

  $ 60,983     $ 80,696     $ 123,773     $ 166,126  

Other long-term assets

    31,729       57,265       105,980       162,506  

Mortgage loans

    267,775       299,432       551,055       595,440  

Short-term and other investments

    131,034       60,687       257,873       125,482  

Gross investment income

    491,521       498,080       1,038,681       1,049,554  

Investment expenses

    (12,622 )     (11,825 )     (17,648 )     (19,923 )

Net investment income

  $ 478,899     $ 486,255     $ 1,021,033     $ 1,029,631  

 

3. Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) on the measurement date. The Company also considers the impact on fair value of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity.

 

The Company holds fixed maturity securities that are measured and reported at fair market value on the statement of financial position. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company has no Level 1 assets that would include securities traded in an active exchange market.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities and corporate debt securities.

 

17

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

3. Fair Value Measurements (continued)

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes investments where independent pricing information was not able to be obtained for a significant portion of the underlying assets.

 

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting the levels of the fair value hierarchy are reported as transfers in and out of the specific level category as of the beginning of the period in which the reclassifications occur.

 

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

June 30, 2024 (Unaudited)

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturity securities, available-for-sale

                               

Corporate bonds

  $ -     $ 5,293,891     $ -     $ 5,293,891  

Total fixed maturity securities

  $ -     $ 5,293,891     $ -     $ 5,293,891  

 

December 31, 2023

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Fixed maturity securities, available-for-sale

                               

Corporate bonds

  $ -     $ 5,591,640     $ -     $ 5,591,640  

Total fixed maturity securities

  $ -     $ 5,591,640     $ -     $ 5,591,640  

 

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 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 substantially all of the portfolio to be priced through pricing services.

 

18

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

3. Fair Value Measurements (continued)

 

Fair Value of Financial Instruments

 

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of June 30, 2024 and December 31, 2023 and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

 

Financial Instruments Disclosed, But Not Carried, at Fair Value:

 

   

June 30, 2024 (Unaudited)

 
   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 

Financial assets

                                       

Cash and cash equivalents

  $ 10,991,126     $ 10,991,126     $ 10,991,126     $ -     $ -  

Mortgage loans on real estate

    13,169,800       11,469,141       -       -       11,469,141  

Policy loans

    10,924       10,924                       10,924  

Other long-term investments

    2,056,767       2,130,649       -       -       2,130,649  

Accrued investment income

    167,391       167,391       -       -       167,391  

Advances and notes receivable

    58,381       58,381       -       -       58,381  

Total financial assets

  $ 26,454,389     $ 24,827,612     $ 10,991,126     $ -     $ 13,836,486  
                                         

Financial liabilities

                                       

Policyholders’ account balances

  $ 23,600,570     $ 13,942,136     $ -     $ -     $ 13,942,136  

Policy claims and other benefits

    1,360,068       1,360,068       -       -       1,360,068  

Total financial liabilities

  $ 24,960,638     $ 15,302,204     $ -     $ -     $ 15,302,204  

 

   

December 31, 2023

 
   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 

Financial assets

                                       

Cash and cash equivalents

  $ 11,879,163     $ 11,879,163     $ 11,879,163     $ -     $ -  

Mortgage loans on real estate

    15,042,590       13,095,489       -       -       13,095,489  

Policy loans

    15,016       15,016       -       -       15,016  

Other long-term investments

    2,873,022       3,029,449       -       -       3,029,449  

Accrued investment income

    193,035       193,035       -       -       193,035  

Advances and notes receivable

    235,682       235,682       -       -       235,682  

Total financial assets

  $ 30,238,508     $ 28,447,834     $ 11,879,163     $ -     $ 16,568,671  
                                         

Financial liabilities

                                       

Policyholders’ account balances

  $ 28,192,706     $ 18,105,392     $ -     $ -     $ 18,105,392  

Policy claims and other benefits

    1,014,951       1,014,951       -       -       1,014,951  

Total financial liabilities

  $ 29,207,657     $ 19,120,343     $ -     $ -     $ 19,120,343  

 

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to interpret market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.

 

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying financial statements and notes thereto:

 

19

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

3. Fair Value Measurements (continued)

 

Fixed Maturity Securities

 

The fair value of fixed maturity securities is based on the principles previously discussed as Level 1, Level 2 and Level 3.

 

Cash and Cash Equivalents, Policy loans, Accrued Investment Income and Advances and Notes Receivable

 

The carrying value of these financial instruments approximates their fair values due to the expected short-term nature until the cash settlement of these items. Cash and cash equivalents are included in Level 1 of the fair value hierarchy due to their highly liquid nature. Policy loans, accrued investment income, and advances and notes receivable are included in Level 3 of the fair value hierarchy due to little or no availability of market activity for these types of assets.

 

Mortgage loans on Real Estate

 

The Company’s mortgage loan portfolio is comprised of residential properties with loan to appraised value ratios at or below 90%. 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 SOFR yield curve adjusted for an appropriate credit spread.

 

Other Long-Term Investments

 

Other long-term investments are comprised of lottery prize receivables and fair value is derived by using a discounted cash flow approach. Projected cash flows are discounted using the average FTSE Pension Liability Index in effect at the end of each period.

 

Policyholders Account Balances

 

The fair value for liabilities under investment-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

 

The fair values for insurance contracts other than investment-type contracts are not required to be disclosed.

 

Policy Claims and other benefits

 

The carrying amounts reported for these liabilities approximate their fair value.

 

4. Income Taxes

 

The Company files a consolidated return with its subsidiaries TRLS and AIS. The Company’s other subsidiary TRLIC files a separate federal return for life insurance companies. TRLIC is 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.

 

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company cannot currently conclude that it is more likely than not that the remaining deferred tax assets will be utilized. Therefore, the Company’s deferred tax assets have been fully offset by a valuation allowance. As a result, our effective tax rate from continuing operations was zero percent for the quarter ended June 30, 2024. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. For the purpose of federal income tax, the Company has net operating loss carryforwards as of June 30, 2024, which expire between 2031 and 2037. Net operating losses generated in 2018 and beyond do not expire and annual utilizations are limited to 80% of taxable income. The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020, repealed the 80 percent limitation for taxable years beginning before January 1, 2021.

 

20

 

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

4. Income Taxes (continued)

 

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, income tax returns in various state jurisdictions, and franchise tax returns in the state of Texas. The 2020 through 2022 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.

 

5. Concentrations of Credit Risk

 

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 $664,573 as of June 30, 2024. 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 these accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

6. Stock Incentive Plan

 

The Company’s life insurance subsidiary, TRLIC had an Agent Stock Incentive Plan (“ASIP”). The plan was approved in August 2018 by the Texas State Securities Board. The plan was suspended by the Company in April 2022. The plan awarded shares of Texas Republic Capital Corporation common stock to agents based on certain production levels achieved in sales of life and annuity products. Calculation of awards are based on production for the previous year ended and issued in the subsequent year. There have been no shares issued in 2024. The Company granted 7,000 shares as part of employment agreements and/or bonuses to employees in 2023. The Company issued stock options to one of its employees at the beginning of 2023. The Company granted a share option of up to 5,000 shares of common stock to this individual. This option award will vest over a 5-year period of continuous service at a rate of 20% per year, and the exercise price is equal to zero.

 

7. Lease Commitment

 

The Company rents office space for its administrative operations under an agreement that expires in 2027. 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 June 30, 2024 are as follows:

 

2024

  $ 49,528  

2025

    101,773  

2026

    104,831  

2027

    98,724  

Total operating lease payments, undiscounted

  $ 354,856  

Less: interest

    (56,632 )

Lease liability, at present value

  $ 298,224  

 

21

 

Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Texas Republic Capital Corporation (“we”, “us”, “our”, “TRCC” or the “Company”) was incorporated in May 2012 as a financial services holding company. We own and operate insurance subsidiaries: a life insurance company, a life insurance agency, and a property & casualty insurance agency. We sell and issue life insurance products and annuity contracts as part of the insurance company. As an insurance provider, we collect premiums and annuity considerations in the current period to pay future benefits to our policy and contract holders. Currently, we only issue our products in the state of Texas. As a life insurance agency and a property & casualty insurance agency, we sell and place insurance products for other insurance carriers. If our life insurance company does not offer products that suit our client’s needs, then we can meet their needs through other carrier products sold by our life agency. In addition, we have ability to cross-sell all current and prospective client’s property and casualty insurance through the other agency, or the possibility of driving growth for the Company in other markets where participants are not seeking life insurance. The agencies collect commissions on the sale of those products.

 

We also realize revenues from our investment portfolio, which is a key component of our operations. The revenues and funds we collect as premiums and annuity considerations from policyholders are invested to ensure future benefit payments under the policy contracts. Life insurance companies earn profits on the investment spread, which reflects the investment income earned on the premiums and annuity considerations paid to the insurer between the time of receipt and the time benefits are paid out under our policies and contracts. Changes in interest rates, changes in economic conditions and volatility in the capital markets can all impact the amount of earnings that we realize from our investment portfolio.

 

The Company continues to incur overall losses since inception. These losses were fully expected, planned for, and fell within an expected range when considering the necessary start-up, infrastructure, distribution, and policy issuance costs of a new life insurance company. These losses have resulted from the costs incurred while raising capital and starting a new company, which involves investing in people, technology, infrastructure, marketing, brand awareness, distribution channels, regulatory and filing fees, legal costs, and other overhead expenses related to our operations. We expect to continue to incur operating losses until we achieve a volume of in-force life insurance policies that provide premiums and the associated investment income which are sufficient to cover our operating costs.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. On a continuing basis, we evaluate our estimates and assumptions.

 

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following accounting policies, judgments and estimates are the most critical to the preparation of our consolidated financial statements.

 

Investments

 

Fixed maturity securities are comprised of bonds that are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of applicable income taxes, reported in accumulated other comprehensive income (loss). The amortized cost of fixed maturity securities available-for-sale is generally adjusted for amortization of premium and accretion of discount.

 

Interest income, as well as the related amortization of premium and accretion of discount, is included in net investment income under the effective yield method.

 

The Company monitors all fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

 

22

 

The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down of available-for-sale fixed maturity securities, with the change in allowance reported in net loss on the consolidated statements of operations.

 

Purchases and sales of securities are recorded on a trade-date basis. Interest earned on investments is recorded on the accrual basis and is included in net investment income.

 

The Company’s mortgage loan portfolio is comprised entirely of residential properties with loan to appraised value ratios below 90%. Mortgage loans are carried at amortized book value. A mortgage loan allowance has been established for any unforeseen losses using an industry approach. While we utilize our best judgment and information available, the ultimate adequacy of this allowance is dependent upon a variety of factors beyond our control, including the performance of the residential mortgage loan portfolio, the economy and changes in interest rates. Our allowance for possible mortgage loan losses consists of specific valuation allowances established for probable losses on specific loans and a portfolio reserve for probable incurred losses but not for specifically identified loans. The fair values for mortgage loans are estimated using discounted cash flow analysis. The discount rate used to calculate fair values was indexed to the SOFR yield curve adjusted for an appropriate credit spread.

 

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned.

 

The Company’s other long-term investments are comprised of lottery prize cash flows holdings held at amortized cost. These investments are categorized as other long-term investments in the statement of financial position and are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries. Since state run lotteries are unlikely to default even in the most dire economic situations, no allowance for credit losses are necessary.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and money market instruments.

 

Deferred Policy Acquisition Costs

 

Costs that relate to and vary with the successful production of new business are deferred over life of the policy. Deferred acquisition costs (DAC) consist of commissions and policy issuance, underwriting and agency expenses. DAC expenses are amortized primarily over the premium-paying period of life policies and as profits emerge on the annuity products, using the same assumptions as were used in computing liabilities for future policy benefits.

 

Deferred Sales Inducement Costs

 

Sales inducement costs (SIC) are related to policy bonuses issued on some of the Company’s annuity products. SIC is deferred at the issuance of the policy and amortized over the bonus period on a straight-line basis. The amount deferred is based on the difference between the fund value with the bonus and the fund value without the bonus.

 

Policyholders Account Balances

 

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 1.55% to 5.50%.

 

23

 

Future Policy Benefits

 

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. Actual experience may emerge differently from that originally estimated. Any such difference would be recognized in the current year’s consolidated statement of operations.

 

Recently Adopted and Issued Accounting Pronouncements

 

Please refer to the applicable paragraphs in Note 1 of the Notes to Consolidated Financial Statements.

 

Income Taxes

 

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

 

We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.

 

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

 

Results of Operations Three and Six Months Ended June 30, 2024 and 2023

 

Revenues

 

Revenues are primarily from life insurance premium income and investment income.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Revenues

                               

Premiums and other considerations

  $ 1,099,929     $ 579,127     $ 2,076,287     $ 1,300,650  

Net investment income

    478,899       486,255       1,021,033       1,029,631  

Commission income

    25,808       20,272       43,657       33,344  

Total revenues

  $ 1,604,636     $ 1,085,654     $ 3,140,977     $ 2,363,625  

 

Total revenues increased by $518,982 and $777,352 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. These increases were primarily a result of increased new policy sales as we continue to successfully produce new business. Net investment income and commission income both remained similar compared to the prior year. The Company also accepted annuity considerations during 2024 and 2023. Annuity considerations contribute to additional net investment income through increased investments but are not classified as premiums and other considerations under total revenues for GAAP reporting.

 

24

 

Expenses

 

Our expenses relate to operating a financial services holding company, a life insurance company, and two insurance agencies.

 

Expenses were $1,874,359 and $3,474,416 for the three and six months ended June 30, 2024, increases of $422,340 and $156,086 from $1,452,019 and $3,318,330 for the three and six months ended June 30, 2023, respectively. Significant expense categories are discussed below.

 

Total Benefits and Claims – Increases to death and other benefits which were offset by decreases to policyholder liabilities led to overall decreased benefits and claims expense by $21,119 for the six months ended June 30, 2024 compared to the same period in the prior year. For the three months ended June 30, 2024 compared to the same period in the prior year, those same benefits and claims expense increased by $190,220. Expenses were $574,055 and $1,149,097 for the three and six months ended June 30, 2024 and $383,835 and $1,170,216 for the three and six months ended June 30, 2023, respectively. For the six months ended, the decrease is primarily due to decreases in interest credited to policyholders. The strategy related for the decrease in interest credited to policyholders is the Company has issued less annuities in the last couple of years. During that time, our focus has been more on issuing new life insurance business and based on new sales production, increased insurance volume, number of insureds covered, and the passage of time since policy issuance, this has resulted in an increase in future policy benefits. In addition, there was an increase in death and other benefits, which is to be expected based on those factors mentioned above. Death and benefit payments can significantly impact expenses from period to period due to timing.

 

Commissions – Commission expenses were $717,541 and $1,399,512 for the three and six months ended June 30, 2024 compared to $429,485 and $893,146 for the three and six months ended June 30, 2023, respectively. For the three and six months ended, that increase is consistent with the amounts of new business issued and renewal commissions paid on previously issued business, net of any applicable commission recaptured. The commission in the first year of policy issuance is typically significantly greater than the subsequent years. Conversely, in subsequent years with lower renewal commission rates, the Company should realize additional profits on previously issued business as premiums collected will significantly outweigh any renewal commissions paid.

 

Salaries and Employee Benefits – Salary and employee benefits expense increased $7,997 and decreased $37,335 for the three and six months ended June 30, 2024 compared to the same periods in the prior year, respectively. For the six months ended, the decrease is primarily related to a reduction in staff. The Company had a few employees leave the company since June 30, 2023. The Company decided to replace those employees with external consultants as opposed to hiring new employees for certain tasks and roles. This decision allows us to save on benefit costs, payroll taxes, other employee overhead expenses, and allows us to pay for their time as needed. This decision has helped to reduce the salaries and employee benefits expense.

 

Other Expenses – Professional fees continue to be one of the larger contributing expenses to the overall total expenses. The professional fees consist of public accounting firm fees, consulting actuarial fees, and the external consultants mentioned above in the salaries and employee benefits section.

 

Net Loss

 

The net loss was $333,439, or $(0.02) per share, for the six months ended June 30, 2024 compared to a net loss of $954,705 or $(0.06) per share, for the six months ended June 30, 2023. For the three months ending June 30, the net loss was $269,723 or $(0.02) per share in 2024 and $366,365 or $(0.02) per share in 2023. The improvement of the net loss for the three- and six- months ending June 30, 2024, was primarily attributable to the increases and decreases in revenues and expenses described above.

 

The weighted average common shares outstanding and subscribed were 15,968,758 and 15,670,671 for the six months ended June 30, 2024 and 2023, respectively. The weighted average common shares outstanding and subscribed were 16,005,018 and 15,719,841 for the three months ended June 30, 2024 and 2023, respectively.

 

Financial Position As of June 30, 2024 and December 31, 2023

 

Total assets of the Company decreased from $42,557,399 as of December 31, 2023 to $39,261,972 as of June 30, 2024, a decrease of $3,295,427. Assets that increased or decreased materially in 2024 were invested assets, cash and cash equivalents, reinsurance recoverable, and deferred acquisition costs.

 

Total investments decreased by $2,990,886, or 12.7%. This decrease was primarily due to maturities and payoffs. Those cash funds were primarily used to pay annuity surrenders on previously issued business along with other cash and cash equivalents which also decreased by $888,037. All non-operating cash is held in interest bearing cash equivalent accounts.

 

25

 

We continue to diversify the investment portfolio by our allocation strategy which should provide meaningful risk-adjusted increases to net investment income over the upcoming years and maximize total revenues. In addition, we continue to invest our excess cash in higher yielding investments as suitable options become available.

 

The Company also recognized an increase in deferred policy acquisition costs and reinsurance recoverable as the Company continues to successfully sell more new business. Other assets that materially increased were federal income taxes recoverable on taxes withheld from cash receipts on other long-term investment payments which is included in the other assets line on the consolidated statements of financial position. The federal income taxes recoverable balance is 100% recoverable via tax refunds from the U.S. Government. Amounts recoverable from reinsurers represent the amounts due from our reinsurance partners. This balance continues to grow with the successful production of more and more business and our policy of using reinsurance partners to limit our exposure on any one individual policyholder.

 

Policyholder liabilities include benefit reserves for both life and annuity policies, claim reserves, deposit funds and advance premiums. Policyholder liabilities decreased by $3,750,490 at June 30, 2024 compared to December 31, 2023. That decrease is primarily due to a decrease in annuity policies as we focus more on life insurance production.

 

Total shareholders’ equity of the Company increased from $9,995,531 as of December 31, 2023 to $10,625,626 as of June 30, 2024, an increase of $630,095. The increase is mainly due to the additional capital raised during 2024. That increase was primarily offset by the net loss and change in accumulated other comprehensive loss due to interest rate movements in the market for the six months ended June 30, 2024.

 

Liquidity and Capital Resources

 

Since inception, our operations have been financed primarily through an organizational offering, four private placement offerings, an intrastate public stock offering, and a rights offering to existing shareholders only. Through June 30, 2024, we received $28,477,770 from the sale of 16,050,970 shares and incurred offering costs of $2,767,291. Since inception through December 31, 2018, the Company purchased 3,000 shares of the Company’s common stock for $15,000 held as treasury stock. Additionally, TRLIC has purchased another 111,000 shares of TRCC common stock at a cost of $118,210 since 2018. The shares were purchased to compensate agents under TRLIC’s Agent Stock Incentive Plan (“ASIP”). The Company has issued 16,080 treasury shares under the ASIP since inception of the plan and another 51,000 treasury shares as part of employment agreements and/or bonuses to employees. The remaining 43,920 shares held by TRLIC and the 3,000 shares held by TRCC total 46,920 shares. These shares are held as treasury shares in the consolidated financial statements.

 

We had cash and cash equivalents totaling $10,991,126 as of June 30, 2024. 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 $664,573 as of June 30, 2024. 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.

 

Capital provided from the previous offerings and current offering will provide a considerable amount of operating funds for current and future operations of TRCC. The operations of TRLIC should provide ample cash flows from premium income and investment income to meet operating requirements once a sufficient book of business has been established, or new policy sales are turned off, whichever happens first. Life insurance contract liabilities are generally long term in nature and are generally paid from future cash flows. The operations of TRLS and AIS should provide sufficient cash flows from commission income to meet their operating requirements. TRLS and AIS are also less capital intensive than TRLIC since it does not retain any of the policy risks or capital requirements.

 

We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures for at least the next 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. We are not aware of any commitments or unusual events that could materially affect our capital resources. We are not aware of any current recommendations by any regulatory authority which, if implemented, would have a material adverse effect on our liquidity, capital resources or operations.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

26

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein are forward-looking statements. The forward-looking statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and include estimates and assumptions related to economic, competitive and legislative developments. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning; and include, but are not limited to, statements regarding the outlook of our business and financial performance. These forward-looking statements are subject to change and uncertainty, which are, in many instances, beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect upon us.

 

There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements.

 

These factors include among others:

 

 

general economic conditions and financial factors, including the performance and fluctuations of fixed income, equity, real estate, credit capital and other financial markets;

 

differences between actual experience regarding mortality, morbidity, persistency, surrenders, investment returns, and our pricing assumptions establishing liabilities and reserves or for other purposes;

 

the effect of increased claims activity from natural or man-made catastrophes, pandemic disease, or other events resulting in catastrophic loss of life;

 

inherent uncertainties in the determination of investment allowances and impairments and in the determination of the valuation allowance on the deferred income tax asset;

 

investment losses and defaults;

 

competition in our product lines;

 

attraction and retention of qualified employees and agents;

 

ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks;

 

the availability, affordability and adequacy of reinsurance protection;

 

the effects of emerging claim and coverage issues;

 

the cyclical nature of the insurance business;

 

interest rate fluctuations;

 

changes in our experiences related to deferred policy acquisition costs;

 

the ability and willingness of counterparties to our reinsurance arrangements to pay balances due to us;

 

rating agencies’ actions;

 

domestic or international military actions;

 

the effects of extensive government regulation of the insurance industry;

 

changes in tax and securities law;

 

changes in statutory or U.S. generally accepted accounting principles (“GAAP”), practices or policies;

 

regulatory or legislative changes or developments;

 

the effects of unanticipated events on our disaster recovery and business continuity planning;

 

failures or limitations of our computer, data security and administration systems;

 

risks of employee error or misconduct;

 

the assimilation of life insurance businesses we acquire and the sound management of these businesses; and

 

the availability of capital to expand our business.

 

It is not our corporate policy to make specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. In addition, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable developments.

 

27

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Certifying Officers, as appropriate, to allow timely decisions regarding disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operating, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Changes to Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the second quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

28

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The Company sold 4,375,000 common shares at $.02 per share to its organizing shareholders in May of 2012 for total proceeds of $87,500. Subsequently, the Company completed three private placement stock offerings which raised $10,249,000 through the issuance of 8,490,000 shares from the private placement offerings in 2012 and 2013, including a private placement of 2,000,000 shares for $5,000,000 between February and November 2013. The Company incurred $1,215,569 in offering costs to issue these shares. On May 31, 2022, the Company began a rights offering to existing shareholders only. The rights offering ended on September 30, 2022. Through this rights offering, the Company raised $4,400,652 and incurred $77,615 of offering costs through the sale of 733,442 shares of its common stock. At the beginning of 2023, the Company began another private placement stock offering which has raised $3,730,133 and incurred $29,981 of offering costs through the subscription of 497,351 shares of its common stock. These shares were sold in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “1933 Act”) contained in Securities and Exchange Commission (“SEC”) Regulation D, Rule 506. No underwriter was involved in connection with the issuance of these shares, and we paid no finder’s fees in the private placements.

 

On April 2, 2014, the Company commenced an offering of 5,000,000 shares of common stock at $5.00 per share ($25,000,000 maximum) with a 10% over sale provision, in an intrastate public offering registered with the Texas State Securities Board. This offering ended on April 2, 2017 and was sold only to Texas residents pursuant to an exemption from the 1933 Act contained in Section 3(a)(11) of the 1933 Act and Rule 147 promulgated by the SEC. It was sold by issuer agents registered with the Texas State Securities Board. The Company raised $10,010,485 and incurred offering costs of $1,444,127 from the sale of 2,002,097 shares in this offering.

 

Proceeds have been used for working capital and the capitalization of a life insurance company and other insurance agencies.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1

Section 1350 Certification of Principal Executive Officer

32.2

Section 1350 Certification of Principal Financial Officer

101.INS**

Inline XBRL Instance

101.SCH**

Inline XBRL Taxonomy Extension Schema

101.CAL**

Inline XBRL Taxonomy Extension Calculation

101.DEF**

Inline XBRL Taxonomy Extension Definition

101.LAB**

Inline XBRL Taxonomy Extension Labels

101.PRE**

Inline XBRL Taxonomy Extension Presentation

104.FIL**

Inline XBRL Cover Page Interactive Data File

 

**XBRL

Information is furnished and not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

29

 

SIGNATURES

 

In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TEXAS REPUBLIC CAPITAL CORPORATION

a Texas corporation

 

 

 

 

August 14, 2024

By:

/s/ Timothy R. Miller

 

 

 

Timothy R. Miller, President and Chief Executive Officer

 

 

 

 

 

 

 

 

August 14, 2024

By:

/s/ Shane S. Mitchell

 

 

 

Shane S. Mitchell, Chief Financial Officer

 

 

 

 

 

 

30
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