4. DEBT

As of September 30, 2017 and December 31, 2016, outstanding debt balances totaled $4,454,138 and $3,786,950, respectively. The average rate on remaining debt was 3.9% as of September 30, 2017, compared to 5.0% as of December 31, 2016.

Long-term debt consists of the following as of the periods referenced below:



	September 30,		December 31,
	2017		2016
Surplus notes	$	—	$	1,850,000
Capital lease obligation		912,510		1,227,541
Debt obligation		3,541,611		525,619
Home office mortgage		17		183,790
Total	$	4,454,138	$	3,786,950

Surplus Notes

ICC’s Plan of Conversion from a mutual to a stock company was approved by ICC policyholders at a special meeting on March 17, 2017. Simultaneously, surplus notes totaling $1.65 million, representing all outstanding surplus notes as of that date were converted into 165,000 shares of the Company’s common stock. The remaining $200,000 balance of surplus notes was paid in March 2017.

Leasehold Obligation

The Company entered into a sale leaseback arrangement in 2016 that is accounted for as a capital lease. Under the agreement, Bofi Federal Bank purchased electronic data processing software, vehicles, and other assets which are leased to the Company. These assets remain on the Company’s books due to provisions within the agreement that trigger capital lease accounting. To secure the lowest rate possible of 4.7%, the Company pledged additional bonds totaling $860,969 during 2016, bringing the total pledged to $1,808,523 as of September 30, 2017, and December 31, 2016, respectively. There was no gain or loss recognized as part of this transaction. Lease payments totaled $125,494 for the three months ended September 30, 2017 and 2016. Lease payments totaled $376,485 and $334,227 for the nine months ended September 30, 2017 and 2016, respectively. The term of the electronic data processing lease is 48 months and the term of the titled vehicles lease is 36 months. The outstanding lease obligation at September 30, 2017 was $912,510 compared to $1,227,541 at Decemeber 31, 2016.

Debt Obligation

ICC Holdings, Inc. secured a loan with American Bank & Trust in March 2017 in the amount of $3,500,000 and used the proceeds to repay ICC for the money borrowed by the ESOP. The term of the loan is five years bearing interest at 3.65%. The Company pledged the ESOP shares and $1.5 million of trust assets as collateral for the loan. Additionally, the Company entered into two debt agreements in 2016 with Bofi Federal Bank; one agreement for $500,000 and another debt agreement for $75,000. The terms of the loans were 36 months, but the Company had the option to prepay the $500,000 loan after 12 months. The Company paid off the remaining balance of the $500,000 loan in September 2017. The total balance of the debt agreements at September 30, 2017 and December 31, 2016 was $3,541,611 and $525,619, respectively. The Bofi loans bear interest at 4.7%.

Home Office Mortgage

The Company maintains a mortgage on its home office. Interest is charged at a fixed rate of 2.6% and the loan matures in 2017. The building is used as collateral to secure the loan. The loan balance at September 30, 2017 and December 31, 2016 was $17 and $183,790, respectively.

Revolving Line of Credit

We maintain a revolving line of credit with American Bank & Trust, which permits borrowing up to an aggregate principal amount of $1.75 million. This facility was entered into during 2013 and is renewed annually with a current expiration of August 1, 2018. The line of credit is priced at 30 day LIBOR plus 2% with a floor of 3.5%. There was no interest paid on the line of credit during the nine months ended September 30, 2017 and $584 of interest paid on the line of credit during the nine months ended September 30, 2016. There are no financial covenants governing this agreement.