Recent Acquisitions

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Recent Acquisitions

Note 2. Recent Acquisitions

On March 15, 2016, Midwest acquired Northstar Financial Corporation (“Northstar”), an inactive Minnesota corporation, pursuant to an Agreement and Plan of Merger dated December 18, 2015. Pursuant to this merger, Midwest exchanged 1.27 shares of its voting common stock for each share of Northstar common stock, or approximately 4,553,000 shares. The merger of Northstar was recorded as an asset acquisition. The assets (primarily cash) and liabilities of Northstar were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date.

On October 27, 2015, Midwest acquired 100% of all of the outstanding shares that it did not previously own of First Wyoming Capital Corporation (“First Wyoming”), a Wyoming corporation, pursuant to an Agreement and Plan of Merger dated July 31, 2015 under which First Wyoming became a wholly-owned subsidiary of Midwest. Pursuant to the Merger Agreement, Midwest issued approximately 4,767,400 shares to the former shareholders of First Wyoming other than Midwest. The fair value of the Midwest shares exchanged to acquire 100% of the remaining outstanding shares of First Wyoming that it did not previously own was estimated by applying the income approach to be $905,806, which is different from our preliminary estimate of $1,811,612 as disclosed in Note 2 of our 2015 10-K. This fair value measurement was based on significant inputs that are not observable in the market. Key assumptions include projected total income growth of between 3% and 16%, expected long term growth of 3%, a discount rate of 16.0%, and a terminal value based on earnings and a capitalization rate of 13.0%. Subsequent to the closing, First Wyoming merged into Midwest and on September 1, 2016 First Wyoming Life, the life insurance subsidiary of First Wyoming, merged into American Life.

The First Wyoming acquisition was accounted for under the acquisition method of accounting, which requires the consideration transferred and all assets and liabilities assumed to be recorded at fair value. Prior to the acquisition, Midwest held 22.1% of the outstanding shares of First Wyoming, which it had recorded in its financial statements under the equity method of accounting at a book value of $810,500 with a related accumulated other comprehensive loss of $30,410. The fair value of our previously held equity interest in First Wyoming was determined to be $221,430, resulting in a loss of $619,480 on the previously held equity interest. The preliminary fair value of our previously held equity interest in First Wyoming as disclosed in Note 2 of the 2015 10-K was determined to be $642,150 resulting in a loss of $198,760, which was included in net investment income (loss) in the 2015 10-K consolidated statement of comprehensive income for the year ended December 31, 2015 and the remaining $420,720 was recognized in the period ended September 30, 2016 10-Q in loss on equity method investment on the consolidated statement of comprehensive income. The fair value of the previously held equity interest in First Wyoming was estimated by applying the income approach using significant inputs that are not observable in the market. Key assumptions include projected total income growth of between 3% and 13%, expected long term growth of 3%, a discount rate of 18.0%, a terminal value based on earnings and a capitalization rate of 13.0%, and adjustments due to lack of control that market participants would consider when estimating the fair value of the previously held equity interest in First Wyoming.

The following table summarizes the preliminary fair value of the consideration transferred and the preliminary fair value of First Wyoming assets acquired and liabilities assumed:

Fair value of common stock of Midwest issued as consideration	$	905,806
Fair value of Midwest's previously held equity interest in First Wyoming		221,430
	$	1,127,236

Recognized preliminary amounts of identifiable assets acquired and liabilities assumed:

Investment securities	$	3,961,937
Cash		315,546
VOBA		506,600
Other assets		92,045
Benefit reserves		(611,110	)
Policy claims		(41,754	)
Deposit-type contracts		(799,990	)
Other liabilities		(64,934	)
Total identifiable net assets		3,358,340
Bargain purchase gain		(2,231,104	)
	$	1,127,236

All amounts related to the business combination are finalized and are no longer provisional. The transaction resulted in a bargain purchase gain of $2,231,104 and, of that amount, $904,578 was included in the bargain purchase gain for business acquisition line item in the consolidated statement of comprehensive income for the year ended December 31, 2015. The remaining $1,326,526 was included in the consolidated statement of comprehensive income for the period ended September 30, 2016. The bargain purchase gain was driven by the fact that as a standalone company, First Wyoming Life would have been required to significantly increase its administrative operations in Cheyenne, Wyoming, in the near future, the cost of which would be prohibitive to a small life insurance company such as First Wyoming Life.

Value of business acquired (“VOBA”) is being amortized on a straight-line basis over ten years which approximates the earnings pattern of the related policies.

Acquisition costs relating to the business combination with First Wyoming totaling $123,219 were expensed as incurred and are included in the other operating expenses line item in the consolidated statement of comprehensive income for the year ended December 31, 2015.

Total income and net loss of $71,165 and $73,939, respectively, were included in the 2015 10-K Consolidated Statements of Comprehensive Income from the October 27, 2015 acquisition date through December 31, 2015. Operations of the acquired entity and its subsidiary (First Wyoming Life) were immediately integrated with the Company’s operations.

The following table presents unaudited pro forma consolidated total income and net loss as if the acquisition had occurred as of January 1, 2015 (earliest period shown).

Year ended December 31, (unaudited)	2015
Premiums	$	3,723,084
Investment income		414,972
Miscellaneous income		48,864
Total income	$	4,186,920
Net loss	$	(4,338,598	)

The unaudited pro forma total income and net loss above was adjusted to eliminate the equity method investment loss of $158,677 recorded for the year ended December 31, 2015. The pro forma amounts above also included an adjustment for the elimination of TPA fees paid by First Wyoming to Midwest of $122,903 for the year ended December 31, 2015. The unaudited proforma net loss presented above also includes adjustments for the amortization of VOBA for the year ending December 31, 2015 of $50,660.