Note 3 – Investments

Available for Sale Securities – Fixed Maturity and Equity Securities

The Company's insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make, and the amount of funds that may be used for any one type of investment.

Investments in available for sale securities are summarized as follows:

March 31, 2018	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	7,652,991	$	20,049	$	(159,276	)	$	7,513,764
U.S. special revenue and assessments		9,013,518		490,293		0			9,503,811
All other corporate bonds		148,224,554		15,208,888		(1,246,704	)		162,186,738
	$	164,891,063	$	15,719,230	$	(1,405,980	)	$	179,204,313

December 31, 2017	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	2,679,325	$	33,802	$	(73,530	)	$	2,639,597
U.S. special revenue and assessments		9,012,232		620,789		0			9,633,021
All other corporate bonds		148,220,954		18,359,816		(298,163	)		166,282,607
		159,912,511		19,014,407		(371,693	)		178,555,225
Equity securities (1)		35,712,633		23,648,201		(512,343	)		58,848,491
Total	$	195,625,144	$	42,662,608	$	(884,036	)	$	237,403,716

The amortized cost and estimated market value of debt securities at March 31, 2018, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fixed Maturities Available for Sale March 31, 2018	Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,218,125	$	1,239,718
Due after one year through five years		36,349,018		47,511,317
Due after five years through ten years		43,553,027		45,272,788
Due after ten years		83,770,893		85,180,490
Total	$	164,891,063	$	179,204,313

The fair value of investments with sustained gross unrealized losses at March 31, 2018 and December 31, 2017 are as follows:

March 31, 2018	Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Government and govt. agencies and authorities	$	4,925,360	$	(47,756	)	$	1,567,604	$	(111,520	)	$	6,492,964	$	(159,276	)
All other corporate bonds		35,719,080		(764,493	)		6,463,651		(482,211	)		42,182,731		(1,246,704	)
Total fixed maturities	$	40,644,440	$	(812,249	)	$	8,031,255		(593,731	)	$	48,675,695		(1,405,980	)

December 31, 2017	Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Government and govt. agencies and authorities	$	0	$	0		$	1,604,987	$	(73,530	)	$	1,604,987	$	(73,530	)
All other corporate bonds		9,732,635		(91,757	)		11,164,317		(206,406	)		20,896,952		(298,163	)
Total fixed maturities	$	9,732,635	$	(91,757	)	$	12,769,304		(279,936	)	$	22,501,939		(371,693	)

Equity securities (1)	$	4,130,260	$	(270,774	)	$	1,526,868	$	(241,569	)	$	5,657,128	$	(512,343	)

Additional information regarding investments in an unrealized loss position is as follows:

	Less than 12 months	12 months or longer	Total
As of March 31, 2018
Fixed maturities	24	6	30
As of December 31, 2017
Fixed maturities	6	6	12
Equity securities (1)	2	2	4

(1)	Effective January 1, 2018, the Company adopted ASU No. 2016-01 and equity securities are no longer classified as available-for-sale. Prior periods have not been restated to conform to the current presentation. See Note 2 to the Condensed Consolidated Financial Statements for additional information.

Substantially all of the unrealized losses on fixed maturities available for sale and equity securities at March 31, 2018 and December 31, 2017 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company's expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company's evaluation of other relevant factors, the Company deems these securities to be temporarily impaired as of March 31, 2018 and December 31, 2017.

Net Investment Gains (Losses)

The following table presents net investment gains (losses) and the change in net unrealized gains on available-for-sale investments.

	Three Months Ended
	March 31,
	2018			2017
Realized gains on available-for-sale investments:
Sales of fixed maturities	$	0		$	0
Sales of equity securities		0			0
Other		534,242			0
Total realized gains		534,242			0
Realized losses on available-for-sale investments:
Sales of fixed maturities		0			(14,344	)
Sales of equity securities		0			0
Other-than-temporary impairments		0			(484,347	)
Other		0			0
Total realized losses		0			(498,691	)
Net realized investment gains (losses)		534,242			(498,691	)
Change in fair value of equity securities:
Change in fair value of equity securities sold during the period		0			0
Change in fair value of equity securities held at the end of the period		4,129,236			0
Change in fair value of equity securities		4,129,236			0
Net investment gains (losses)	$	4,663,478		$	(498,691	)
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income:
Fixed maturities	$	(4,285,303	)	$	3,033,099
Equity securities (1)		0			1,423,580
Net increase (decrease)	$	(4,285,303	)	$	4,456,679

(1)

Effective January 1, 2018, the Company adopted ASU No. 2016-01. As a result, equity securities are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income; rather, all changes in the fair value of equity securities are now recognized in net income (loss). Prior periods have not been restated to conform to the current presentation. See note 2 to the Condensed Consolidated Financial Statements for additional information.

Other-Than-Temporary Impairments

The Company regularly reviews its investment securities for factors that may indicate that a decline in fair value of an investment is other than temporary. The factors considered by Management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to: the length of time and extent to which the fair value has been less than cost; the Company's intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support, whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions, including the effect of changes in market interest rates. If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to other-than-temporary losses in the Condensed Consolidated Statements of Operations.

Management regularly reviews its real estate portfolio in comparison to appraisal valuations and current market conditions for indications of other-than-temporary impairments. If a decline in value is judged by Management to be other-than-temporary, a loss is recognized by a charge to other-than-temporary impairment losses in the Consolidated Statements of Operations.

Based on Management's review of the investment portfolio, the Company recorded the following losses for other-than-temporary impairments in the Consolidated Statements of Operations for the periods ended March 31:

	Three Months Ended
	March 31,
	2018			2017
Other than temporary impairments:
Real estate		$	0		$	484,347
Total other than temporary impairments		$	0		$	484,347

The other-than-temporary impairment recognized during 2017 was taken as a result of Management's analysis and determination of value. The investment was written down to better reflect its current expected market value.

Mortgage Loans

The Company, from time to time, acquires mortgage loans through participation agreements with FSNB. FSNB has been able to provide the Company with additional expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market. The Company is able to receive participations from FSNB for three primary reasons: 1) FSNB has already reached its maximum lending limit to a single borrower, but the borrower is still considered a suitable risk; 2) the interest rate on a particular loan may be fixed for a long period that is more suitable for UG given its asset-liability structure; and 3) FSNB's loan growth might at times outpace its deposit growth, resulting in FSNB participating such excess loan growth rather than turning customers away. For originated loans, the Company's Management is responsible for the final approval of such loans after evaluation. Before a new loan is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control. These criteria include, but are not limited to, a credit report, personal financial information such as outstanding debt, sources of income, and personal equity. Once the loan is approved, the Company directly funds the loan to the borrower. The Company bears all risk of loss associated with the terms of the mortgage with the borrower.

During 2018 and 2017, the Company acquired $0 and $360,531 in mortgage loans, respectively. FSNB services the majority of the Company's mortgage loan portfolio. The Company pays FSNB a .25% servicing fee on these loans and a one-time fee at loan origination of .50% of the original loan cost to cover costs incurred by FSNB relating to the processing and establishment of the loan.

During 2018 and 2017, the maximum and minimum lending rates for mortgage loans were:

	2018		2017
	Maximum rate	Minimum rate	Maximum rate	Minimum rate
Farm Loans	5.00%	5.00%	5.00%	5.00%
Commercial Loans	7.50%	4.00%	7.50%	4.00%
Residential Loans	8.00%	5.00%	8.00%	4.00%

Most mortgage loans are first position loans. Loans issued are generally limited to no more than 80% of the appraised value of the property.

The Company has in place a monitoring system to provide Management with information regarding potential troubled loans. Letters are sent to each mortgagee when the loan becomes 30 days or more delinquent. Management is provided with a monthly listing of loans that are 60 days or more past due along with a brief description of what steps are being taken to resolve the delinquency. All loans 90 days or more past due are placed on a non-performing status and classified as delinquent loans. Quarterly, coinciding with external financial reporting, the Company reviews each delinquent loan and determines how each delinquent loan should be classified. Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact.

Changes in the current economy could have a negative impact on the loans, including the financial stability of the borrowers, the borrowers' ability to pay or to refinance, the value of the property held as collateral and the ability to find purchasers at favorable prices. Interest accruals are analyzed based on the likelihood of repayment. In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property. The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.

A mortgage loan reserve is established and adjusted based on Management's quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value. The mortgage loan reserve was $0 at March 31, 2018 and December 31, 2017.

The following table summarizes the mortgage loan holdings of the Company for the periods ended:

	March 31, 2018		December 31, 2017
In good standing	$	12,108,873	$	15,310,941
Overdue interest over 90 days		3,201,463		0
Restructured		0		0
In process of foreclosure		0		2,003,536
Total mortgage loans	$	15,310,336	$	17,314,477
Total foreclosed loans during the year	$	0	$	0

Investment Real Estate

Real estate acquired through foreclosure, consisting of properties obtained through foreclosure proceedings or acceptance of a deed in lieu of foreclosure, is reported on an individual asset basis at the lower of cost or fair value, less disposal costs. Fair value is determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is recognized and charged to the Consolidated Statements of Operations. Based upon Management's evaluation of the real estate acquired through foreclosure, additional expense is recorded when necessary in an amount sufficient to reflect any declines in estimated fair value. Gains and losses recognized on the disposition of the properties are recorded as realized gains and losses in the Condensed Consolidated Statements of Operations.

Notes Receivable

Notes receivable represent collateral loans and promissory notes issued by the Company and are reported at their unpaid principal balances, adjusted for valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected. The valuation allowance as of March 31, 2018 and December 31, 2017 was $0. Interest accruals are analyzed based on the likelihood of repayment. The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.

Before a new note is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control. Once the note is approved, the Company directly funds the note to the borrower. Several of the notes have participation agreements in place, whereas the Company has reduced its investment in the note receivable by participating a portion of the note to a third party.

Similar to the mortgage loans, FSNB services several of the notes receivable. The Company, and the participants in the notes, share in the risk of loss associated with the terms of the note with the borrower, based upon their ownership percentage in the note. The Company has in place a monitoring system to provide Management with information regarding potential troubled loans.