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Note 8 - Investments, Including Investments Accounted for Using the Equity Method

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Investment [Text Block]

NOTE 8. INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Short-term Investments

Short-term investments consist of certificates of deposit, U.S. Treasury securities, and corporate bonds. Certificates of deposit, U.S. Treasury securities and corporate bonds held by UCS are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Other corporate bonds are classified as available for sale and reported at fair value. Because we have elected the fair value option for debt securities classified as available for sale, any unrealized holding gains and losses during the period are included in earnings. For the six months ended June 30, 2020, gains on redemptions of U.S. Treasury notes held to maturity were $3,794. For the six months ended June 30, 2020, unrealized losses on corporate bonds were $206,068.

		*June 30,*				*December 31,*
		*2020*				*2019*

Certificates of deposit		$	994,441			$	987,599
Corporate bonds available for sale			807,000				910,000
U.S. Treasury notes and corporate bond			5,984,355				4,649,572

Total		$	7,785,796			$	6,547,171

Marketable Equity Securities

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Our marketable equity securities are held by UCS and Boston Omaha. Marketable equity securities as of June 30, 2020 and December 31, 2019 are as follows:

						*Gross*
						*Unrealized*				*Fair*
		*Cost*				*Gain (Loss)*				*Value*

Marketable equity securities, June 30, 2020		$	69,318,420			$	(18,788,834	)		$	50,529,586

Marketable equity securities, December 31, 2019		$	49,554,926			$	6,353,001			$	55,907,927

U.S. Treasury Securities Available for Sale

We classify our investments in debt securities that we intend to hold for indefinite periods of time as “available for sale.” Our securities available for sale are carried at fair value in the consolidated balance sheets. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in earnings. Interest income is recognized at the coupon rate. Securities available for sale as of June 30, 2020 and December 31, 2019 are as follows:

Gross

Unrealized

Fair

Cost

Gain (Loss)

Value

U.S. Treasury securities, June 30, 2020
$ 78,642,270 $ 9,003 $ 78,651,273

U.S. Treasury securities, December 31, 2019
$ 75,488,863 $ (79,664 ) $ 75,409,199

Long-term Investments

Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, U.S. Treasury securities, and certain equity investments. The certificates of deposit and U.S. Treasury securities have maturity dates ranging from 2021 through 2023. We have the intent and the ability to hold the certificates of deposit and U.S. Treasury securities to maturity. Certificates of deposit and U.S. Treasury securities are stated at amortized cost which approximates fair value and are held by UCS.

Long-term investments consist of the following:

June 30,

December 31,

2020

2019

U.S. Treasury securities, held to maturity
$ 647,116 $ 1,094,983

Certificates of deposit
106,215 380,753

Preferred stock
104,019 104,019

Non-voting preferred units of Dream Finders Holdings, LLC 6,000,000 12,000,000

Non-voting common units of Dream Finders Holdings, LLC
- 10,000,000

Voting common stock of CBT Holding Corporation
19,058,485 19,058,485

Total
$ 25,915,835 $ 42,638,240

Equity Investments

On May 31, 2018, we invested $19,058,485 in voting common stock of CB&T Holding Corporation, which we refer to as “CBT,” the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CBT’s outstanding common stock. CBT is a closely held corporation, whose majority ownership rests with one family.

In late December 2017, we invested $10 million in non-voting common units of Dream Finders Holdings LLC, which we refer to as “DFH”, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Florida, Texas, Georgia, Colorado and the greater northern Virginia and Maryland areas. During the first quarter of 2020, we obtained additional non-voting shares of DFH which increased our ownership in the company to approximately 5.6%. As a result, we began applying the equity method of accounting for our investment in DFH prospectively from January 1, 2020, the date we obtained the additional shares.

In May 2019, our subsidiary BOC DFH, LLC invested an additional $12 million in DFH through the purchase of preferred units. DFH is required to pay to us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units are convertible, at our option, into non-voting common units after May 29, 2020 and the remaining preferred units are convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increases if the preferred units purchased are not redeemed or converted within one year of purchase. Also, we obtain additional beneficial conversion terms if the preferred units are not redeemed by May 29, 2021. On January 13, 2020, DFH redeemed $6,000,000 of the preferred units purchased in May 2019.

During January 2018, we exchanged our convertible note receivable from Breezeway Homes, Inc., which we refer to as “Breezeway,” for 31,227 shares of preferred stock. The preferred stock is noncumulative and has a dividend rate of $.2665 per share, should dividends be declared. The preferred stock has one vote per share and is convertible into whole shares of common stock, determined according to the conversion formula contained in Breezeway’s amended and restated articles of incorporation. In addition, our investment provides us with a multi-year right to sell insurance and/or warranty products through Breezeway's software platform to its customers.

We reviewed our investments as of June 30, 2020 and concluded that no impairment to the carrying value was required.

Investment in Unconsolidated Affiliates

We have various investments in equity method affiliates, whose businesses are in home building, real estate, real estate services, and asset management. Our interest in these affiliates ranges from 5.6% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24^th Street Holding Company, LLC, having a combined carrying amount of $746,123 as of June 30, 2020, are managed by an entity controlled by a member of our board of directors.

In March 2020, we invested $1,500,000 in 24^th Street Fund I, LLC. The fund is managed by 24^th Street Asset Management LLC, a subsidiary of 24^th Street Holding Company, LLC, and will focus on opportunities within secured lending and direct investments in commercial real estate.

The following table is a reconciliation of our investments in equity affiliates as presented in investments in unconsolidated affiliates on our consolidated balance sheets, together with combined summarized financial data related to the unconsolidated affiliates:

June 30,

December 31,

2020

2019

Beginning of period
$ 771,805 $ 568,713

Additional investment in unconsolidated affiliates
11,500,000 264,834

Distributions received
(98,100 ) (541,108 )

Equity in income of unconsolidated affiliates
1,063,325 479,366

End of period
$ 13,237,030 $ 771,805

Combined summarized financial data for these affiliates is as follows:

For the Three Months Ended

For the Six Months Ended

June 30,

June 30.

2020

2019

2020

2019

Revenue $ 196,181,780 $ 191,717,919 $ 387,933,239 $ 310,992,001

Gross profit
28,973,220 33,805,394 54,761,208 55,604,003

Income from continuing operations
10,545,792 11,949,522 17,927,828 15,487,002

Net income
11,214,670 10,667,777 17,732,418 14,016,284