• Filing Date: 2015-03-10
  • Form Type: 10-K
  • Description: Annual report
v2.4.1.9
Investments
12 Months Ended
Dec. 31, 2014
Investments, Debt and Equity Securities [Abstract]  
Investments

Note 4 — Investments

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At December 31, 2014 and 2013, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:

 

     Cost or
Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Estimated
Fair

Value
 

As of December 31, 2014

           

Fixed-maturity securities

           

U.S. Treasury and U.S. government agencies

   $ 3,747       $ 9       $ (8    $ 3,748   

Corporate bonds

     24,342         57         (430      23,969   

Mortgage-backed securities

     2,138         4         (3      2,139   

State, municipalities, and political subdivisions

     56,336         1,205         (38      57,503   

Redeemable preferred stock

     9,433         178         (54      9,557   

Other

     167         1         —           168   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  96,163      1,454      (533   97,084   

Equity securities

  45,387      1,694      (1,531   45,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 141,550    $ 3,148    $ (2,064 $ 142,634   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2013

Fixed-maturity securities

U.S. Treasury and U.S. government agencies

$ 4,549    $ 37    $ (22 $ 4,564   

Corporate bonds

  25,139      484      (219   25,404   

Mortgage-backed securities

  10,929      499      (96   11,332   

State, municipalities, and political subdivisions

  69,715      917      (181   70,451   

Redeemable preferred stock

  406      5      (11   400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  110,738      1,942      (529   112,151   

Equity securities

  17,248      920      (519   17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 127,986    $ 2,862    $ (1,048 $ 129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2014 and 2013, $113 and $105, respectively, of U.S. Treasury securities relate to a statutory deposit held in trust for the Treasurer of Alabama.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities at December 31, 2014 and 2013 are as follows:

 

     December 31,  
     2014      2013  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair

Value
 

Available-for-sale

           

Due in one year or less

   $ 715       $ 721       $ 2,366       $ 2,381   

Due after one year through five years

     25,973         26,093         24,829         25,145   

Due after five years through ten years

     57,157         57,560         59,083         59,582   

Due after ten years

     10,180         10,571         13,531         13,711   

Mortgage-backed securities

     2,138         2,139         10,929         11,332   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 96,163    $ 97,084    $ 110,738    $ 112,151   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

     Proceeds      Gross
Realized
Gains
     Gross
Realized
Losses
 

Year ended December 31, 2014

        

Fixed-maturity securities

   $ 98,365       $ 4,096       $ (98
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 16,810    $ 1,372    $ (635
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2013

Fixed-maturity securities

$ 1,749    $ 92    $ (4
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 2,809    $ 155    $ (163
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2012

Fixed-maturity securities

$ 8,991    $ 421    $ (6
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 1,735    $ 91    $ (230
  

 

 

    

 

 

    

 

 

 

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

 

    the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

 

    the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

 

    general market conditions and industry or sector specific factors;

 

    nonpayment by the issuer of its contractually obligated interest and principal payments; and

 

    the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

 

Securities with gross unrealized loss positions at December 31, 2014 and 2013, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2014

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (8   $ 2,485       $ —        $ —         $ (8   $ 2,485   

Corporate bonds

     (428     12,929         (2     998         (430     13,927   

Mortgage-backed securities

     (3     1,018         —          —           (3     1,018   

State, municipalities, and political subdivisions

     (19     3,144         (19     202         (38     3,346   

Redeemable preferred stock

     (54     2,586         —          —           (54     2,586   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (512   22,162      (21   1,200      (533   23,362   

Equity securities

  (1,449   18,848      (82   4,619      (1,531   23,467   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$ (1,961 $ 41,010    $ (103 $ 5,819    $ (2,064 $ 46,829   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2014, there were 94 securities in an unrealized loss position. Of these securities, 9 securities had been in an unrealized loss position for 12 months or greater.

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2013

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (22   $ 3,291       $ —        $ —         $ (22   $ 3,291   

Corporate bonds

     (212     9,502         (7     230         (219     9,732   

Mortgage-backed securities

     (96     2,179         —          —           (96     2,179   

State, municipalities, and political subdivisions

     (181     20,233         —          —           (181     20,233   

Redeemable preferred stock

     (11     239         —          —           (11     239   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (522   35,444      (7   230      (529   35,674   

Equity securities

  (273   10,742      (246   1,069      (519   11,811   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$    (795 $ 46,186    $ (253 $ 1,299    $ (1,048 $ 47,485   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2013, there were 100 securities in an unrealized loss position. Of these securities, 8 securities had been in an unrealized loss position for 12 months or greater.

Based on the review, the Company believes the unrealized losses on investments in fixed-maturity securities were caused by interest rate changes. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold these securities and it is not more likely than not that the Company will be required to sell these securities until a market price recovery or maturity, the Company does not consider any of its fixed-maturity securities to be other-than-temporarily impaired at December 31, 2014 and 2013.

 

In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. In the fourth quarter of 2014, the Company determined that one equity security was other-than-temporarily impaired after considering the length of time this security had been in an unrealized loss position, the extent of the decline and its near term prospect of recovery. As a result, the Company recognized an impairment charge of $107 in net investment income.

Limited Partnership Investment

During the fourth quarter of 2014, the Company entered into a subscription agreement to invest up to a maximum of $12,500 for a 16.5% limited partnership interest. The primary investment strategy of the partnership is to invest in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. Except under certain circumstances, the Company is not permitted to withdraw any amount of its capital investment for a minimum of 10 years. The Company’s involvement is limited to that of a passive investor. As such, the Company is not the primary beneficiary and does not consolidate the partnership. For the year ended December 31, 2014, the Company recognized a $90 investment loss in net investment income. At December 31, 2014, the Company’s contributed capital to the partnership is $2,640 and its carrying value and maximum exposure to loss is $2,550.

Investment in Joint Venture

In September 2014, Melbourne FMA, LLC, a wholly owned subsidiary, entered into a joint venture agreement with FMKT Sponsor, LLC to organize FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company. Melbourne FMA and FMKT Sponsor contributed cash of $4,500 and $500, respectively, for equity interests in FMJV of 90% and 10%, respectively. The joint venture will acquire and develop land on which the joint venture partners plan to construct a retail shopping center for lease or for sale in Melbourne, Florida. FMJV is deemed a VIE due to its lack of sufficient equity to finance its operations without direct or indirect additional financial support from parties to the joint venture. Although Melbourne FMA holds a majority interest in FMJV, certain major economic decisions specified in the agreement are not under Melbourne FMA’s control. As a result, Melbourne FMA is not the primary beneficiary and is not required to consolidate FMJV.

In addition, FMJV is contractually required to engage affiliates of FMKT Sponsor to manage and develop the project, and also operate the property while the joint venture agreement is in effect. The agreement includes FMKT Sponsor’s right of sale and first offer as well as an embedded option under which Melbourne FMA can purchase the entire interest of FMKT Sponsor. Under the right of sale and first offer, Melbourne FMA can either choose to purchase the interest of FMKT Sponsor in the developed property or approve the sale of the developed property to a third party buyer. Either party can initiate these provisions after the expiration of a restricted period.

 

At December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $4,477 representing the carrying value of the investment. At December 31, 2014, an undistributed $23 loss from equity method investees was included in consolidated retained income. The joint venture partners received no distributions during 2014. The following tables provide summarized operating results and the financial position of FMJV:

 

     Year Ended
December 31, 2014
 
     (Unaudited)  

Operating results:

  

Revenue

   $ —     

Operating expenses

     25   
  

 

 

 

Net loss

$ (25
  

 

 

 

Melbourne FMA’s share of net loss*

$ (23

 

* Included in net investment income in the Company’s consolidated statements of income.

 

     December 31,
2014
 
     (Unaudited)  

Balance Sheet:

  

Construction in progress - real estate

   $ 3,612   

Cash

     1,323   

Other

     40   
  

 

 

 

Total assets

$ 4,975   
  

 

 

 

Other liabilities

  —     

Members’ capital

  4,975   
  

 

 

 

Total liabilities and members’ capital

$ 4,975   
  

 

 

 

Investment in joint venture, at equity

$ 4,477   

Real Estate Investments

Real estate investments consist of the ADC Arrangement and the Company’s real estate portfolio and the related assets of the marina and restaurant facilities. Operating activities related to the Company’s real estate investments include leasing of office and retail space to tenants, wet and dry boat storage, a restaurant, and fuel services with respect to marina clients and recreational boaters.

 

Real estate investments consist of the following as of December 31, 2014 and 2013:

 

     December 31,  
     2014      2013  

Land

   $ 11,476       $ 11,299   

Land improvements

     1,425         1,351   

Building

     3,097         3,022   

Other

     1,359         1,262   
  

 

 

    

 

 

 

Total, at cost

  17,357      16,934   

Less: accumulated depreciation and amortization

  (1,107   (706
  

 

 

    

 

 

 

Real estate, net

  16,250      16,228   

ADC Arrangement classified as real estate investment

  2,888      —     
  

 

 

    

 

 

 

Real estate investments

$ 19,138    $ 16,228   
  

 

 

    

 

 

 

Depreciation and amortization expense for other investments was $402, $388 and $279, respectively, for the years ended December 31, 2014, 2013 and 2012.

ADC Arrangement

In June 2014, the Company’s wholly owned subsidiary, Greenleaf Capital, LLC, entered into an ADC Arrangement under which it agreed to provide financing up to a maximum of $9,785 for the acquisition, development and construction of a retail shopping center and appurtenant facilities. Greenleaf Capital has an option to purchase the property when the construction project is completed contingent upon tenant rental commitments for at least 90% of rentable space being secured by the developer. The purchase price is calculated at maturity of the loan using a predetermined capitalization rate and the projected net operating income of the developed property. The loan has an initial term of 24 months and can be extended for an additional 12 months if the purchase option is not exercised by Greenleaf Capital. Prepayment is not permitted while the ADC Arrangement is in effect. The loan bears a fixed annual interest rate of 6% due monthly in arrears. The loan agreement is secured by a) a first mortgage on the land and improvements, b) assignment of all leases, rents, issues, and profits from the land and improvements, and c) personal guarantees.

Under this ADC Arrangement, Greenleaf Capital will provide substantially all necessary funds to complete the development and Greenleaf Capital will receive the entire residual profit of the developed property if it exercises the purchase option. The developer may make multiple draws on the credit facility as the construction progresses. Based on the characteristics of this ADC Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement is accounted for and reported in the balance sheet as a real estate investment. All project costs associated with the ADC Arrangement are capitalized. The loan commitment fee received by Greenleaf Capital is deferred and recognized in investment income on a straight-line basis over the term of the loan agreement.

Because of the purchase option and the substantial financial support provided by Greenleaf Capital, the developer who has no equity interest in the property is a VIE. However, Greenleaf Capital’s involvement is solely as the lender on the mortgage loan with protective rights as the lender. Greenleaf Capital does not have power to direct the activities that most significantly impact economic performance of the VIE. As a result, Greenleaf Capital is not the primary beneficiary and is not required to consolidate the VIE. At December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $2,888 representing the carrying value of the ADC Arrangement.

 

In addition, Greenleaf Capital determined that the option to purchase the entire developed property is not a derivative financial instrument pursuant to U.S. GAAP. As such, the embedded feature is not required to be bifurcated and the fair value accounting for the embedded feature at each reporting date is not applicable.

Net Investment Income (Loss)

Net investment income (loss), by source, is summarized as follows:

 

     Years Ended December 31,  
     2014      2013      2012  

Available-for-sale securities:

        

Fixed-maturity securities

   $ 3,339       $ 1,868       $ 1,464   

Equity securities

     2,364         499         492   

Other-than-temporary impairment charge

     (107      —           —     

Investment expense

     (436      (210      (150

Limited partnership investment

     (90      —           —     

Time deposits

     —           —           357   

Real estate investments

     (955      (1,045      (1,334

Cash and cash equivalents

     666         357         151   
  

 

 

    

 

 

    

 

 

 
$ 4,781    $ 1,469    $ 980   
  

 

 

    

 

 

    

 

 

 

At December 31, 2014, $234,025 or 74.4% of the Company’s cash and cash equivalents were deposited at three national banks and included $48,674 in three custodial accounts. At December 31, 2013, $241,378 or 82.3% of the Company’s cash and cash equivalents were deposited at three national banks and included $22,252 in two custodial accounts.