Note 3 — Investments

Available-for-Sale Securities

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At September 30, 2014 and December 31, 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		Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gain		Loss			Value
*As of September 30, 2014*
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	1,330	$	34	$	—		$	1,364
Corporate bonds		17,020		16		(157	)		16,879
Commercial mortgage-backed securities		11,163		408		(40	)		11,531
State, municipalities, and political subdivisions		59,796		1,158		(41	)		60,913
Redeemable preferred stock		9,434		100		(44	)		9,490

Total		98,743		1,716		(282	)		100,177
Equity securities		38,856		1,444		(1,203	)		39,097

Total available-for-sale securities	$	137,599	$	3,160	$	(1,485	)	$	139,274


*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
Commercial 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

As of September 30, 2014 and December 31, 2013, $111 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 as of September 30, 2014 and December 31, 2013 are as follows:


	Amortized		Estimated
	Cost		Fair Value
*As of September 30, 2014*
Available-for-sale
Due in one year or less	$	1,518	$	1,520
Due after one year through five years		35,153		35,313
Due after five years through ten years		39,811		40,365
Due after ten years		11,098		11,448
Commercial mortgage-backed securities		11,163		11,531

	$	98,743	$	100,177


	Amortized		Estimated
	Cost		Fair Value
*As of December 31, 2013*
Available-for-sale
Due in one year or less	$	2,366	$	2,381
Due after one year through five years		24,829		25,145
Due after five years through ten years		59,083		59,582
Due after ten years		13,531		13,711
Commercial mortgage-backed securities		10,929		11,332

	$	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 three and nine months ended September 30, 2014 and 2013 were as follows:


			Gross Realized		Gross Realized
	Proceeds		Gains		Losses
Three months ended September 30, 2014
Fixed-maturity securities	$	47,557	$	2,759	$	—

Equity securities	$	3,302	$	623	$	(88	)


Three months ended September 30, 2013
Fixed-maturity securities	$	390	$	58	$	(1	)

Equity securities	$	708	$	20	$	(46	)


Nine months ended September 30, 2014
Fixed-maturity securities	$	67,519	$	3,623	$	(9	)

Equity securities	$	9,232	$	1,131	$	(280	)


Nine months ended September 30, 2013
Fixed-maturity securities	$	1,749	$	92	$	(4	)

Equity securities	$	2,021	$	84	$	(129	)

Other-than-temporary Impairment (“OTTI”)

The Company regularly reviews its individual investment securities for OTTI. 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 September 30, 2014 and December 31, 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			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of September 30, 2014	Loss			Value		Loss			Value		Loss			Value
Fixed-maturity securities
Corporate bonds	$	(151	)	$	11,164	$	(6	)	$	1,224	$	(157	)	$	12,388
Commercial mortgage-backed securities		(5	)		283		(35	)		1,377		(40	)		1,660
State, municipalities, and political subdivisions		(15	)		4,085		(26	)		196		(41	)		4,281
Redeemable preferred stock		(44	)		5,239		—			—		(44	)		5,239

Total fixed-maturity securities		(215	)		20,771		(67	)		2,797		(282	)		23,568
Equity securities		(980	)		19,385		(223	)		1,728		(1,203	)		21,113

Total available-for-sale securities	$	(1,195	)	$	40,156	$	(290	)	$	4,525	$	(1,485	)	$	44,681


	Less Than Twelve Months					Twelve Months or Greater					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of December 31, 2013	Loss			Value		Loss			Value		Loss			Value
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
Commercial 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

The Company believes there are no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed-maturity securities were caused primarily by interest-rate changes. It is expected that the securities will not be settled at a price less than the par value of the investments. 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. Because the declines in fair value are attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at September 30, 2014.

Investment in Joint Venture

In September 2014, Melbourne FMA, LLC (“Melbourne FMA”), a wholly owned subsidiary, entered into a joint venture agreement with FMKT Sponsor, LLC (“FMKT Sponsor”) to organize FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company. Melbourne FMA and FMKT Sponsor contributed $4,500 and $500, respectively, in cash for equity interests of 90% and 10%, respectively, in FMJV. 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 variable interest entity (“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.

There were no distributions during the three and nine months ended September 30, 2014. At September 30, 2014, the Company’s maximum exposure to loss relating to the VIE was $4,478 representing the carrying value of the investment. At September 30, 2014, an undistributed $22 loss from equity method investees was included in consolidated retained income. The following tables provide summarized operating results and the financial position of FMJV:


	Three and Nine Months
	Ended September 30, 2014
	(Unaudited)
Operating results:
Revenue	$	—
Operating expenses		25

Net loss	$	(25	)


Melbourne FMA’s share of net loss*	$	22

*	Included in other operating expenses in the Company’s consolidated statements of income.


	September 30, 2014
	(Unaudited)
Balance Sheet:
Construction in progress - real estate	$	3,220
Cash		1,880

Total assets	$	5,100


Other liabilities		125
Members’ capital		4,975

Total liabilities and members’ capital	$	5,100


Investment in joint venture, at equity	$	4,478

Real Estate Investments

Real estate investments consist of the following as of September 30, 2014 and December 31, 2013:


	September 30, 2014			December 31, 2013
Land	$	11,476		$	11,299
Land improvements		1,399			1,351
Buildings		3,097			3,022
Other		1,317			1,262

Total, at cost		17,289			16,934
Less: accumulated depreciation and amortization		(1,003	)		(706	)

Real estate, net		16,286			16,228
ADC Arrangement classified as real estate investment		2,652			—

Real estate investments	$	18,938		$	16,228

Depreciation and amortization expense related to real estate investments was $100 and $99, respectively, for the three months ended September 30, 2014 and 2013 and $298 and $290, respectively, for the nine months ended September 30, 2014 and 2013.

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 September 30, 2014, the Company’s maximum exposure to loss relating to the VIE was $2,652 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.