0001502292-16-000041.txt : 20160811 0001502292-16-000041.hdr.sgml : 20160811 20160811160557 ACCESSION NUMBER: 0001502292-16-000041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 68 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160811 DATE AS OF CHANGE: 20160811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Conifer Holdings, Inc. CENTRAL INDEX KEY: 0001502292 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 271298795 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37536 FILM NUMBER: 161824613 BUSINESS ADDRESS: STREET 1: 550 WEST MERRILL STREET STREET 2: SUITE 200 CITY: BIRMINGHAM STATE: MI ZIP: 48009 BUSINESS PHONE: (248) 559-0840 MAIL ADDRESS: STREET 1: 550 WEST MERRILL STREET STREET 2: SUITE 200 CITY: BIRMINGHAM STATE: MI ZIP: 48009 10-Q 1 a6301610-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2016
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                 to
 
Commission file number 001-37536
 
 
Conifer Holdings, Inc.
(Exact name of registrant as specified in its charter)
Michigan
 
27-1298795
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
550 West Merrill Street, Suite 200
 
 
Birmingham, Michigan
 
48009
(Address of principal executive offices)
 
(Zip code)
 
(248) 559-0840
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
(Do not check if a smaller
reporting company)
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
The number of outstanding shares of the registrant’s common stock, no par value, as of August 9, 2016, was 7,577,829.
 



CONIFER HOLDINGS, INC. AND SUBSIDIARIES
 
Form 10-Q
 
INDEX
 
 
Page No.
 
 






22

36

37

 
38

38

38

39

40


2


PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
 
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands) 
 
June 30, 2016
 
December 31, 2015
 
(Unaudited)
 
 
Assets
 
 
 
Investment securities:
 
 
 
Fixed maturity securities, at fair value (amortized cost of $110,819
and $107,213, respectively)
$
112,469

 
$
107,093

Equity securities, at fair value (cost of $3,321 and $3,341, respectively)
4,443

 
4,240

Short-term investments, at fair value
16,304

 
6,391

Total investments
133,216

 
117,724

 
 
 
 
Cash
14,166

 
12,703

Premiums and agents' balances receivable, net
21,950

 
18,010

Receivable from affiliate
2,236

 
1,792

Reinsurance recoverables on unpaid losses
5,890

 
5,405

Reinsurance recoverables on paid losses
2,209

 
1,639

Ceded unearned premiums
1,848

 
3,483

Deferred policy acquisition costs
13,182

 
12,102

Other assets
5,365

 
5,069

Total assets
$
200,062

 
$
177,927

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Unpaid losses and loss adjustment expenses
$
41,832

 
$
35,422

Unearned premiums
54,230

 
47,916

Reinsurance premiums payable
445

 
1,069

Senior debt
14,750

 
12,750

Accounts payable and accrued expenses
12,056

 
2,758

Other liabilities
748

 
750

Total liabilities
124,061

 
100,665

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders' equity:
 
 
 
Common stock, no par value (100,000,000 shares authorized; 7,577,829 and 7,644,492 issued and outstanding, respectively)
80,069

 
80,111

Accumulated deficit
(5,572
)
 
(3,031
)
Accumulated other comprehensive income
1,504

 
182

Total shareholders' equity
76,001

 
77,262

Total liabilities and shareholders' equity
$
200,062

 
$
177,927

 
The accompanying notes are an integral part of the Consolidated Financial Statements.

3


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share data)

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
 
 
 
 
 
 
 
Premiums
 
 
 
 
 
 
 
Gross earned premiums
$
25,258

 
$
22,187

 
$
48,804

 
$
43,161

Ceded earned premiums
(3,583
)
 
(7,072
)
 
(7,020
)
 
(13,553
)
Net earned premiums
21,675

 
15,115

 
41,784

 
29,608

Net investment income
528

 
469

 
1,065

 
955

Net realized investment gains
541

 
87

 
533

 
232

Other income
283

 
480

 
528

 
969

Total revenue
23,027

 
16,151

 
43,910

 
31,764

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Losses and loss adjustment expenses, net
13,541

 
8,976

 
26,240

 
17,546

Policy acquisition costs
6,014

 
2,639

 
12,017

 
5,234

Operating expenses
4,536

 
3,619

 
8,675

 
7,311

Interest expense
143

 
239

 
300

 
483

Total expenses
24,234

 
15,473

 
47,232

 
30,574

 
 
 
 
 
 
 
 
Income (loss) before equity earnings of affiliates and income taxes
(1,207
)
 
678

 
(3,322
)
 
1,190

Equity earnings of affiliates, net of tax
71

 

 
158

 

Income tax (benefit) expense
(623
)
 
48

 
(623
)
 
48

 
 
 
 
 
 
 
 
Net income (loss)
(513
)
 
630

 
(2,541
)
 
1,142

Less net income attributable to noncontrolling interest

 
51

 

 
100

Net income (loss) attributable to Conifer
$
(513
)
 
$
579

 
$
(2,541
)
 
$
1,042

 
 
 
 
 
 
 
 
Net income (loss) allocable to common shareholders
$
(513
)
 
$
366

 
$
(2,541
)
 
$
616

 
 
 
 
 
 
 
 
Earnings (loss) per common share, basic and diluted
$
(0.07
)
 
$
0.09

 
$
(0.33
)
 
$
0.15

 
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic and diluted
7,594,862

 
4,050,042

 
7,616,821

 
4,045,482

 
The accompanying notes are an integral part of the Consolidated Financial Statements.

4


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollars in thousands)
  
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
(513
)
 
$
630

 
$
(2,541
)
 
$
1,142

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized investment gains:
 
 
 
 
 
 
 
Unrealized investment gains (losses) during the period
277

 
(977
)
 
1,736

 
(274
)
Income tax expense (benefit)
585

 

 
585

 

Unrealized investment gains, net of tax
(308
)
 
(977
)
 
1,151

 
(274
)
 
 
 
 
 
 
 
 
Less: reclassification adjustments to:
 
 
 
 
 
 
 
Net realized investment gains included in net income (loss)
(174
)
 
208

 
(257
)
 
425

Income tax expense (benefit)
(86
)
 

 
(86
)
 

Total reclassifications included in net income (loss), net of tax
(88
)
 
208

 
(171
)
 
425

 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(220
)
 
(1,185
)
 
1,322

 
(699
)
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
(733
)
 
(555
)
 
(1,219
)
 
443

Less comprehensive (loss) income attributable to noncontrolling interest

 
51

 

 
100

Comprehensive income (loss) attributable to Conifer
$
(733
)
 
$
(606
)
 
$
(1,219
)
 
$
343

 
The accompanying notes are an integral part of the Consolidated Financial Statements.

5


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders' Equity (Unaudited)
(dollars in thousands)
  
 
Redeemable
Preferred Stock
Preferred Stock
 
No Par, Common Stock
 
Retained
Earnings
 
Accumulated
Other
 
Total Conifer
Holdings
 
 
 
 
 
Shares
 
Amount
Shares
 
Amount
 
Shares
 
Amount
 
(Accumulated
deficit)
 
Comprehensive
Income (Loss)
 
Shareholders'
Equity
 
Noncontrolling
Interest
 
Total Equity
Balances at December 31, 2014
60,600

 
$
6,119


 
$

 
3,995,013

 
$
46,119

 
$
(3,095
)
 
$
1,158

 
$
44,182

 
$
(23
)
 
$
44,159

Net income

 


 

 

 

 
1,042

 

 
1,042

 
100

 
1,142

Issuance of common stock (Pre IPO)*

 


 

 
55,029

 
750

 

 

 
750

 

 
750

Paid-in-kind dividends

 
61


 
62

 

 
(123
)
 

 

 
(61
)
 

 
(61
)
Cash dividends paid on preferred stock

 


 

 

 
(303
)
 

 

 
(303
)
 

 
(303
)
Reclassification of redeemable preferred stock to permanent equity
(60,600
)
 
(6,180
)
60,600

 
6,180

 

 

 

 

 
6,180

 

 
6,180

Other comprehensive loss

 


 

 

 

 

 
(699
)
 
(699
)
 

 
(699
)
Balances at June 30, 2015

 
$

60,600

 
$
6,242

 
4,050,042

 
$
46,443

 
$
(2,053
)
 
$
459

 
$
51,091

 
$
77

 
$
51,168

Net loss

 


 

 

 

 
(978
)
 

 
(978
)
 
(181
)
 
(1,159
)
Paid-in-kind dividends

 


 
33

 

 
(33
)
 

 

 

 

 

Cash dividends paid on preferred stock

 


 

 

 
(81
)
 

 

 
(81
)
 

 
(81
)
Issuance of common stock (IPO)*

 


 

 
3,300,000

 
32,224

 

 

 
32,224

 

 
32,224

IPO Expenses*

 


 

 

 
(1,837
)
 

 

 
(1,837
)
 

 
(1,837
)
Repurchase of preferred stock

 

(60,600
)
 
(6,275
)
 

 

 

 

 
(6,275
)
 

 
(6,275
)
Issuance of common stock to former preferred stockholders

 


 

 
294,450

 
3,092

 

 

 
3,092

 

 
3,092

Vesting of RSU**

 


 

 

 
303

 

 

 
303

 

 
303

Deconsolidation of affiliate

 


 

 

 

 

 

 

 
104

 
104

Other comprehensive loss

 


 

 

 

 

 
(277
)
 
(277
)
 

 
(277
)
Balances at December 31, 2015

 
$


 
$

 
7,644,492

 
$
80,111

 
$
(3,031
)
 
$
182

 
$
77,262

 
$

 
$
77,262

Net loss

 


 

 

 

 
(2,541
)
 

 
(2,541
)
 

 
(2,541
)
Repurchase of common stock

 


 

 
(66,663
)
 
(451
)
 

 

 
(451
)
 

 
(451
)
Vesting of RSU**

 


 

 

 
409

 

 

 
409

 

 
409

Other comprehensive income

 


 

 

 

 

 
1,322

 
1,322

 

 
1,322

Balances at June 30, 2016

 
$


 
$

 
7,577,829

 
$
80,069

 
$
(5,572
)
 
$
1,504

 
$
76,001

 
$

 
$
76,001

 
* "IPO" - initial public offering
** "RSU" - restricted stock units

The accompanying notes are an integral part of the Consolidated Financial Statements.

6


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands) 
 
Six Months Ended
June 30,
 
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(2,541
)
 
$
1,142

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization of property and equipment, and intangibles
197

 
208

Amortization of bond premium and discount, net
290

 
279

Gains on investments
(533
)
 
(232
)
Incentive awards expenses - vesting of RSU
409

 

Equity earnings of affiliate
(158
)
 

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in:
 
 
 
Premiums and agents' balances receivable
(4,384
)
 
(956
)
Reinsurance recoverables
(1,055
)
 
(1,132
)
Ceded unearned premiums
1,635

 
(1,103
)
Deferred policy acquisition costs
(1,080
)
 
(1,980
)
Other assets
(868
)
 
(189
)
Increase (decrease) in:
 
 
 
Unpaid losses and loss adjustment expenses
6,410

 
825

Unearned premiums
6,314

 
1,103

Reinsurance premiums payable
(624
)
 
(4,370
)
Accounts payable and accrued expenses
1,235

 
1,862

Other liabilities
(3
)
 
(312
)
Net cash provided by (used in) operating activities
5,244

 
(4,855
)
Cash Flows From Investing Activities
 
 
 
Purchase of investments:
 
 
 
Fixed maturity securities
(27,375
)
 
(19,059
)
Equity securities
(754
)
 
(759
)
Short-term investments
(55,197
)
 
(44,191
)
Proceeds from maturities and redemptions of investments:
 
 
 
Fixed maturity securities
11,335

 
1,203

Proceeds from sales of investments:
 
 
 
Fixed maturity securities
20,677

 
3,206

Equity securities
838

 
717

Short-term investments
45,284

 
54,703

Purchases of property and equipment
(138
)
 
(91
)
Net cash used in investing activities
(5,330
)
 
(4,271
)
Cash Flows From Financing Activities
 
 
 
Proceeds received from issuance of shares of common stock

 
750

Repurchase of common stock
(451
)
 

Borrowings under debt arrangements
3,000

 
900

Repayment of borrowings under debt arrangements
(1,000
)
 
(1,000
)
Dividends paid to preferred shareholders

 
(152
)
Payout of contingent consideration

 
(113
)
Payment of offering costs

 
(1,149
)
Net cash provided by (used in) financing activities
1,549

 
(764
)
Net increase (decrease) in cash
1,463

 
(9,890
)
Cash at beginning of period
12,703

 
18,488

Cash at end of period
$
14,166

 
$
8,598

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Interest paid
$
219

 
$
439

Net income taxes paid
45

 

Dividends declared but not paid at end of the period

 
151

Paid-in-kind interest

 
123

Payable for securities - non cash item
8,063

 

 

7


The accompanying notes are an integral part of the Consolidated Financial Statements.

8

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)





 

1.     Summary of Significant Accounting Policies
 Basis of Presentation
 The consolidated financial statements include accounts, after elimination of intercompany accounts and transactions, of Conifer Holdings, Inc. (the “Company” or “Conifer”), its wholly owned subsidiaries Conifer Insurance Company ("CIC"), White Pine Insurance Company ("WPIC"), Red Cedar Insurance Company ("RCIC"), American Colonial Insurance Company ("ACIC"), American Colonial Insurance Services ("ACIS") and Sycamore Insurance Agency, Inc ("SIA"). CIC, WPIC, RCIC and ACIC are collectively referred to as the "Insurance Company Subsidiaries." On a stand-alone basis Conifer Holdings, Inc. is referred to as the "Parent Company."
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), which differ from statutory accounting practices prescribed or permitted for insurance companies by regulatory authorities. The Company has applied the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting and therefore the consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting of items of a normal recurring nature, necessary for a fair presentation of the consolidated interim financial statements, have been included. The results of operations for the six months ended June 30, 2016, are not necessarily indicative of the results expected for the year ended December 31, 2016.
These consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 15, 2016 ("2015 Audited Financial Statements").
 Business
The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into two types of insurance businesses: commercial lines and personal lines. The Company underwrites a variety of specialty insurance products, including property, general liability, commercial multi-peril, liquor liability, automobile, and homeowners and dwelling policies. The Company markets and sells its insurance products through a network of independent agents, including managing general agents, whereby policies are written in all 50 states in the United States. The Company’s corporate headquarters is located in Birmingham, Michigan with additional office facilities in Florida, Texas, Pennsylvania and Tennessee.
 The Company discontinued offering nonstandard personal automobile policies in the first half of 2015. The Company will continue to pay claims and perform other administrative services until existing policies expire and all claims are paid (a process referred to as “run-off”). The run-off is expected to be substantially complete by the end of 2016.
Initial Public Offering
In August 2015, the Company completed its initial public offering (“IPO”) whereby it issued and sold 3,300,000 shares of common stock, which included 100,000 shares issued and sold to the Company’s Chief Executive Officer, at a public offering price of $10.50 per share. Refer to Note 8 ~ Shareholders’ Equity for further details.
 Stock Split
 On July 22, 2015, the board of directors approved a stock split in the form of a stock dividend of 10.2 shares for each share of common stock which was effectuated immediately prior to the effectiveness of the IPO. Accordingly, all common share and per share amounts for all periods presented in these unaudited consolidated financial statements and notes thereto, were adjusted retroactively to reflect the stock split.
Principles of Consolidation
Prior to September 30, 2015, the consolidated financial statements included the accounts of Conifer Holdings, Inc. and its wholly owned subsidiaries, as well as a 50%-owned affiliate (the “Affiliate”) which the Company controlled due to its majority representation on the entity’s board of directors. Noncontrolling interest in a consolidated subsidiary in the consolidated balance sheets represents the noncontrolling shareholder’s proportionate share of the entity’s equity. Consolidated net income or loss is allocated to the Company and noncontrolling interest in proportion to their percentage ownership interests. As of September 30, 2015, the Company no longer controlled the Affiliate but retained significant influence. As a result the entity

9

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




was deconsolidated from the consolidated financial statements and recognized as an investment in an affiliate utilizing the equity method of accounting. All intercompany transactions and accounts were eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes the amounts included in the consolidated financial statements reflect management's best estimates and assumptions, actual results may differ from these estimates.
 Recently Issued Accounting Guidance
In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-09, Disclosures about Short-Duration Contracts (Topic 944), which enhances disclosure requirements for insurance entities with short-duration insurance contracts. The enhanced disclosures under the new guidance will be provided by the Company for the year ended December 31, 2016, as required.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operation. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Reporting entities may continue to elect to measure equity investments which do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective for the Company on January 1, 2018, with early adoption permitted solely for the instrument-instrument specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Management is currently evaluating the impact of the guidance.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which addresses the financial reporting of leasing transactions. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the consolidated statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the consolidated statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the consolidated statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. We have not yet completed the analysis of how adopting this guidance will affect our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which amends the current methodology and timing for recognizing credit losses. This amendment will replace the current GAAP "incurred loss" methodology for credit losses with a methodology based on expected credit losses. The new guidance will also require expanded consideration of a broader range of reasonable and increased supportable information for the credit loss estimates. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted for years beginning after December 15, 2018. We have not yet completed the analysis of how adopting this guidance will affect our financial statements.
2.     Investments
The cost or amortized cost, gross unrealized gain or loss, and estimated fair value of the investments in securities classified as available-for-sale at June 30, 2016 and December 31, 2015 were as follows (dollars in thousands):

10

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 
June 30, 2016
 
Cost or
Amortized
Cost
Gross Unrealized
Estimated
Fair Value 
 
 
Gains
Losses
Fixed Maturity Securities:
 
 
 
 
U.S. Government obligations
$
5,737

$
80

$

$
5,817

State and local government
10,917

551

(1
)
11,467

Corporate debt
34,574

479

(59
)
34,994

Commercial mortgage-backed and other asset-backed
59,591

614

(14
)
60,191

Total fixed maturity securities available for sale
110,819

1,724

(74
)
112,469

Equity Securities:
 
 
 
 
Common stocks - Public Utilities
220

64

(2
)
282

Common stocks - Banks, Trusts and Insurance Companies
458

151

(3
)
606

Common stocks - Industrial, miscellaneous and all other
2,643

942

(30
)
3,555

Total equity securities available for sale
3,321

1,157

(35
)
4,443

Total securities available for sale
$
114,140

$
2,881

$
(109
)
$
116,912

 
December 31, 2015
 
Cost or
Amortized
Cost
Gross Unrealized
Estimated
Fair Value 
 
Gains
Losses
Fixed Maturity Securities:
 
 
 
 
U.S. Government obligations
$
5,474

$
47

$
(13
)
$
5,508

State and local government
14,391

398

(6
)
14,783

Corporate debt
39,183

84

(483
)
38,784

Commercial mortgage-backed and other asset-backed
48,165

164

(311
)
48,018

Total fixed maturity securities available for sale
107,213

693

(813
)
107,093

Equity Securities:
 
 
 
 
Common stocks - Public Utilities
122

20

(1
)
141

Common stocks - Banks, Trusts and Insurance Companies
503

150

(7
)
646

Common stocks - Industrial, miscellaneous and all other
2,716

836

(99
)
3,453

Total equity securities available for sale
3,341

1,006

(107
)
4,240

Total securities available for sale
$
110,554

$
1,699

$
(920
)
$
111,333

The following table summarizes the aggregate fair value and gross unrealized losses, by security type, of the available-for-sale securities in unrealized loss positions. The table segregates the holdings based on the length of time that individual securities have been in a continuous unrealized loss position, as follows (dollars in thousands): 

11

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 
June 30, 2016
 
Less than 12 months
 
Greater than 12 months
 
Total
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government obligations

$

$

 

$

$

 

$

$

State and local government
1

118

(1
)
 



 
1

118

(1
)
Corporate debt
7

3,104

(17
)
 
15

5,127

(42
)
 
22

8,231

(59
)
Commercial mortgage and asset-backed
14

8,779

(11
)
 
5

1,324

(3
)
 
19

10,103

(14
)
Total fixed maturity securities available for sale
22

12,001

(29
)
 
20

6,451

(45
)
 
42

18,452

(74
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
47

457

(22
)
 
4

133

(13
)
 
51

590

(35
)
Total equity securities available for sale
47

457

(22
)
 
4

133

(13
)
 
51

590

(35
)
Total securities
69

$
12,458

$
(51
)
 
24

$
6,584

$
(58
)
 
93

$
19,042

$
(109
)
 
December 31, 2015
 
Less than 12 months
 
Greater than 12 months
 
Total
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
 
#
of
Issues
Fair Value of
Investments
with Unrealized
Losses
Gross
Un realized
Losses
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government obligations
7

$
2,580

$
(7
)
 
2

$
679

$
(6
)
 
9

$
3,259

$
(13
)
State and local government
8

2,688

(6
)
 



 
8

2,688

(6
)
Corporate debt
80

21,760

(438
)
 
12

3,618

(45
)
 
92

25,378

(483
)
Commercial mortgage and asset-backed
67

32,539

(258
)
 
5

2,175

(53
)
 
72

34,714

(311
)
Total fixed maturity securities available for sale
162

59,567

(709
)
 
19

6,472

(104
)
 
181

66,039

(813
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
86

782

(72
)
 
3

79

(35
)
 
89

861

(107
)
Total equity securities available for sale
86

782

(72
)
 
3

79

(35
)
 
89

861

(107
)
Total securities
248

$
60,349

$
(781
)
 
22

$
6,551

$
(139
)
 
270

$
66,900

$
(920
)

12

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 The Company analyzed its investment portfolio in accordance with its other-than-temporary impairment ("OTTI") review procedures and determined the Company did not need to record a credit related OTTI loss, nor recognize a non-credit related OTTI loss in other comprehensive income for the three and six months ended June 30, 2016 and 2015.
 The Company’s sources of net investment income are as follows (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Fixed maturity securities
$
570

 
$
532

 
$
1,156

 
$
1,063

Equity securities
25

 
22

 
51

 
45

Cash and short-term investments
5

 
2

 
7

 
4

Total investment income
600

 
556

 
1,214

 
1,112

Investment expenses
(72
)
 
(87
)
 
(149
)
 
(157
)
Net investment income
$
528

 
$
469

 
$
1,065

 
$
955


The following table summarizes the gross realized gains and losses from sales or maturities of available-for-sale fixed maturity and equity securities (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Fixed maturity securities:
 
 
 
 
 
 
 
Gross realized gains
$
502

 
$

 
$
518

 
$
68

Gross realized losses
(16
)
 
(1
)
 
(22
)
 
(4
)
Total fixed maturity securities
486

 
(1
)
 
496

 
64

Equity securities:
 
 
 
 
 
 
 
Gross realized gains
94

 
104

 
150

 
203

Gross realized losses
(39
)
 
(16
)
 
(113
)
 
(35
)
Total equity securities
55

 
88

 
37

 
168

Total realized gains (losses)
$
541

 
$
87

 
$
533

 
$
232

 Proceeds from the sales of debt and equity securities available for sale were $21.5 million and $3.9 million for the six months ended June 30, 2016 and 2015, respectively.
 The table below summarizes the amortized cost and fair value of available-for-sale fixed maturity securities by contractual maturity at June 30, 2016. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands):
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
7,779

 
$
7,784

Due after one year through five years
30,636

 
31,052

Due after five years through ten years
6,529

 
6,941

Due after ten years
6,284

 
6,501

Securities with contractual maturities
51,228

 
52,278

Commercial mortgage and asset backed
59,591

 
60,191

Total Fixed maturity securities
$
110,819

 
$
112,469

 At June 30, 2016 and December 31, 2015, the insurance companies had an aggregate of $9.0 million and $8.9 million, respectively, on deposit in trust accounts to meet the deposit requirements of various state insurance departments. There are

13

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




withdrawal and other restrictions on these deposits, including the type of investments that may be held, however, the Company may generally invest in high-grade bonds and short-term investments and earn interest on the funds. 
3.     Fair Value Measurements
 The Company’s financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in these consolidated financial statements . Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principally most advantageous market for the asset or liability in an orderly transaction between market participants. In determining fair value, the Company applies the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. The inputs to valuation techniques used to measure fair value are prioritized into a three-level hierarchy. The hierarchy gives the highest priority to quoted prices from sources independent of the reporting entity (“observable inputs”) and the lowest priority to prices determined by the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The fair value hierarchy is as follows:
 Level 1—Valuations that are based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
 Level 2—Valuations that are based on observable inputs (other than Level 1 prices) such as quoted prices for similar assets or liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
 Level 3—Unobservable inputs that are supported by little or no market activity. The unobservable inputs represent the Company’s best assumption of how market participants would price the assets or liabilities.
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis, classified by the valuation hierarchy as of June 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
June 30, 2016
 
Fair Value Measurements Using
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
U.S. Government obligations
$
5,817

 
$

 
$
5,817

 
$

State and local government
11,467

 

 
11,467

 

Corporate debt
34,994

 

 
34,994

 

Commercial mortgage-backed and other asset-backed
60,191

 

 
60,191

 

Total fixed maturity securities
112,469

 

 
112,469

 

Equity Securities, common stock
4,443

 
4,443

 

 

Short-term investments
16,304

 
16,304

 

 

Total assets measured at fair value
$
133,216

 
$
20,747

 
$
112,469

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Senior debt*
$
14,750

 
$

 
$
14,750

 
$

Total Liabilities measured at fair value
$
14,750

 
$

 
$
14,750

 
$

 * Carried at cost or amortized cost on the consolidated balance sheet


14

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 
December 31, 2015
 
Fair Value Measurements Using
 
Total
 
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
U.S. Government obligations
$
5,508

 
$

 
$
5,508

 
$

State and local government
14,783

 

 
14,783

 

Corporate debt
38,784

 

 
38,784

 

Commercial mortgage-backed and other asset-backed
48,018

 

 
48,018

 

Total fixed maturity securities
107,093

 

 
107,093

 

Equity Securities, common stock
4,240

 
4,240

 

 

Short-term investments
6,391

 
6,391

 

 

Total assets measured at fair value
$
117,724

 
$
10,631

 
$
107,093

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Senior debt*
$
12,750

 
$

 
$
12,750

 
$

Total Liabilities measured at fair value
$
12,750

 
$

 
$
12,750

 
$

 * Carried at cost or amortized cost on the consolidated balance sheet
Level 1 investments consist of equity securities traded in an active exchange market. The Company uses unadjusted quoted prices for identical instruments to measure fair value. Level 1 also includes money market funds and other interest-bearing deposits at banks, which are reported as short-term investments. The fair value measurements that were based on Level 1 inputs comprise 15.6% of the fair value of the total investment portfolio as of June 30, 2016.
Level 2 investments include fixed maturity securities, which consist of U.S. government agency securities, state and local municipal bonds (including those held as restricted securities), corporate debt securities, mortgage-backed and asset-backed securities. The fair value of securities included in the Level 2 category were based on the market values obtained from a third party pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other observable market information. The third party pricing service monitors market indicators, as well as industry and economic events. The fair value measurements that were based on Level 2 inputs comprise 84.4% of the fair value of the total investment portfolio as of June 30, 2016.
 The Company obtains pricing for each security from independent pricing services, investment managers or consultants to assist in determining fair value for its Level 2 investments. To validate that these quoted prices are reasonable estimates of fair value, the Company performs various quantitative and qualitative procedures, such as (i) evaluation of the underlying methodologies, (ii) analysis of recent sales activity, (iii) analytical review of our fair values against current market prices and (iv) comparison of the pricing services’ fair value to other pricing services’ fair value for the same investment. No markets for the investments were determined to be inactive at period-ends. Based on these procedures, the Company did not adjust the prices or quotes provided from independent pricing services, investment managers or consultants.
The Level 2 financial instruments also include our senior debt. The fair value of borrowings under the senior debt, consisting of the revolving credit facility and term loans, approximates its carrying amount because interest is based on a short-term, variable, market-based rate.
 The Company’s policy on recognizing transfers between hierarchy levels is applied at the end of each reporting period. There were no transfers between Levels 1, 2 and 3 for the six months ended June 30, 2016 and 2015, respectively.
4. Deferred Policy Acquisition Costs
The Company defers costs incurred which are incremental and directly related to the successful acquisition of new or renewal insurance business, net of corresponding amounts of ceded reinsurance commissions. Net deferred policy acquisition costs are amortized and charged to expense in proportion to premium earned over the estimated policy term. The Company

15

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




anticipates that its deferred policy acquisition costs will be fully recoverable and there were no premium deficiencies for the three and six months ended June 30, 2016 and 2015. The activity in deferred policy acquisition costs, net of reinsurance transactions, is as follows (dollars in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Balance at beginning of period
$
12,221

 
$
6,120

 
$
12,102

 
$
5,679

 
 
 
 
 
 
 
 
Deferred policy acquisition costs
6,975

 
4,178

 
13,097

 
7,214

Amortization of policy acquisition costs
(6,014
)
 
(2,639
)
 
(12,017
)
 
(5,234
)
Net change
961

 
1,539

 
1,080

 
1,980

 
 
 
 
 
 
 
 
Balance at end of period
$
13,182

 
$
7,659

 
$
13,182

 
$
7,659


5.     Unpaid Losses and Loss Adjustment Expenses
 The Company establishes reserves for unpaid losses and loss adjustment expenses ("LAE") which represent the estimated ultimate cost of all losses incurred that were both reported and unreported (i.e., incurred but not yet reported losses; or “IBNR”) and LAE incurred that remain unpaid at the balance sheet date. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.
 Reserves are estimates of unpaid portions of losses that have occurred, including IBNR losses; therefore the establishment of appropriate reserves is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in reserve estimates, which may be material, are reported in the results of operations in the period such changes are determined to be needed and recorded.
  Management believes that the reserve for losses and LAE, net of reinsurance recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the consolidated financial statements based on available facts and in accordance with applicable laws and regulations.
 The table below provides the changes in the reserves for losses and LAE, net of reinsurance recoverables, for the periods indicated as follows (dollars in thousands):

16

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Gross reserves - beginning of period
$
38,488

 
$
32,987

 
$
35,422

 
$
31,531

Less: reinsurance recoverables on unpaid losses
5,015

 
4,590

 
5,405

 
3,224

Net reserves - beginning of period
33,473

 
28,397

 
30,017

 
28,307

 
 
 
 
 
 
 
 
Add: incurred losses and LAE, net of reinsurance:
 
 
 
 
 
 
 
Current period
12,034

 
8,805

 
23,146

 
17,340

Prior period
1,507

 
171

 
3,094

 
206

Total net incurred losses and LAE
13,541

 
8,976

 
26,240

 
17,546

 
 
 
 
 
 
 
 
Deduct: loss and LAE payments, net of reinsurance:
 
 
 
 
 
 
 
Current period
5,793

 
5,029

 
7,792

 
6,794

Prior period
5,279

 
5,009

 
12,523

 
11,724

Total net loss and LAE payments
11,072

 
10,038

 
20,315

 
18,518

 
 
 
 
 
 
 
 
Net reserves - end of period
35,942

 
27,335

 
35,942

 
27,335

Plus: reinsurance recoverables on unpaid losses
5,890

 
5,022

 
5,890

 
5,022

Gross reserves - end of period
$
41,832

 
$
32,357

 
$
41,832

 
$
32,357

The Company’s incurred losses during the three and six months ended June 30, 2016 include prior-year adverse reserve development of $1.5 million and $3.1 million, respectively. In the second quarter of 2016, there was $695,000 and $613,000 of adverse development in the Florida homeowners and commercial automobile lines, respectively. For the six months ended June 30, 2016, there was adverse development of $1.5 million from the Florida homeowners line and $1.5 million from the commercial automobile line.
The Company’s incurred losses during the three and six months ended June 30, 2015, reflect prior-year adverse reserve development of $171,000 and $206,000, respectively. In the second quarter of 2015, there was $340,000 and $262,000 of adverse development in the commercial and personal automobile lines, respectively. This adverse development was partially offset by favorable reserve development in other lines, including $270,000 and $95,000 of favorable reserve development in the commercial multi-peril and other liability lines, respectively. For the six months ended June 30, 2015, there was a similar result, with the adverse development being generated by the commercial and personal automobile lines of $535,000 and $331,000, respectively. This adverse development was partially offset by favorable development in other lines, including $274,000, $136,000 and $248,000 in the commercial multi-peril, other liability and workers' compensation lines, respectively. 
6.     Reinsurance
In the normal course of business, the Company seeks to minimize the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with reinsurers. The Company participates in reinsurance agreements in order to limit its loss exposure including protecting against catastrophe losses. The Company primarily ceded all specific risks in excess of $500,000 in both 2016 and 2015. Reinsurance does not discharge the direct insurer from liability to its policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors the concentration of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. To date, the Company has not experienced any significant difficulties in collecting reinsurance recoverables.
The Company assumes written premiums under a few fronting arrangements, most of which are net of other reinsurance arrangements. The fronting arrangements are with unaffiliated insurers who write on behalf of the Company in markets that require a higher A.M. Best rating than the Company’s rating, or where the policies are written in a state where the Company is not licensed or for other strategic reasons. Assumed premiums is comprised entirely of these arrangements other than where there are premiums assumed from Citizens Property and Casualty Corporation (“Citizens”).
The following table presents the effects of such reinsurance and assumption transactions on premiums, and losses and LAE (dollars in thousands):

17

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)




 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Written premiums:
 
 
 
 
 
 
 
Direct
$
22,533

 
$
21,510

 
$
44,133

 
$
42,629

Assumed
7,192

 
1,549

 
10,985

 
1,634

Ceded
(3,549
)
 
(7,117
)
 
(6,892
)
 
(14,655
)
Net written premiums
$
26,176

 
$
15,942

 
$
48,226

 
$
29,608

 
 
 
 
 
 
 
 
Earned premiums:
 
 
 
 
 
 
 
Direct
$
22,574

 
$
20,050

 
$
44,815

 
$
39,351

Assumed
2,684

 
2,137

 
3,989

 
3,810

Ceded
(3,583
)
 
(7,072
)
 
(7,020
)
 
(13,553
)
Net earned premiums
$
21,675

 
$
15,115

 
$
41,784

 
$
29,608

 
 
 
 
 
 
 
 
Losses and LAE:
 
 
 
 
 
 
 
Direct
$
13,905

 
$
10,622

 
$
27,844

 
$
20,544

Assumed
1,447

 
281

 
2,356

 
805

Ceded
(1,811
)
 
(1,927
)
 
(3,960
)
 
(3,803
)
Net Losses and LAE
$
13,541

 
$
8,976

 
$
26,240

 
$
17,546

 
 
 
 
 
 
 
 
7.     Senior Debt
 The Company's senior debt facility ("Credit Facility") is comprised of three notes: a $17.5 million revolving line of credit ("Revolver") which was scheduled to expire on August 1, 2016 ; a $5.0 million five-year term note ("Term Note") which commenced in October 2013; and a $7.5 million five-year term note which commenced in September 2014 ("2014 Term Note"). Management is in the process of renewing the Revolver and on July 21, 2016, the expiration date was extended until October 1, 2016. A summary of the outstanding senior debt is as follows (dollars in thousands):
 
June 30, 2016
 
December 31, 2015
Revolver
$
6,500

 
$
3,500

Term Note
2,250

 
2,750

2014 Term Note
6,000

 
6,500

Total
$
14,750

 
$
12,750

 The undrawn portion of the Revolver was $11.0 million as of June 30, 2016, and was available to finance working capital, fund other general corporate purposes and provide surplus contributions to the Company's Insurance Company Subsidiaries to support premium growth or strategic acquisitions.
The Credit Facility contains various restrictive covenants that relate to the Company’s shareholders’ equity, premiums-to-capital and surplus ratios, fixed-charge coverage ratio, risk-based capital ratios, and A.M. Best ratings of its Insurance Company Subsidiaries. At June 30, 2016, the Company was in compliance with all of its Credit Facility financial covenants.
8.     Shareholders’ Equity
 On February 25, 2016, the Company's Board of Directors authorized a stock repurchase program, under which the Company may repurchase up to $2.1 million of its outstanding common stock over a one-year period. Under this program, management is authorized to repurchase shares at prevailing market prices through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market conditions, and other factors. Repurchases may be made from time to time, without prior notice. The Company may suspend or discontinue the program at any time. As of June 30, 2016, the Company had repurchased and retired 66,663 shares of stock valued at approximately $451,000.

18

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)





9. Other Comprehensive Income (Loss)
 The following table presents changes in accumulated other comprehensive income (loss) for unrealized gains and losses on available-for-sale securities (dollars in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Balance at beginning of period
$
1,724

 
$
1,644

 
$
182

 
$
1,158

Other comprehensive income before reclassifications
(308
)
 
(977
)
 
1,151

 
(274
)
Less: amounts reclassified from accumulated other comprehensive income (loss)
(88
)
 
208

 
(171
)
 
425

Net current period other comprehensive income (loss)
(220
)
 
(1,185
)
 
1,322

 
(699
)
Balance at end of period
$
1,504

 
$
459

 
$
1,504

 
$
459

10. Earnings Per Share
 Basic and diluted earnings (loss) per share are computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding during the period. The dividends on preferred stock and other gains are deducted from the net income to arrive at net income allocable to common shareholders. In the period of a net loss, the dividends on preferred stock are added to the net loss to arrive at net loss allocable to common shareholders. The following table presents the calculation of basic and diluted earnings (loss) per common share, as follows (dollars in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss) attributable to Conifer
$
(513
)
 
$
579

 
$
(2,541
)
 
$
1,042

Preferred stock dividends

 
151

 

 
303

Paid-in-kind dividends

 
62

 

 
123

Net income (loss) allocable to common shareholders
$
(513
)
 
$
366

 
$
(2,541
)
 
$
616

 
 
 
 
 
 
 
 
Weighted average common shares, basic and diluted*
7,594,862

 
4,050,042

 
7,616,821

 
4,045,482