##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended June 30, 2009
 OR
 o
    
    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 001-33077
 FIRST MERCURY FINANCIAL CORPORATION
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    38-3164336
(I.R.S. Employer Identification No.)29110 Inkster Road 
Suite 100
Southfield, Michigan
(Address of Principal Executive Offices)
    
    48034
(Zip Code)
  þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



TABLE OF CONTENTS
 Item
    
    
    
    PagePART I  FINANCIAL INFORMATION1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets
    
    3Condensed Consolidated Statements of Income
    
    4Condensed Consolidated Statements of Stockholders Equity
    
    5Condensed Consolidated Statements of Cash Flows
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    72.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    233.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    454.
    
    Controls and Procedures
    
    45PART II  OTHER INFORMATION2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    464
    
    Submission of Matters to a Vote of Security Holders
    
    466.
    
    Exhibits
    
    47EX-31.AEX-31.BEX-32.AEX-32.B
  2




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
 
 PART I.  FINANCIAL INFORMATION
 
 ITEM 1. Condensed Consolidated Financial Statements
 
 Condensed Consolidated Balance Sheets
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)(Dollars in thousands,except share and per share data)ASSETSInvestmentsDebt securities
    
    $
    581,235
    
    
    $
    495,799Equity securities and other
    
    
    27,008
    
    
    
    15,089Short-term
    
    
    16,921
    
    
    
    32,142Total Investments
    
    
    625,164
    
    
    
    543,030Cash and cash equivalents
    
    
    23,574
    
    
    
    31,833Premiums and reinsurance balances receivable
    
    
    58,504
    
    
    
    56,398Accrued investment income
    
    
    6,327
    
    
    
    5,400Accrued profit sharing commissions
    
    
    12,873
    
    
    
    11,315Reinsurance recoverable on paid and unpaid losses
    
    
    150,819
    
    
    
    135,617Prepaid reinsurance premiums
    
    
    54,207
    
    
    
    48,921Deferred acquisition costs
    
    
    26,917
    
    
    
    27,369Intangible assets, net of accumulated amortization
    
    
    38,201
    
    
    
    39,351Goodwill
    
    
    25,483
    
    
    
    25,483Deferred federal income taxes
    
    
    
    
    
    
    2,161Other assets
    
    
    23,625
    
    
    
    16,775Total Assets
    
    $
    1,045,694
    
    
    $
    943,653LIABILITIES AND STOCKHOLDERS EQUITYLoss and loss adjustment expense reserves
    
    $
    426,908
    
    
    $
    372,721Unearned premium reserves
    
    
    151,283
    
    
    
    147,849Long-term debt
    
    
    67,013
    
    
    
    67,013Funds held under reinsurance treaties
    
    
    61,937
    
    
    
    49,419Premiums payable to insurance companies
    
    
    31,519
    
    
    
    27,831Reinsurance payable on paid losses
    
    
    1,196
    
    
    
    1,167Deferred federal income taxes
    
    
    4,741
    
    
    
    Accounts payable, accrued expenses, and other liabilities
    
    
    14,259
    
    
    
    16,016Total Liabilities
    
    
    758,856
    
    
    
    682,016Stockholders EquityCommon stock, $0.01 par value; authorized 100,000,000 shares; issued
and outstanding 17,558,483 and 17,836,337 shares
    
    
    175
    
    
    
    178Paid-in-capital
    
    
    158,426
    
    
    
    161,957Accumulated other comprehensive income (loss)
    
    
    5,642
    
    
    
    (3,027
    )Retained earnings
    
    
    123,874
    
    
    
    103,028Treasury stock; 93,600 and 33,600 shares
    
    
    (1,279
    )
    
    
    (499
    )Total Stockholders Equity
    
    
    286,838
    
    
    
    261,637Total Liabilities and Stockholders Equity
    
    $
    1,045,694
    
    
    $
    943,653
  3




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except share and per share data)Operating RevenueNet earned premiums
    
    $
    51,432
    
    
    $
    46,559
    
    
    $
    104,027
    
    
    $
    90,130Commissions and fees
    
    
    9,577
    
    
    
    7,086
    
    
    
    16,471
    
    
    
    11,139Net investment income
    
    
    7,132
    
    
    
    5,216
    
    
    
    13,566
    
    
    
    10,064Net realized gains (losses) on investments
    
    
    9,644
    
    
    
    (1,587
    )
    
    
    11,437
    
    
    
    (1,586
    )Other-than-temporary impairment losses on
investments (1)
    
    
    (97
    )
    
    
    (225
    )
    
    
    (134
    )
    
    
    (225
    )Total Operating Revenues
    
    
    77,688
    
    
    
    57,049
    
    
    
    145,367
    
    
    
    109,522Operating ExpensesLosses and loss adjustment expenses, net
    
    
    35,463
    
    
    
    25,732
    
    
    
    65,956
    
    
    
    49,177Amortization of deferred acquisition expenses
    
    
    13,600
    
    
    
    9,096
    
    
    
    26,930
    
    
    
    17,310Underwriting, agency and other expenses
    
    
    9,526
    
    
    
    11,615
    
    
    
    18,750
    
    
    
    17,598Amortization of intangible assets
    
    
    575
    
    
    
    515
    
    
    
    1,149
    
    
    
    913Total Operating Expenses
    
    
    59,164
    
    
    
    46,958
    
    
    
    112,785
    
    
    
    84,998Operating Income
    
    
    18,524
    
    
    
    10,091
    
    
    
    32,582
    
    
    
    24,524Interest Expense
    
    
    1,417
    
    
    
    1,476
    
    
    
    2,833
    
    
    
    2,940Change in Fair Value of Derivative Instruments
    
    
    (123
    )
    
    
    (262
    )
    
    
    (230
    )
    
    
    174Income From Continuing Operations Before
Income Taxes
    
    
    17,230
    
    
    
    8,877
    
    
    
    29,979
    
    
    
    21,410Income Taxes
    
    
    5,621
    
    
    
    2,641
    
    
    
    9,689
    
    
    
    6,540Income From Continuing Operations
    
    
    11,609
    
    
    
    6,236
    
    
    
    20,290
    
    
    
    14,870Income From Discontinued Operations,
Net of Income Taxes
    
    
    
    
    
    
    22,467
    
    
    
    
    
    
    
    23,553Net Income
    
    $
    11,609
    
    
    $
    28,703
    
    
    $
    20,290
    
    
    $
    38,423Basic Net Income Per Share:Income From Continuing Operations
    
    $
    0.65
    
    
    $
    0.34
    
    
    $
    1.14
    
    
    $
    0.82Income From Discontinued Operations
    
    
    
    
    
    
    1.23
    
    
    
    
    
    
    
    1.29Total
    
    $
    0.65
    
    
    $
    1.57
    
    
    $
    1.14
    
    
    $
    2.11Diluted Net Income Per Share:Income From Continuing Operations
    
    $
    0.64
    
    
    $
    0.33
    
    
    $
    1.11
    
    
    $
    0.79Income From Discontinued Operations
    
    
    
    
    
    
    1.18
    
    
    
    
    
    
    
    1.25Total
    
    $
    0.64
    
    
    $
    1.51
    
    
    $
    1.11
    
    
    $
    2.04Weighted Average Shares Outstanding:Basic
    
    
    17,700,272
    
    
    
    18,259,602
    
    
    
    17,737,708
    
    
    
    18,182,832Diluted
    
    
    18,042,484
    
    
    
    18,943,262
    
    
    
    18,075,668
    
    
    
    18,803,719
 
 (1)
    
    2008 amounts were reclassified to conform to current periods presentation.  4




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FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity
(Unaudited)
 AccumulatedOtherCommon
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Retained
    
    
    TreasuryStock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance, January 1, 2008
    
    $
    180
    
    
    $
    165,836
    
    
    $
    1,177
    
    
    $
    62,187
    
    
    $
    
    
    
    $
    229,380Exercise of stock options
    
    
    3
    
    
    
    597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Stock-based compensation expense
    
    
    
    
    
    
    1,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,026Stock-based compensation excess tax benefits
    
    
    
    
    
    
    1,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,135Common stock repurchased and held in treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (499
    )
    
    
    (499
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,423
    
    
    
    
    
    
    
    38,423Other comprehensive loss, net of taxUnrealized holding losses on securities
arising during the period, net of tax of $1,609
    
    
    
    
    
    
    
    
    
    
    (2,989
    )
    
    
    
    
    
    
    
    
    
    
    (2,989
    )Change in fair value of interest rate swap, net of tax of ($16)
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Less reclassification adjustment for
gains included in net income, net of tax of $3
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,965
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,458Balance, June 30, 2008
    
    $
    183
    
    
    $
    168,594
    
    
    $
    (1,788
    )
    
    $
    100,610
    
    
    $
    (499
    )
    
    $
    267,100Balance, January 1, 2009
    
    $
    178
    
    
    $
    161,957
    
    
    $
    (3,027
    )
    
    $
    103,028
    
    
    $
    (499
    )
    
    $
    261,637Issuance of restricted stock
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    1,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,571Stock-based compensation excess tax benefits
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Common stock repurchased and held in treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (780
    )
    
    
    (780
    )Common stock repurchased and retired
    
    
    (4
    )
    
    
    (5,080
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,084
    )Payment of shareholder dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (443
    )
    
    
    
    
    
    
    (443
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,290
    
    
    
    
    
    
    
    20,290Cumulative effect of adoption of FSP FAS 115-2 at April 1, 2009
    
    
    
    
    
    
    
    
    
    
    (999
    )
    
    
    999
    
    
    
    
    
    
    
    Other comprehensive income, net of taxUnrealized holding losses on securities arising during
the period having credit losses recognized in the condensed
consolidated statements of income, net of tax $257
    
    
    
    
    
    
    
    
    
    
    (478
    )
    
    
    
    
    
    
    
    
    
    
    (478
    )Unrealized holding gains on securities arising during the
period having no credit losses recognized in the condensed
consolidated statements of income, net of tax ($5,822)
    
    
    
    
    
    
    
    
    
    
    10,813
    
    
    
    
    
    
    
    
    
    
    
    10,813Change in fair value of interest rate swaps, net of tax of $84
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    
    
    
    
    (156
    )Less reclassification adjustment for
gains included in net income, net of tax of $275
    
    
    
    
    
    
    
    
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    (511
    )Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,668Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,958Balance, June 30, 2009
    
    $
    175
    
    
    $
    158,426
    
    
    $
    5,642
    
    
    $
    123,874
    
    
    $
    (1,279
    )
    
    $
    286,838
  5




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008(Dollars in thousands)Cash Flows from Operating ActivitiesNet Income
    
    $
    20,290
    
    
    $
    38,423Less: Income from discontinued operations
    
    
    
    
    
    
    23,553Income from continuing operations
    
    
    20,290
    
    
    
    14,870Adjustments to reconcile income from continuing operations to
net cash provided by operating activitiesDepreciation and amortization
    
    
    1,969
    
    
    
    1,656Realized (gains) losses on investments
    
    
    (11,437
    )
    
    
    1,586Other-than-temporary impairment losses on investments
    
    
    134
    
    
    
    225Deferrals of acquisition costs, net
    
    
    452
    
    
    
    (7,595
    )Deferred income taxes
    
    
    6,902
    
    
    
    (906
    )Stock-based compensation expense
    
    
    1,571
    
    
    
    1,026Increase (decrease) in cash resulting from changes in assets and liabilitiesPremiums and reinsurance balances receivable
    
    
    (2,106
    )
    
    
    (3,717
    )Accrued investment income
    
    
    (927
    )
    
    
    (251
    )Accrued profit sharing commissions
    
    
    (1,558
    )
    
    
    4,409Reinsurance recoverable on paid and unpaid losses
    
    
    (15,202
    )
    
    
    (21,985
    )Prepaid reinsurance premiums
    
    
    (5,287
    )
    
    
    5,122Loss and loss adjustment expense reserves
    
    
    54,187
    
    
    
    47,647Unearned premium reserves
    
    
    3,434
    
    
    
    14,914Funds held under reinsurance treaties
    
    
    12,518
    
    
    
    6,723Reinsurance payable on paid losses
    
    
    28
    
    
    
    (1,156
    )Premiums payable to insurance companies
    
    
    3,689
    
    
    
    (2,437
    )Other
    
    
    (9,582
    )
    
    
    (1,509
    )Net Cash Provided By Operating Activities  Continuing Operations
    
    
    59,075
    
    
    
    58,622Net Cash Provided By Operating Activities  Discontinued Operations
    
    
    
    
    
    
    2,376Net Cash Provided By Operating Activities  Total
    
    
    59,075
    
    
    
    60,998Cash Flows From Investing ActivitiesCost of short-term investments acquired
    
    
    (156,301
    )
    
    
    (291,974
    )Proceeds from disposals of short-term investments
    
    
    171,522
    
    
    
    262,194Cost of debt and equity securities acquired
    
    
    (154,762
    )
    
    
    (121,635
    )Proceeds from debt and equity securities
    
    
    78,535
    
    
    
    69,863Acquisition, net of cash acquired
    
    
    
    
    
    
    (18,476
    )Cost of fixed asset purchases
    
    
    
    
    
    
    (543
    )Net Cash Used In Investing Activities  Continuing Operations
    
    
    (61,006
    )
    
    
    (100,571
    )Net Cash Provided By Investing Activities  Discontinued Operations
    
    
    
    
    
    
    41,830Net Cash Used In Investing Activities  Total
    
    
    (61,006
    )
    
    
    (58,741
    )Cash Flows From Financing ActivitiesStock issued on stock options exercised
    
    
    
    
    
    
    600Purchase of common stock
    
    
    (5,084
    )
    
    
    Payment of shareholder dividend
    
    
    (443
    )
    
    
    Cash retained from excess tax benefits
    
    
    (21
    )
    
    
    Purchase of treasury stock
    
    
    (780
    )
    
    
    (499
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (6,328
    )
    
    
    101Net Increase (Decrease) In Cash and Cash Equivalents
    
    
    (8,259
    )
    
    
    2,358Cash and Cash Equivalents, beginning of period
    
    
    31,833
    
    
    
    18,432Cash and Cash Equivalents, end of period
    
    $
    23,574
    
    
    $
    20,790Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    2,734
    
    
    $
    3,199Income taxes
    
    $
    4,750
    
    
    $
    8,000
  6




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Use of Estimates
  Recently Issued Accounting Standards
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement
No.162 (SFAS 168). The Hierarchy of Generally Accepted
Accounting Principles Accounting Standards Codification
 Subsequent Events (SFAS 165).
 Recognition and Presentation of
Other-Than-Temporary Impairments
 7




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded)
  Determining Fair Value When Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that
are Not Orderly (FSP FAS 157-4)
 Interim Disclosures about Fair
Value of Financial Instruments (FSP FAS 107-1 and APB 28-1)
  
    
    SFAS No. 141(R), Business Combinations;
    
    SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an
amendment of Accounting Research Bulletin No. 51;
    
    SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities;
    
    FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities;and
    
    FSP FAS No. 157-2, Effective Date of FASB Statement No. 157.
 2. MERGERS AND ACQUISITIONS
 American Management Corporation
    8




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 2. MERGERS AND ACQUISITIONS  (Concluded)
  $ in thousandsAssets AcquiredInvestments
    
    $
    8,988Cash and cash equivalents
    
    
    20,012Premiums receivable
    
    
    19,570Other assets
    
    
    1,133Goodwill
    
    
    25,483Intangible assets:Agent relationships
    
    
    9,150Tradename
    
    
    2,130Customer relationships
    
    
    520Total Assets Acquired
    
    $
    86,986Liabilities AssumedPremiums payable to insurance companies
    
    $
    23,218Loss and loss adjustment expense reserves
    
    
    4,490Unearned premium reserves
    
    
    1,734Deferred federal income taxes
    
    
    3,917Accounts payable, accrued expenses, and other liabilities
    
    
    14,745Total Liabilities Assumed
    
    
    48,104Net Assets Acquired
    
    $
    38,882
   3. DISCONTINUED OPERATIONS
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008(Dollars in thousands)Revenues
    
    $
    
    
    
    $
    2,908
    
    
    $
    
    
    
    $
    5,884Income Before Income
Taxes
    
    $
    
    
    
    $
    1,620
    
    
    $
    
    
    
    $
    3,533
 9




---



##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 4. NET INCOME PER SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except share and per share data)Income from Continuing Operations
    
    $
    11,609
    
    
    $
    6,236
    
    
    $
    20,290
    
    
    $
    14,870Income from Discontinued Operations
    
    
    
    
    
    
    22,467
    
    
    
    
    
    
    
    23,553Net income as reported
    
    
    11,609
    
    
    
    28,703
    
    
    
    20,290
    
    
    
    38,423Net income allocated to unvested restricted stock shares
    
    
    (87
    )
    
    
    (86
    )
    
    
    (152
    )
    
    
    (115
    )Net income available to common
    
    $
    11,522
    
    
    $
    28,617
    
    
    $
    20,138
    
    
    $
    38,308Weighted-average number of common and common equivalent
shares outstanding:Basic number of common shares outstanding
    
    
    17,700,272
    
    
    
    18,259,602
    
    
    
    17,737,708
    
    
    
    18,182,832Dilutive effect of stock options
    
    
    342,212
    
    
    
    678,837
    
    
    
    337,960
    
    
    
    616,572Dilutive effect of unvested restricted stock
    
    
    
    
    
    
    4,823
    
    
    
    
    
    
    
    4,315Dilutive number of common and common equivalent shares
outstanding
    
    
    18,042,484
    
    
    
    18,943,262
    
    
    
    18,075,668
    
    
    
    18,803,719Basic Net Income Per Common Share:Income from Continuing Operations
    
    $
    0.65
    
    
    $
    0.34
    
    
    $
    1.14
    
    
    $
    0.82Income from Discontinued Operations
    
    
    
    
    
    
    1.23
    
    
    
    
    
    
    
    1.29Total
    
    $
    0.65
    
    
    $
    1.57
    
    
    $
    1.14
    
    
    $
    2.11Diluted Net Income Per Common Share:Income from Continuing Operations
    
    $
    0.64
    
    
    $
    0.33
    
    
    $
    1.11
    
    
    $
    0.79Income from Discontinued Operations
    
    
    
    
    
    
    1.18
    
    
    
    
    
    
    
    1.25Total
    
    $
    0.64
    
    
    $
    1.51
    
    
    $
    1.11
    
    
    $
    2.04Anti-dilutive shares excluded from diluted net income
per common share
    
    
    1,103,688
    
    
    
    932,188
    
    
    
    1,103,688
    
    
    
    932,188
 Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities (FSP EITF 03-6-1
 10




---



##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 5. INVESTMENTS
  Gross UnrealizedAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Market Value(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    3,941
    
    
    $
    161
    
    
    $
    (1
    )
    
    $
    4,101Government agency mortgage-backed securities
    
    
    93,058
    
    
    
    3,429
    
    
    
    (81
    )
    
    
    96,406Government agency obligations
    
    
    1,018
    
    
    
    38
    
    
    
    
    
    
    
    1,056Collateralized mortgage obligations and other
asset-backed securities
    
    
    87,040
    
    
    
    2,368
    
    
    
    (5,147
    )
    
    
    84,261Obligations of states and political
subdivisions
    
    
    194,413
    
    
    
    7,336
    
    
    
    (380
    )
    
    
    201,369Corporate bonds
    
    
    136,225
    
    
    
    6,060
    
    
    
    (1,821
    )
    
    
    140,464Total Debt Securities
    
    
    515,695
    
    
    
    19,392
    
    
    
    (7,430
    )
    
    
    527,657Preferred stocks
    
    
    1,416
    
    
    
    
    
    
    
    (271
    )
    
    
    1,145Short-term investments
    
    
    16,921
    
    
    
    
    
    
    
    
    
    
    
    16,921Total
    
    $
    534,032
    
    
    $
    19,392
    
    
    $
    (7,701
    )
    
    $
    545,723
  Gross UnrealizedAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Market Value(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    5,256
    
    
    $
    307
    
    
    $
    
    
    
    $
    5,563Government agency mortgage-backed securities
    
    
    82,548
    
    
    
    2,422
    
    
    
    (39
    )
    
    
    84,931Government agency obligations
    
    
    3,163
    
    
    
    76
    
    
    
    
    
    
    
    3,239Collateralized mortgage obligations and other
asset-backed securities
    
    
    71,378
    
    
    
    337
    
    
    
    (7,087
    )
    
    
    64,628Obligations of states and political subdivisions
    
    
    205,425
    
    
    
    5,634
    
    
    
    (694
    )
    
    
    210,365Corporate bonds
    
    
    89,383
    
    
    
    1,499
    
    
    
    (3,874
    )
    
    
    87,008Total Debt Securities
    
    
    457,153
    
    
    
    10,275
    
    
    
    (11,694
    )
    
    
    455,734Preferred stocks
    
    
    1,416
    
    
    
    
    
    
    
    (367
    )
    
    
    1,049Short-term investments
    
    
    32,142
    
    
    
    
    
    
    
    
    
    
    
    32,142Total
    
    $
    490,711
    
    
    $
    10,275
    
    
    $
    (12,061
    )
    
    $
    488,925
 Impairment of Investment Securities
   11




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 5. INVESTMENTS  (Continued)
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Other-than-temporary impairment losses on
investments:Total losses
    
    $
    (832
    )
    
    $
    (225
    )
    
    $
    (869
    )
    
    $
    (225
    )Portion of losses recognized in accumulated other
comprehensive income
    
    
    735
    
    
    
    
    
    
    
    735
    
    
    
    Other-than-temporary impairment losses on
investments
    
    
    (97
    )
    
    
    (225
    )
    
    
    (134
    )
    
    
    (225
    )
 12




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 5. INVESTMENTS  (Continued)
  April 1, 2009
    
    Additions for
    
    Additions for
    
    
    
    
    
    
    
    
    
    June 30, 2009Cumulative
    
    OTTI Securities
    
    OTTI Securities
    
    
    
    
    
    Adjustments to
    
    CumulativeOTTI Credit
    
    Where No Credit
    
    Where Credit
    
    Reductions Due
    
    Book Value of
    
    OTTI CreditLosses
    
    Losses Were
    
    Losses Have
    
    to Sales or Intend/
    
    Credit-Impaired
    
    LossesRecognized for
    
    Recognized Prior
    
    Been Recognized
    
    Required to Sell of Credit-
    
    Securities due to
    
    Recognized forSecurities Still
    
    to
    
    Prior to
    
    Impaired
    
    Changes in Cash
    
    Securities StillHeld
    
    April 1, 2009
    
    April 1, 2009
    
    Securities
    
    Flows
    
    Held(Dollars in thousands)Debt
securities:Mortgage-backed securities,
collateralized mortgage
obligations
and passthrough securities
    
    $
    164
    
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    261All other corporate bonds
    
    
    569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    569Total debt
securities
    
    $
    733
    
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    830
  Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    
    
    
    
    Fair Valueof
    
    
    
    
    
    
    ofInvestments
    
    
    
    
    
    
    InvestmentsWith
    
    
    Gross
    
    
    With
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Unrealized
    
    
    UnrealizedLosses
    
    
    Losses
    
    
    Losses
    
    
    Losses(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    108
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    Government agency mortgage-backed securities
    
    
    17,200
    
    
    
    (71
    )
    
    
    281
    
    
    
    (10
    )Government agency obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations and other
asset-backed securities
    
    
    7,583
    
    
    
    (316
    )
    
    
    20,521
    
    
    
    (4,831
    )Obligations of states and political
subdivisions
    
    
    3,289
    
    
    
    (71
    )
    
    
    12,917
    
    
    
    (309
    )Corporate bonds
    
    
    9,833
    
    
    
    (78
    )
    
    
    15,736
    
    
    
    (1,743
    )Total Debt Securities
    
    
    38,013
    
    
    
    (537
    )
    
    
    49,455
    
    
    
    (6,893
    )Preferred Stocks
    
    
    875
    
    
    
    (35
    )
    
    
    270
    
    
    
    (236
    )Total
    
    $
    38,888
    
    
    $
    (572
    )
    
    $
    49,725
    
    
    $
    (7,129
    )
 13




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements  (Continued)(Unaudited)
 5. INVESTMENTS  (Continued)
  Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    
    
    
    
    Fair Valueof
    
    
    
    
    
    
    ofInvestments
    
    
    
    
    
    
    InvestmentsWith
    
    
    Gross
    
    
    With
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Unrealized
    
    
    UnrealizedLosses
    
    
    Losses
    
    
    Losses
    
    
    Losses(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government agency mortgage-backed securities
    
    
    3,902
    
    
    
    (37
    )
    
    
    326
    
    
    
    (2
    )Government agency obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations and other
asset-backed securities
    
    
    48,125
    
    
    
    (5,143
    )
    
    
    5,963
    
    
    
    (1,944
    )Obligations of states and political
subdivisions
    
    
    14,063
    
    
    
    (427
    )
    
    
    8,809
    
    
    
    (267
    )Corporate bonds
    
    
    42,402
    
    
    
    (2,549
    )
    
    
    12,824
    
    
    
    (1,325
    )Total Debt Securities
    
    
    108,492
    
    
    
    (8,156
    )
    
    
    27,922
    
    
    
    (3,538
    )Preferred Stocks
    
    
    832
    
    
    
    (78
    )
    
    
    216
    
    
    
    (289
    )Total
    
    $
    109,324
    
    
    $
    (8,234
    )
    
    $
    28,138
    
    
    $
    (3,827
    )
  Amount ofUnrealizedLoss atSector
    
    June 30, 2009(Dollars in thousands)Debt SecuritiesU.S. Treasuries
    
    
    (1
    )U.S. Agencies
    
    
    U.S. government securities
    
    
    (1
    )Government agency mortgage-backed securities
    
    
    (81
    )Government agency obligations
    
    
    MBS Passthroughs
    
    
    (42
    )CMOs
    
    
    (1,462
    )Asset Backed Securities
    
    
    (577
    )Commercial MBS
    
    
    (3,066
    )Collateralized mortgage obligations and other
asset-backed securities
    
    
    (5,147
    )Obligations of states and political subdivisions
    
    
    (380
    )Corporate Bonds
    
    
    (1,807
    )High Yield Bonds
    
    
    (14
    )Corporate Bonds
    
    
    (1,821
    )Total Debt Securities
    
    
    (7,430
    )Preferred Stocks
    
    
    (271
    )Short-term investments
    
    
    Total
    
    $
    (7,701
    )
 14




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements  (Continued)(Unaudited)
 5. INVESTMENTS  (Continued)
    % of Total
    
    
    Total
    
    
    Total
    
    
    Average Unrealized Loss
    
    
    % of LossAmortized Cost
    
    
    Amortized Cost
    
    
    Unrealized Losses
    
    
    as % of Amortized Cost
    
    
    > 12 Months(Dollars in thousands)Non Investment Grade
    
    
    4.2
    %
    
    $
    4,046
    
    
    $
    1,102
    
    
    
    27.2
    %
    
    
    99.1
    %Investment Grade
    
    
    95.8
    
    
    
    92,268
    
    
    
    6,599
    
    
    
    7.2
    
    
    
    91.5Total
    
    
    100.0
    %
    
    $
    96,314
    
    
    $
    7,701
    
    
    
    8.0
    %
    
    
    92.6
    %
    15




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 5. INVESTMENTS  (Concluded)
 Hybrid Instruments
  Alternative Investments
  6. INCOME TAXES
 Accounting for Uncertainty
in Income Taxes, an Interpretation of SFAS No. 109 Accounting for Income Taxes,
   16




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 7. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Balance,beginning of period
    
    $
    400,152
    
    
    $
    301,314
    
    
    $
    372,721
    
    
    $
    272,365Less reinsurance recoverables
    
    
    138,943
    
    
    
    103,068
    
    
    
    128,552
    
    
    
    91,444Net Balance,beginning of period
    
    
    261,209
    
    
    
    198,246
    
    
    
    244,169
    
    
    
    180,921AUIC net reserves, date of acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,490Incurred Related ToCurrent year
    
    
    39,084
    
    
    
    25,732
    
    
    
    70,327
    
    
    
    49,177Prior years
    
    
    (3,621
    )
    
    
    
    
    
    
    (4,371
    )
    
    
    Total Incurred
    
    
    35,463
    
    
    
    25,732
    
    
    
    65,956
    
    
    
    49,177Paid Related ToCurrent year
    
    
    3,533
    
    
    
    2,004
    
    
    
    4,439
    
    
    
    2,338Prior years
    
    
    12,388
    
    
    
    11,381
    
    
    
    24,935
    
    
    
    21,657Total Paid
    
    
    15,921
    
    
    
    13,385
    
    
    
    29,374
    
    
    
    23,995Net Balance
    
    
    280,751
    
    
    
    210,593
    
    
    
    280,751
    
    
    
    210,593Plus reinsurance recoverables
    
    
    146,157
    
    
    
    113,909
    
    
    
    146,157
    
    
    
    113,909Balance,end of period
    
    $
    426,908
    
    
    $
    324,502
    
    
    $
    426,908
    
    
    $
    324,502
 8. REINSURANCE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Written PremiumsDirect
    
    $
    77,892
    
    
    $
    75,761
    
    
    $
    151,012
    
    
    $
    151,974Assumed
    
    
    4,629
    
    
    
    4,153
    
    
    
    9,387
    
    
    
    9,146Ceded
    
    
    (29,079
    )
    
    
    (27,673
    )
    
    
    (57,132
    )
    
    
    (50,376
    )Net Written Premiums
    
    $
    53,442
    
    
    $
    52,241
    
    
    $
    103,267
    
    
    $
    110,744Earned PremiumsDirect
    
    $
    74,913
    
    
    $
    69,571
    
    
    $
    148,218
    
    
    $
    138,224Assumed
    
    
    4,460
    
    
    
    4,231
    
    
    
    8,747
    
    
    
    7,983Ceded
    
    
    (26,773
    )
    
    
    (27,818
    )
    
    
    (51,845
    )
    
    
    (55,497
    )Earned but unbilled premiums
    
    
    (1,168
    )
    
    
    575
    
    
    
    (1,093
    )
    
    
    (580
    )Net Earned Premiums
    
    $
    51,432
    
    
    $
    46,559
    
    
    $
    104,027
    
    
    $
    90,130
   17




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 8. REINSURANCE (Concluded)
   9. SHARE REPURCHASE PROGRAM
  10. STOCK COMPENSATION PLANS
   18




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 10. STOCK COMPENSATION PLANS (Continued)
  1998 Plan
    
    
    Omnibus PlanNumber of
    
    
    Weighted Average
    
    
    Number of
    
    
    Weighted AverageOptions
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise PriceOustanding at January 1, 2008
    
    
    927,775
    
    
    $
    2.24
    
    
    
    573,688
    
    
    $
    19.10Granted during the period
    
    
    
    
    
    
    
    
    
    
    374,500
    
    
    
    16.38Forfeited during the period
    
    
    
    
    
    
    
    
    
    
    (12,700
    )
    
    
    18.77Exercised during the period
    
    
    (302,575
    )
    
    
    1.80
    
    
    
    (3,300
    )
    
    
    17.00Cancelled during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    625,200
    
    
    $
    2.50
    
    
    
    932,188
    
    
    $
    18.02Oustanding at January 1, 2009
    
    
    431,050
    
    
    $
    2.82
    
    
    
    932,188
    
    
    $
    17.93Granted during the period
    
    
    
    
    
    
    
    
    
    
    197,500
    
    
    
    13.01Forfeited during the period
    
    
    
    
    
    
    
    
    
    
    (15,000
    )
    
    
    18.78Exercised during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2009
    
    
    431,050
    
    
    $
    2.82
    
    
    
    1,114,688
    
    
    $
    17.05Exercisable at:June 30, 2008
    
    
    625,200
    
    
    $
    2.50
    
    
    
    152,566
    
    
    $
    18.80June 30, 2009
    
    
    431,050
    
    
    
    2.82
    
    
    
    453,125
    
    
    
    18.26
    Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted-Average
    
    
    
    
    
    Weighted-AverageRange of
    
    Outstanding as of
    
    Remaining
    
    Exercise Price Per
    
    Exercisable as of
    
    Exercise Price PerExercisable Price
    
    June 30, 2009
    
    Contractual Life
    
    Share
    
    June 30, 2009
    
    Share1998 Plan$1.51 - $1.95
    
    
    319,125
    
    
    3.60
    Years
    
    $
    1.71
    
    
    
    319,125
    
    
    $
    1.71$4.86 - $6.49
    
    
    111,925
    
    
    
    1.30
    
    
    
    5.97
    
    
    
    111,925
    
    
    
    5.97Total
    
    
    431,050
    
    
    
    3.00
    
    
    
    2.82
    
    
    
    431,050
    
    
    
    2.82Omnibus Plan$10.98 - $14.93
    
    
    347,000
    
    
    9.28
    Years
    
    $
    13.70
    
    
    
    45,829
    
    
    $
    14.93$17.00 - $20.75
    
    
    767,688
    
    
    
    7.06
    
    
    
    18.56
    
    
    
    407,296
    
    
    
    18.64Total
    
    
    1,114,688
    
    
    
    7.75
    
    
    
    17.05
    
    
    
    453,125
    
    
    
    18.26
  19




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 10. STOCK COMPENSATION PLANS (Concluded)
  Six Months EndedJune 30,2009
    
    2008Omnibus PlanExpected term
    
    
    6.0
    
    
    
    6.0Expected stock price volatility
    
    
    41.11
    %
    
    
    29.78
    %Risk-free interest rate
    
    
    2.16
    %
    
    
    3.12
    %Expected dividend yield
    
    
    
    
    
    
    Estimated fair value per option
    
    $
    5.53
    
    
    $
    5.79
 (SAB 110)
  11. FAIR VALUE MEASUREMENTS
 Accounting for Certain
Investments in Debt and Equity Securities
 The Fair Value Option of Financial Assets and Financial
Liabilities
 Fair Value Measurements
  20




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 11. FAIR VALUE MEASUREMENTS (Continued)
  
    
    Level 1  Valuations based on unadjusted quoted market prices in active markets for
identical securities. The fair values of fixed maturity and equity securities and short-term
investments included in the Level 1 category were based on quoted prices that are readily and
regularly available in an active market. The Level 1 category includes publicly traded equity
securities; highly liquid U.S. Government notes, treasury bills and mortgage-backed securities
issued by the Government National Mortgage Association; highly liquid cash management funds; and
short-term certificates of deposit.
    
    Level 2  Valuations based on observable inputs (other than Level 1 prices), such as quoted
prices for similar assets at the measurement date; quoted prices in markets that are not active; or
other inputs that are observable, either directly or indirectly. The fair value of fixed maturity
and equity securities and short-term investments included in the Level 2 category were based on the
market values obtained from an independent pricing service that were evaluated using pricing models
that vary by asset class and incorporate available trade, bid and other market information and
price quotes from well established independent broker-dealers. The independent pricing service
monitors market indicators, industry and economic events, and for broker-quoted only securities,
obtains quotes from market makers or broker-dealers that it recognizes to be market participants.
The Level 2 category includes corporate bonds, municipal bonds, redeemable preferred stocks and
certain publicly traded common stocks with no trades on the measurement date.
    
    Level 3  Valuations based on inputs that are unobservable and significant to the overall
fair value measurement, and involve management judgment.
   Fair Value Measurements UsingTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(Dollars in thousands)Available for sale
investments:Fixed maturity securities
    
    $
    528,802
    
    
    $
    4,101
    
    
    $
    524,041
    
    
    $
    660Short-term investments
    
    
    16,921
    
    
    
    16,921
    
    
    
    
    
    
    
    Hybrid securities
    
    
    58,948
    
    
    
    
    
    
    
    58,948
    
    
    
    Alternative investments
    
    
    20,493
    
    
    
    
    
    
    
    10,520
    
    
    
    9,973Total
    
    $
    625,164
    
    
    $
    21,022
    
    
    $
    593,509
    
    
    $
    10,633
  21




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##### Table of Contents



FIRST MERCURY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements  (Continued)
(Unaudited)
 11. FAIR VALUE MEASUREMENTS (Concluded)
 Three Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2009Level 3 investments, beginning of period
    
    $
    8,512
    
    
    $
    6,282Purchases
    
    
    
    
    
    
    2,000Increase in market value
    
    
    2,121
    
    
    
    2,351Level 3 investments as of June 30, 2009
    
    $
    10,633
    
    
    $
    10,633
   12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  June 30,2009
    
    
    2008(Dollars in thousands)Unrealized holding losses on securities having credit losses recognized in the condensed consolidated
statements of income, net of tax
    
    $
    (478
    )
    
    $
    Unrealized holding gains (losses) on securities having no credit losses recognized in the condensed consolidated
statements of income, net of tax
    
    
    7,852
    
    
    
    (1,193
    )Fair value of interest rate swaps, net of tax
    
    
    (1,732
    )
    
    
    (595
    )Total accumulated other comprehensive income (loss)
    
    $
    5,642
    
    
    $
    (1,788
    )
 22




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
 ®
     23




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##### Table of Contents



GAAP and Non-GAAP Financial Performance Metrics
   Gross written premiums.
 Net written premiums.
 Combined ratio.
 Critical Accounting Policies
   24




---



##### Table of Contents



Use of Estimates
  Loss and Loss Adjustment Expense Reserves
    
    
    actuarial projections of what we, at a given time, expect to be the cost of the ultimate
settlement and administration of claims reflecting facts and circumstances then known;
    
    estimates of future trends in claims severity and frequency;
    
    assessment of asserted theories of liability; and
    
    analysis of other factors, such as variables in claims handling procedures, economic
factors, and judicial and legislative trends and actions.
   25




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)GrossCase reserves
    
    $
    102,448
    
    
    $
    91,057IBNR and ULAE reserves
    
    
    324,460
    
    
    
    281,664Total reserves
    
    $
    426,908
    
    
    $
    372,721Net of reinsuranceCase reserves
    
    $
    71,038
    
    
    $
    62,497IBNR and ULAE reserves
    
    
    209,714
    
    
    
    181,672Total
    
    $
    280,752
    
    
    $
    244,169
 Revenue Recognition
 Premiums
 Commissions and Fees
 Investments
 Fair Value Measurements, Accounting for Certain Hybrid
Financial Instruments The Fair Value Option of Financial
Assets and Financial Liabilities
  Impairment of Investment Securities
  26




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##### Table of Contents



Deferred Policy Acquisition Costs
  Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets,
 Accounting for the Impairment or Disposal of Long-lived
Assets
 27




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##### Table of Contents



Results of Operations
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
  Three Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Operating RevenueNet earned premiums
    
    $
    51,432
    
    
    $
    46,559
    
    
    
    10
    %Commissions and fees
    
    
    9,577
    
    
    
    7,086
    
    
    
    35Net investment income
    
    
    7,132
    
    
    
    5,216
    
    
    
    37Net realized gains (losses) on investments
    
    
    9,644
    
    
    
    (1,587
    )
    
    
    708Other-than-temporary impairment losses on
investments
    
    
    (97
    )
    
    
    (225
    )
    
    
    57Total Operating Revenues
    
    
    77,688
    
    
    
    57,049
    
    
    
    36Operating ExpensesLosses and loss adjustment expenses, net
    
    
    35,463
    
    
    
    25,732
    
    
    
    38Amortization of intangible assets
    
    
    575
    
    
    
    515
    
    
    
    12Other operating expenses
    
    
    23,126
    
    
    
    20,711
    
    
    
    12Total Operating Expenses
    
    
    59,164
    
    
    
    46,958
    
    
    
    26Operating Income
    
    
    18,524
    
    
    
    10,091
    
    
    
    84Interest Expense
    
    
    1,294
    
    
    
    1,214
    
    
    
    7Income From Continuing Operations Before
Income Taxes
    
    
    17,230
    
    
    
    8,877
    
    
    
    94Income Taxes
    
    
    5,621
    
    
    
    2,641
    
    
    
    113Income From Continuing Operations
    
    
    11,609
    
    
    
    6,236
    
    
    
    86Income From Discontinued Operations,
Net of Income Taxes
    
    
    
    
    
    
    22,467
    
    
    
    (100
    )Net Income
    
    $
    11,609
    
    
    $
    28,703
    
    
    
    (60
    )%Loss Ratio
    
    
    69.0
    %
    
    
    55.3
    %
    
    
    13.7 pointsUnderwriting Expense Ratio
    
    
    30.9
    %
    
    
    28.7
    %
    
    
    2.2 pointsCombined Ratio
    
    
    99.9
    %
    
    
    84.0
    %
    
    
    15.9 points
 28




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##### Table of Contents



Operating Revenue
 Net Earned Premiums
 Three Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Written premiumsDirect
    
    $
    77,892
    
    
    $
    75,761
    
    
    
    3
    %Assumed
    
    
    4,629
    
    
    
    4,153
    
    
    
    11Ceded
    
    
    (29,079
    )
    
    
    (27,673
    )
    
    
    5Net written premiums
    
    $
    53,442
    
    
    $
    52,241
    
    
    
    2
    %Earned premiumsDirect
    
    $
    74,913
    
    
    $
    69,571
    
    
    
    8
    %Assumed
    
    
    4,460
    
    
    
    4,231
    
    
    
    5Ceded
    
    
    (26,773
    )
    
    
    (27,818
    )
    
    
    (4
    )Earned but unbilled
premiums
    
    
    (1,168
    )
    
    
    575
    
    
    
    (303
    )Net earned premiums
    
    $
    51,432
    
    
    $
    46,559
    
    
    
    10
    %
     29




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##### Table of Contents



Commissions and Fees
 Three Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Insurance underwriting commissions and
fees
    
    $
    1,360
    
    
    $
    1,426
    
    
    
    (5
    )%Insurance services commissions and fees
    
    
    8,217
    
    
    
    5,660
    
    
    
    45Total commissions and fees
    
    $
    9,577
    
    
    $
    7,086
    
    
    
    35
    %
  Net Investment Income and Realized Gains (Losses) on Investments
  Other-than-temporary Impairment Losses on Investments.
 Operating Expenses
 Losses and Loss Adjustment Expenses
 30




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##### Table of Contents



Other Operating Expenses
 Three Months EndedJune 302009
    
    
    2008
    
    
    Change(Dollars in thousands)Amortization of deferred acquisition
expenses
    
    $
    13,600
    
    
    $
    9,096
    
    
    
    50
    %Ceded reinsurance commissions
    
    
    (8,550
    )
    
    
    (8,313
    )
    
    
    3Other underwriting and operating expenses
    
    
    18,076
    
    
    
    19,928
    
    
    
    (9
    )Other operating expenses
    
    $
    23,126
    
    
    $
    20,711
    
    
    
    12
    %
  Interest Expense
 Income Taxes
 Discontinued Operations
 31




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##### Table of Contents



Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
  Six Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Operating RevenueNet earned premiums
    
    $
    104,027
    
    
    $
    90,130
    
    
    
    15
    %Commissions and fees
    
    
    16,471
    
    
    
    11,139
    
    
    
    48Net investment income
    
    
    13,566
    
    
    
    10,064
    
    
    
    35Net realized gains (losses) on investments
    
    
    11,437
    
    
    
    (1,586
    )
    
    
    (821
    )Other-than-temporary impairment losses on investments
    
    
    (134
    )
    
    
    (225
    )
    
    
    (40
    )Total Operating Revenues
    
    
    145,367
    
    
    
    109,522
    
    
    
    33Operating ExpensesLosses and loss adjustment expenses, net
    
    
    65,956
    
    
    
    49,177
    
    
    
    34Amortization of intangible assets
    
    
    1,149
    
    
    
    913
    
    
    
    26Other operating expenses
    
    
    45,680
    
    
    
    34,908
    
    
    
    31Total Operating Expenses
    
    
    112,785
    
    
    
    84,998
    
    
    
    33Operating Income
    
    
    32,582
    
    
    
    24,524
    
    
    
    33Interest Expense
    
    
    2,603
    
    
    
    3,114
    
    
    
    (16
    )Income From Continuing Operations Before
Income Taxes
    
    
    29,979
    
    
    
    21,410
    
    
    
    40Income Taxes
    
    
    9,689
    
    
    
    6,540
    
    
    
    48Income From Continuing Operations
    
    
    20,290
    
    
    
    14,870
    
    
    
    36Income From Discontinued Operations,
Net of Income Taxes
    
    
    
    
    
    
    23,553
    
    
    
    (100
    )Net Income
    
    $
    20,290
    
    
    $
    38,423
    
    
    
    (47
    )%Loss Ratio
    
    
    63.4
    %
    
    
    54.6
    %
    
    8.8 pointsUnderwriting Expense Ratio
    
    
    30.6
    %
    
    
    25.1
    %
    
    5.5 pointsCombined Ratio
    
    
    94.0
    %
    
    
    79.7
    %
    
    14.3 points
 32




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##### Table of Contents



Operating Revenue
 Net Earned Premiums
 Six Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Written
premiumsDirect
    
    $
    151,012
    
    
    $
    151,974
    
    
    
    (1
    )%Assumed
    
    
    9,387
    
    
    
    9,146
    
    
    
    3Ceded
    
    
    (57,132
    )
    
    
    (50,376
    )
    
    
    13Net written premiums
    
    $
    103,267
    
    
    $
    110,744
    
    
    
    (7
    )%Earned
premiumsDirect
    
    $
    148,218
    
    
    $
    138,224
    
    
    
    7
    %Assumed
    
    
    8,747
    
    
    
    7,983
    
    
    
    10Ceded
    
    
    (51,845
    )
    
    
    (55,497
    )
    
    
    (7
    )Earned but unbilled
premiums
    
    
    (1,093
    )
    
    
    (580
    )
    
    
    88Net earned premiums
    
    $
    104,027
    
    
    $
    90,130
    
    
    
    15
    %
     33




---



##### Table of Contents



Commissions and Fees
 Six Months EndedJune 30,2009
    
    
    2008
    
    
    Change(Dollars in thousands)Insurance underwriting commissions and
fees
    
    $
    2,717
    
    
    $
    2,755
    
    
    
    (1
    )%Insurance services commissions and fees
    
    
    13,754
    
    
    
    8,384
    
    
    
    64Total commissions and fees
    
    $
    16,471
    
    
    $
    11,139
    
    
    
    48
    %
  Net Investment Income and Realized Gains (Losses) on Investments
  Other-than-temporary Impairment Losses on Investments.
 Operating Expenses
 Losses and Loss Adjustment Expenses
 34




---



##### Table of Contents



Other Operating Expenses
 Six Months EndedJune 302009
    
    
    2008
    
    
    Change(Dollars in thousands)Amortization of deferred acquisition
expenses
    
    $
    26,930
    
    
    $
    17,310
    
    
    
    56
    %Ceded reinsurance commissions
    
    
    (16,427
    )
    
    
    (16,795
    )
    
    
    (2
    )Other underwriting and operating expenses
    
    
    35,177
    
    
    
    34,393
    
    
    
    2Other operating expenses
    
    $
    45,680
    
    
    $
    34,908
    
    
    
    31
    %
  Interest Expense
 Income Taxes
 Discontinued Operations
 Liquidity and Capital Resources
 Sources and Uses of Funds
 FMFC
 Insurance Subsidiaries
  Non-insurance Subsidiaries
 35




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##### Table of Contents



Cash Flows
  Six Months EndedJune 30,2009
    
    
    2008(Dollars in thousands)Cash and cash equivalents provided by (used
in):Operating activities  continuing operations
    
    $
    59,075
    
    
    $
    58,622Operating activities  discontinued operations
    
    
    
    
    
    
    2,376Investing activities  continuing operations
    
    
    (61,006
    )
    
    
    (100,571
    )Investing activities  discontinued operations
    
    
    
    
    
    
    41,830Financing activities
    
    
    (6,328
    )
    
    
    101Change in cash and cash equivalents
    
    $
    (8,259
    )
    
    $
    2,358
        36




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##### Table of Contents



Stockholders Equity
  June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands,except share and per share data)Total stockholders equity
    
    $
    286,838
    
    
    $
    261,637Intangible assets, net
    
    
    (38,201
    )
    
    
    (39,351
    )Deferred tax liability  intangible assets, net
    
    
    12,997
    
    
    
    13,399Goodwill
    
    
    (25,483
    )
    
    
    (25,483
    )Tangible stockholders equity attributable to
common shareholders
    
    $
    236,151
    
    
    $
    210,202Common shares outstanding
    
    
    17,558,483
    
    
    
    17,836,337Book value per share
    
    $
    16.34
    
    
    $
    14.67Tangible book value per share
    
    $
    13.45
    
    
    $
    11.79
  Long-term debt
 Junior Subordinated Debentures
 Credit Facility
 Derivative Financial Instruments
 37




---



##### Table of Contents



Cash and Invested Assets
  June 30, 2009Market
    
    
    % ofValue
    
    
    Portfolio(Dollars in thousands)Short Term Investments
    
    $
    16,921
    
    
    
    2.7
    %U.S. Treasuries
    
    
    4,101
    
    
    
    0.7
    %U.S. Agencies
    
    
    1,056
    
    
    
    0.2
    %Municipal Bonds
    
    
    201,369
    
    
    
    32.3
    %Corporate Bonds
    
    
    122,759
    
    
    
    19.6
    %High Yield Bonds
    
    
    17,705
    
    
    
    2.8
    %MBS Passthroughs
    
    
    60,315
    
    
    
    9.6
    %CMOs
    
    
    46,215
    
    
    
    7.4
    %Asset Backed Securities
    
    
    23,258
    
    
    
    3.7
    %Commercial MBS
    
    
    50,879
    
    
    
    8.1
    %Convertible Securities
    
    
    58,948
    
    
    
    9.4
    %High Yield Convertible Fund
    
    
    9,973
    
    
    
    1.6
    %Structured Finance Fund
    
    
    10,520
    
    
    
    1.7
    %Preferred Stocks
    
    
    1,145
    
    
    
    0.2
    %Common Stocks
    
    
    
    
    
    
    0.0
    %Total
    
    $
    625,164
    
    
    
    100.0
    %
  % of TotalAverage Life
    
    InvestmentLess than one year
    
    
    13.8
    %One to two years
    
    
    14.3
    %Two to three years
    
    
    16.4
    %Three to four years
    
    
    14.2
    %Four to five years
    
    
    14.4
    %Five to seven years
    
    
    9.5
    %More than seven years
    
    
    17.4
    %Total
    
    
    90.5
    %
  38




---



##### Table of Contents



% of TotalS&P Rating
    
    InvestmentsAAA
    
    
    47.6
    %AA
    
    
    17.2
    %A
    
    
    15.5
    %BBB
    
    
    10.6
    %BB
    
    
    4.9
    %B
    
    
    0.8
    %C
    
    
    0.1
    %CCC
    
    
    1.6
    %NR
    
    
    1.7
    %Total
    
    
    100.0
    %
      39




---



##### Table of Contents



Amortized
    
    
    Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Market Value(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    3,941
    
    
    $
    161
    
    
    $
    (1
    )
    
    $
    4,101Government agency mortgage-backed securities
    
    
    93,058
    
    
    
    3,429
    
    
    
    (81
    )
    
    
    96,406Government agency obligations
    
    
    1,018
    
    
    
    38
    
    
    
    
    
    
    
    1,056Collateralized mortgage obligations and other
asset-backed securities
    
    
    87,040
    
    
    
    2,368
    
    
    
    (5,147
    )
    
    
    84,261Obligations of states and political subdivisions
    
    
    194,413
    
    
    
    7,336
    
    
    
    (380
    )
    
    
    201,369Corporate bonds
    
    
    136,225
    
    
    
    6,060
    
    
    
    (1,821
    )
    
    
    140,464Total Debt Securities
    
    
    515,695
    
    
    
    19,392
    
    
    
    (7,430
    )
    
    
    527,657Preferred stocks
    
    
    1,416
    
    
    
    
    
    
    
    (271
    )
    
    
    1,145Short-term investments
    
    
    16,921
    
    
    
    
    
    
    
    
    
    
    
    16,921Total
    
    $
    534,032
    
    
    $
    19,392
    
    
    $
    (7,701
    )
    
    $
    545,723
  40




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##### Table of Contents



Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    
    
    
    
    Fair Valueof
    
    
    
    
    
    
    ofInvestments
    
    
    
    
    
    
    InvestmentsWith
    
    
    Gross
    
    
    With
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Unrealized
    
    
    UnrealizedLosses
    
    
    Losses
    
    
    Losses
    
    
    Losses(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    108
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    Government agency mortgage-backed securities
    
    
    17,200
    
    
    
    (71
    )
    
    
    281
    
    
    
    (10
    )Government agency obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations and other
asset-backed securities
    
    
    7,583
    
    
    
    (316
    )
    
    
    20,521
    
    
    
    (4,831
    )Obligations of states and political
subdivisions
    
    
    3,289
    
    
    
    (71
    )
    
    
    12,917
    
    
    
    (309
    )Corporate bonds
    
    
    9,833
    
    
    
    (78
    )
    
    
    15,736
    
    
    
    (1,743
    )Total Debt Securities
    
    
    38,013
    
    
    
    (537
    )
    
    
    49,455
    
    
    
    (6,893
    )Preferred Stocks
    
    
    875
    
    
    
    (35
    )
    
    
    270
    
    
    
    (236
    )Total
    
    $
    38,888
    
    
    $
    (572
    )
    
    $
    49,725
    
    
    $
    (7,129
    )
  Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    
    
    
    
    Fair Valueof
    
    
    
    
    
    
    ofInvestments
    
    
    
    
    
    
    InvestmentsWith
    
    
    Gross
    
    
    With
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Unrealized
    
    
    UnrealizedLosses
    
    
    Losses
    
    
    Losses
    
    
    Losses(Dollars in thousands)Debt SecuritiesU.S. government securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government agency mortgage-backed securities
    
    
    3,902
    
    
    
    (37
    )
    
    
    326
    
    
    
    (2
    )Government agency obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations and other
asset-backed securities
    
    
    48,125
    
    
    
    (5,143
    )
    
    
    5,963
    
    
    
    (1,944
    )Obligations of states and political
subdivisions
    
    
    14,063
    
    
    
    (427
    )
    
    
    8,809
    
    
    
    (267
    )Corporate bonds
    
    
    42,402
    
    
    
    (2,549
    )
    
    
    12,824
    
    
    
    (1,325
    )Total Debt Securities
    
    
    108,492
    
    
    
    (8,156
    )
    
    
    27,922
    
    
    
    (3,538
    )Preferred Stocks
    
    
    832
    
    
    
    (78
    )
    
    
    216
    
    
    
    (289
    )Total
    
    $
    109,324
    
    
    $
    (8,234
    )
    
    $
    28,138
    
    
    $
    (3,827
    )
  41




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##### Table of Contents



Amount ofUnrealized LossSector
    
    at June 30, 2009(Dollars in thousands)Short Term Investments
    
    $
    U.S. Treasuries
    
    
    (1
    )U.S. Agencies
    
    
    Municipal Bonds
    
    
    (380
    )Corporate Bonds
    
    
    (1,807
    )High Yield Bonds
    
    
    (14
    )MBS Passthroughs
    
    
    (105
    )CMOs
    
    
    (1,480
    )Asset Backed Securities
    
    
    (577
    )Commercial MBS
    
    
    (3,066
    )Convertible Securities
    
    
    High Yield Convertible Fund
    
    
    Structured Finance Fund
    
    
    Preferred Stocks
    
    
    (271
    )Common Stocks
    
    
    $
    (7.701
    )
   % of Total
    
    
    Total
    
    
    Total
    
    
    Average Unrealized Loss
    
    
    % of LossAmortized Cost
    
    
    Amortized Cost
    
    
    Unrealized Losses
    
    
    as % of Amortized Cost
    
    
    > 12 Months(Dollars in thousands)Non Investment Grade
    
    
    4.2
    %
    
    $
    4,046
    
    
    $
    1,102
    
    
    
    27.2
    %
    
    
    99.1
    %Investment Grade
    
    
    95.8
    
    
    
    92,268
    
    
    
    6,599
    
    
    
    7.2
    
    
    
    91.5Total
    
    
    100.0
    %
    
    $
    96,314
    
    
    $
    7,701
    
    
    
    8.0
    %
    
    
    92.6
    %
    42




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##### Table of Contents



Deferred Policy Acquisition Costs
  Reinsurance
  Six Months EndedJune 30,2009
    
    
    2008(Dollars in thousands)Direct written premiums
    
    $
    151,012
    
    
    $
    151,974Ceded written premiums
    
    
    57,132
    
    
    
    50,376Net written premiums
    
    $
    93,880
    
    
    $
    101,598Ceded written premiums as percentage of
direct written premiums
    
    
    37.8
    %
    
    
    33.1
    %
  Six Months EndedJune 30,2009
    
    2008(Dollars in thousands)Ceded written premiums
    
    $
    57,132
    
    
    $
    50,376Ceded premiums earned
    
    
    51,845
    
    
    
    55,497Losses and loss adjustment expenses ceded
    
    
    37,507
    
    
    
    29,347Ceding commissions
    
    
    14,183
    
    
    
    19,716
   43




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##### Table of Contents



Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement
No.162 (SFAS 168). The Hierarchy of Generally Accepted
Accounting Principles Accounting Standards Codification
 Subsequent Events (SFAS 165).
 Recognition and Presentation of
Other-Than-Temporary Impairments
 , Determining Fair Value When Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that
are Not Orderly (FSP FAS 157-4)
 Interim Disclosures about Fair
Value of Financial Instruments (FSP FAS 107-1 and APB 28-1)
 44




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##### Table of Contents




    
    SFAS No. 141(R), Business Combinations;
    
    SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an
amendment of Accounting Research Bulletin No. 51;
    
    SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities;
    
    FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities;and
    
    FSP FAS No. 157-2, Effective Date of FASB Statement No. 157.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  45




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##### Table of Contents



PART II.  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Maximum Number (orTotal Number of
    
    Approximate DollarShares (or Units)
    
    Value) of SharesPurchased as Part
    
    (or Units) that MayTotal Number of
    
    Average Price as
    
    of Publicly
    
    Yet Be PurchasedShares (or Units)
    
    Paid per Share (or
    
    Announced Plans or
    
    Under the Plan orMonth
    
    Purchased
    
    Unit)
    
    Programs
    
    ProgramsApril
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    801,423May
    
    
    186,405
    
    
    
    12.99
    
    
    
    186,405
    
    
    
    615,018June
    
    
    201,353
    
    
    
    13.23
    
    
    
    201,353
    
    
    
    413,665Total
    
    
    387,758
    
    
    $
    13.11
    
    
    
    387,758
    
    
    
    413,665
 
 Item 4. Submission of Matters to a Vote of Security Holders
  (i)
    
    elected to the Board of Directors of First Mercury Financial Corporation two class II
directors; and(ii)
    
    approved the amendment and restatement of the First Mercury Financial Corporation Omnibus
Incentive Plan of 2006 (the Omnibus Plan) to increase the number of shares authorized for
issuance thereunder by 1,650,000 shares (which will bring the total number of shares reserved
under the Omnibus Plan to 3,150,000) and to made certain other changes to the Omnibus Plan;
and(iii)
    
    approved the Omnibus Plan for purposes of complying with the requirements of Section
162(m) of the Internal Revenue Code, as amended; and(iv)
    
    ratified the appointment of BDO Seidman, LLP as independent registered public accounting
firm of the Company for the year ending December 31, 2009.
  (i)
 Director Nominee
    
    Votes For
    
    Votes WithheldThomas B. Kearney
    
    
    8,102,001
    
    
    
    9,456,387William C. Tyler
    
    
    16,749,127
    
    
    
    809,261
 (ii)
 For
    
    Against
    
    Abstain
    
    Non VotesApprove amendment
and restatement of
Omnibus Plan:
    
    
    13,389,414
    
    
    
    3,659,992
    
    
    
    2,961
    
    
    
    506,021
 46




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##### Table of Contents



(iii)
 For
    
    Against
    
    AbstainApprove Omnibus
Plan for purposes
of complying with
Section 162(m):
    
    
    17,148,241
    
    
    
    405,741
    
    
    
    4,406
 (iv)
 For
    
    Against
    
    AbstainRatification of
appointment of BDO
Seidman, LLP
    
    
    17,480,335
    
    
    
    62,142
    
    
    
    15,911
 
 Item 6. Exhibits
  47




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##### Table of Contents



SIGNATURES
  FIRST MERCURY FINANCIAL CORPORATIONBy:
    /s/ RICHARD  H. SMITHRichard H. SmithChairman, President and Chief Executive OfficerBy:
    /s/ JOHN A. MARAZZAJohn A. MarazzaExecutive Vice President and Chief Financial OfficerDate:   August 10, 2009 48




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##### Table of Contents



INDEX OF EXHIBITS
 ExhibitNumber
    
    Note
    
    Description31 (a)
    
    
    (1
    )
    
    Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 193431 (b)
    
    
    (1
    )
    
    Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 193432 (a)
    
    
    (1
    )
    
    Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the
Securities Exchange Act of 193432 (b)
    
    
    (1
    )
    
    Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the
Securities Exchange Act of 1934
 
 (1)
    
    Filed herewith 49