The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses ("LAE")(LAE) incurred:
The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from unrelatednon-affiliated reinsurers:
The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk and interest rate risk. In addition, the Company is also subject to additional counterparty risk should its counterparties fail to meet the contract terms. The derivative financial instruments are located within derivative assets at fair value and are reported in other investments. Derivative liabilities are reported within other liabilities and accrued expenses.
result from the commitments.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest expense on debt | $ | 10,427 |
| | $ | 7,769 |
| | $ | 28,650 |
| | $ | 20,612 |
|
The following table presents the future maturities of the unpaid principal balance on the Company’s long-term debt as of:
|
| | | |
| September 30, 2017 |
Remainder of 2017 | $ | 8,689 |
|
2018 | 182,173 |
|
2019 | 267,685 |
|
2020 | 121,514 |
|
2021 | 21,899 |
|
Thereafter | 272,030 |
|
Total | $ | 873,990 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Interest expense - corporate debt | $ | 6,063 | | | $ | 5,266 | | | | | | | |
Interest expense - asset based debt | 3,082 | | | 2,285 | | | | | | | |
Interest expense on debt | $ | 9,145 | | | $ | 7,551 | | | | | | | |
The following table presents the contractual principal payments and future maturities of the unpaid principal balance on the Company’s debt for the following periods:
| | | | | |
| As of |
| March 31, 2021 |
Remainder of 2021 | $ | 39,396 | |
2022 | 40,969 | |
2023 | 55,660 | |
2024 | 15,450 | |
2025 | 95,313 | |
2026 and thereafter | 160,000 | |
Total | $ | 406,788 | |
The following narrative is a summary of certain of the terms of our debt agreements for the periodsperiod ended September 30, 2017:March 31, 2021:
Corporate Debt
Secured Revolving Credit Agreements
As of March 31, 2021 and December 31, 2020, a total of $20,380 and $0, respectively, was outstanding under this agreement. At March 31, 2021, the outstanding balance was at Prime + 1.25.
Secured Term Credit Agreement
As of March 31, 2021 and December 31, 2020, a total of $118,750 and $120,313, respectively, was outstanding under this agreement.
Asset Based Debt
Asset Backed Revolving Financing
An asset backed revolvingAs of March 31, 2021 and December 31, 2020, a total of $26,830 and $27,510, respectively, was outstanding under the borrowing related to our premium finance business in our asset management business entered into an amendment that changed the stated interest from LIBOR plus 2.50%, to LIBOR plus 2.25%, and extended the maturity date from July 2021 to July 2022.insurance business.
An asset backed revolving borrowing in our specialty finance business increased its maximum borrowing capacity from $125,000 to $150,000 as of September 30, 2017 and also changed its maturing date from October 2019 to October 2020.
An asset backed revolving borrowing in our specialty insurance business with a maximum borrowing capacity of $15,000 matured in April 2017. A new borrowing maturing in April 2019 with an interest rate of LIBOR plus 2.60% and a maximum borrowing capacity of $25,000 was used to pay off the matured borrowing.
Residential Mortgage Warehouse Borrowings
The maximum borrowing amount forDuring the three ofmonths ended March 31, 2021, the six$60,000 warehouse linesline of credit through subsidiaries in our specialty finance business, decreased by $18,000, from $88,000 aswas extended to April 2022. As of March 31, 2021 and December 31, 2016 to $70,000 as2020, a total of September 30, 2017.$65,578 and $55,994, respectively, was outstanding under such financing agreements.
The maturity dates for warehouse lines of credit through subsidiaries in our specialty finance business were extended during the nine months ended September 30, 2017. One borrowing extended its maturity from April 2017 to March 2018, one borrowing extended its maturity from June 2017 to March 2018, and two borrowings extended their maturity from June 2017 to June 2018.Vessel Backed Term Loan
Real Estate Commercial Mortgage Borrowings
On February 3, 2017, in connection with an acquisition in the senior living business, the Company along with our partners entered into a $10,000, five year mortgage borrowing, which includes 12 months of interest only payments. The loan carries a variable rate of LIBOR plus 3.75%. If on or after February 3, 2019 the facility has achieved certain occupancy and minimum debt service coverage ratio, then the interest rate will be reduced to a rate of LIBOR plus 2.75% as of such date. This note matures on February 1, 2022.
On February 9, 2017, in connection with assets acquired in the senior living business, a pre-existing Housing and Urban Development (HUD) loan was assumed by a subsidiary in our senior living business. The 35 year loan was originally dated June 1, 2013 for $8,072. The loan carries a fixed interest rate of 3.08% per annum, and matures on July 1, 2048. As of the acquisition date, this debt had a balance of $7,586. All terms of the note assumed remain consistent with the original note.
On April 18, 2017, in connection with an acquisition in the senior living business, the Company entered into a $7,000, five year mortgage borrowing. The loan carries a variable rate of LIBOR plus 3.00% and matures on May 1, 2022.
On May 31, 2017, in connection with an acquisition of seven skilled nursing facilities in the senior living business, the Company entered into a $28,800, three year mortgage borrowing. The loan carries a variable rate of LIBOR plus 6.95% and matures on May 31, 2020.
On June 14, 2017, in connection with an acquisition in the senior living business, the Company entered into a $9,150, five year mortgage borrowing. The loan carries a fixed interest rate of 4.60% and matures on July 1, 2022.
Covenant Compliance
As of September 30, 2017,March 31, 2021 and December 31, 2020, the maximum borrowing capacity and borrowings outstanding were $15,250 and $15,800, respectively.
As of March 31, 2021, the Company is in compliance with the representations and covenants for its outstanding borrowingsdebt or has obtained waivers for any events of non-compliance.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
(12) Fair Value of Financial Instruments
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note—Note (2) Summary of Significant Accounting Policies to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.
The Company’s fair value measurement ismeasurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third partythird-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources. In addition, the Company utilizes an income approach to measure the fair value of NPLs, as discussed below.
The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.
Available for Sale Securities, at fair value
AvailableThe fair values of available for sale securities are generally classified within either Level 1 or Level 2 of the fair value hierarchy and are based on prices provided by an independent pricing service and a third partythird-party investment manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager who provide a single price or quote per security.by analyzing the investment manager-provided pricing report.
The following details the methods and assumptions used to estimate the fair value of each class of available for saleAFS securities and the applicable level each security falls within the fair value hierarchy:
U.S Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset-BackedAsset Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third partythird-party investment manager. The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 ofor Level 3 in the fair value hierarchy.
Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.
Equity Securities: Securities
The fair values of publicly traded common and preferred stocks wereequity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 ofin the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks wereare based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 ofin the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
Loans, at fair value
Corporate Loans (including those of consolidated CLOs): These loans are comprised of a diversified portfolio of middle market and broadly syndicated leveraged loans and are generally classified withinunder either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices which include those provided from pricing vendors, where available. We perform internal price verification procedures to ensure that the prices and quotes provided from the independent pricing vendors are reasonable. Such verification procedures include comparison of pricing sources and analysis of variances among pricing sources. The Company has evaluated each loan’s respective liquidity and has additionally performed valuation benchmarking. The key characteristics which were evaluated as part of this determination were liquidity ratings, price changes to index benchmarks, depth of quotes, credit ratings and industry trends.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified asunder Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third partythird-party investors, including estimated loan costs, and reserves. For non-performing mortgage loans held for sale, fair value is based upon estimated selling prices from third party investors of such types of loans.costs.
Nonperforming Loans and REO: The Company determines the purchase price for NPLs at the time of acquisition and for each subsequent valuation by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to REO. The significant unobservable inputs used in the fair value measurement of our NPLs are discount rates, loan resolution timeline, and the value of underlying properties. The fair values of NPLs which are making payments (generally based on a modification or a workout plan) are primarily based upon secondary market transaction prices, which are expressed as a percentage of unpaid principal balance (UPB). Observable inputs to the model include loan amounts, payment history, and property types. Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible. NPLs are included in loans, at fair value and fall under Level 3 of the fair value hierarchy.
NPLs that have become REOs were measured at fair value on a non-recurring basis during the nine months ended September 30, 2017 and year ended December 31, 2016. The carrying value of REOs at September 30, 2017 and December 31, 2016 was $13,079 and $13,366, respectively. Upon conversion to REO, the fair value is estimated using broker price opinion (BPO). BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales. REO is included in real estate, net.
Derivative Assets and Liabilities
Derivatives are primarily comprised of credit default swaps (CDS), index credit default swaps (CDX), interest rate lock commitments (IRLC), to be announcedIRLCs, forward delivery contracts and TBA mortgage backed securities (TBA) and interest rate swaps (IRS).securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. In general, the fair value of CDSs and CDXs are based on dealer quotes. Because significant inputs, other than unadjusted quoted prices in active markets are used to determine the dealer quotes, such as price volatility, the Company classifies them as Level 2 in the fair value hierarchy. The fair value of IRS is based upon either valuation pricing models, which represent the amount the Company would expect to pay at the balance sheet date if the contracts were exited, or by obtaining broker or counterparty quotes. Because there are observable inputs used to arrive at these prices, the Company has classified IRS within Level 2 of the fair value hierarchy. Our mortgage origination subsidiaries issue IRLCs to itstheir customers, which are carried at estimated fair value on the Company’s condensed consolidated balance sheet.sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected fall outpull through assumption. The fair values of these commitments generally result in afall under Level 3 classification.in the fair value hierarchy. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally result in afall under Level 2 classification.in the fair value hierarchy.
Corporate Bonds
Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.
Securities Sold, Not Yet Purchased
Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.
Mortgage Servicing Rights
Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed.
The following tables present the Company’s fair value hierarchies for financial assets and liabilities, including the balances associated with the consolidated CLOs, measured on a recurring basis:
|
| | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Assets: | | | | | | | |
Available for sale securities, at fair value: | | | | | | | |
Equity securities | $ | 615 |
| | $ | — |
| | $ | 47 |
| | $ | 662 |
|
U.S. Treasury securities and obligations of U.S. government authorities and agencies | — |
| | 36,354 |
| | — |
| | 36,354 |
|
Obligations of state and political subdivisions | — |
| | 47,633 |
| | — |
| | 47,633 |
|
Obligations of foreign governments | — |
| | 579 |
| | — |
| | 579 |
|
Certificates of deposit | 896 |
| | — |
| | — |
| | 896 |
|
Asset backed securities | — |
| | 24,100 |
| | — |
| | 24,100 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Assets: | | | | | | | |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Available for sale securities, at fair value: | | | | | | | |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 0 | | | $ | 209,735 | | | $ | 0 | | | $ | 209,735 | |
Obligations of state and political subdivisions | 0 | | | 47,294 | | | 0 | | | 47,294 | |
Obligations of foreign governments | 0 | | | 4,508 | | | 0 | | | 4,508 | |
Certificates of deposit | 1,356 | | | 0 | | | 0 | | | 1,356 | |
Asset backed securities | 0 | | | 37,643 | | | 878 | | | 38,521 | |
Corporate securities | 0 | | | 108,533 | | | 0 | | | 108,533 | |
Total available for sale securities, at fair value | 1,356 | | | 407,713 | | | 878 | | | 409,947 | |
| | | | | | | |
Loans, at fair value: | | | | | | | |
Corporate loans | 0 | | | 3,147 | | | 7,685 | | | 10,832 | |
Mortgage loans held for sale | 0 | | | 99,626 | | | 0 | | | 99,626 | |
| | | | | | | |
Total loans, at fair value | 0 | | | 102,773 | | | 7,685 | | | 110,458 | |
| | | | | | | |
Equity securities: | | | | | | | |
Invesque | 47,719 | | | 0 | | | 0 | | | 47,719 | |
Fixed income exchange traded fund | 64,293 | | | 0 | | | 0 | | | 64,293 | |
Other equity securities | 32,975 | | | 0 | | | 35 | | | 33,010 | |
Total equity securities | 144,987 | | | 0 | | | 35 | | | 145,022 | |
| | | | | | | |
Other investments, at fair value: | | | | | | | |
Corporate bonds | 0 | | | 101,296 | | | 0 | | | 101,296 | |
Derivative assets | 667 | | | 3,737 | | | 8,284 | | | 12,688 | |
CLOs | 0 | | | 0 | | | 616 | | | 616 | |
Total other investments, at fair value | 667 | | | 105,033 | | | 8,900 | | | 114,600 | |
| | | | | | | |
Mortgage servicing rights (1) | 0 | | | 0 | | | 20,894 | | | 20,894 | |
| | | | | | | |
Total | $ | 147,010 | | | $ | 615,519 | | | $ | 38,392 | | | $ | 800,921 | |
| | | | | | | |
Liabilities: (2) | | | | | | | |
Derivative liabilities | $ | 0 | | | $ | 1,095 | | | $ | 0 | | | $ | 1,095 | |
Securities sold, not yet purchased | 27,052 | | | 12,573 | | | 0 | | | 39,625 | |
Contingent consideration payable | 0 | | | 0 | | | 200 | | | 200 | |
| | | | | | | |
Total | $ | 27,052 | | | $ | 13,668 | | | $ | 200 | | | $ | 40,920 | |
(1) Included in other assets.
(2) Included in other liabilities and accrued expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Assets: | | | | | | | |
Available for sale securities, at fair value: | | | | | | | |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 0 | | | $ | 196,303 | | | $ | 0 | | | $ | 196,303 | |
Obligations of state and political subdivisions | 0 | | | 44,350 | | | 0 | | | 44,350 | |
Obligations of foreign governments | 0 | | | 3,992 | | | 0 | | | 3,992 | |
Certificates of deposit | 1,355 | | | 0 | | | 0 | | | 1,355 | |
Asset backed securities | 0 | | | 35,334 | | | 858 | | | 36,192 | |
Corporate securities | 0 | | | 94,941 | | | 0 | | | 94,941 | |
Total available for sale securities, at fair value | 1,355 | | | 374,920 | | | 858 | | | 377,133 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Corporate securities | — |
| | 53,869 |
| | — |
| | 53,869 |
|
Total available for sale securities | 1,511 |
| | 162,535 |
| | 47 |
| | 164,093 |
|
| | | | | | | |
Loans, at fair value: |
| |
|
| |
|
| |
|
|
Corporate loans | — |
| | 33,427 |
| | 129,085 |
| | 162,512 |
|
Mortgage loans held for sale | — |
| | 114,461 |
| | — |
| | 114,461 |
|
Non-performing loans | — |
| | — |
| | 44,980 |
| | 44,980 |
|
Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
Total loans, at fair value | — |
|
| 147,888 |
|
| 175,234 |
|
| 323,122 |
|
| | | | | | | |
Equity securities, trading, at fair value | 28,106 |
| | — |
| | — |
| | 28,106 |
|
| | | | | | | |
Other investments: | | | | | | | |
Derivative assets: | | | | | | | |
Interest rate swaps | — |
| | 1,284 |
| | — |
| | 1,284 |
|
Forward delivery contracts | — |
| | 49 |
| | — |
| | 49 |
|
Interest rate lock commitments | — |
| | — |
| | 6,537 |
| | 6,537 |
|
TBA mortgage backed securities | — |
| | 284 |
| | — |
| | 284 |
|
Credit derivatives | — |
| | 13,035 |
| | — |
| | 13,035 |
|
Total derivative assets | — |
| | 14,652 |
| | 6,537 |
| | 21,189 |
|
CLOs | — |
| | — |
| | 2,045 |
| | 2,045 |
|
Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
Total other investments | — |
| | 18,609 |
| | 8,582 |
| | 27,191 |
|
| | | | | | | |
Total financial instruments attributable to non-CLOs included in consolidated assets | 29,617 |
|
| 329,032 |
|
| 183,863 |
|
| 542,512 |
|
| | | | | | | |
Financial instruments included in assets of consolidated CLOs: | | | | | | | |
Loans, at fair value | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
Total financial instruments included in assets of consolidated CLOs | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
| | | | | | | |
Total | $ | 29,617 |
|
| $ | 461,655 |
|
| $ | 394,622 |
|
| $ | 885,894 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities: | | | | | | | |
Interest rate swaps | $ | — |
| | $ | 426 |
| | $ | — |
| | $ | 426 |
|
TBA mortgage backed securities | — |
| | 283 |
| | — |
| | 283 |
|
Foreign currency forward contracts | — |
| | — |
| | — |
| | — |
|
Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 709 |
|
| — |
|
| 709 |
|
Contingent consideration payable | — |
| | — |
| | 52 |
| | 52 |
|
Preferred notes payable | — |
| | — |
| | 1,386 |
| | 1,386 |
|
Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 709 |
|
| 1,438 |
| | 2,147 |
|
| | | | | | | |
Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
Notes payable of CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
Total financial instruments included in liabilities of consolidated CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
Total | $ | — |
|
| $ | 709 |
|
| $ | 328,154 |
|
| $ | 328,863 |
|
|
| | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Assets: | | | | | | | |
Available for sale securities, at fair value: | | | | | | | |
Equity securities | $ | 736 |
| | $ | — |
| | $ | 48 |
| | $ | 784 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Loans, at fair value: | | | | | | | |
Corporate loans | 0 | | | 0 | | | 7,795 | | | 7,795 | |
Mortgage loans held for sale | 0 | | | 82,937 | | | 0 | | | 82,937 | |
| | | | | | | |
Total loans, at fair value | 0 | | | 82,937 | | | 7,795 | | | 90,732 | |
| | | | | | | |
Equity securities: | | | | | | | |
Invesque | 31,078 | | | 0 | | | 0 | | | 31,078 | |
Fixed income exchange traded fund | 63,875 | | | 0 | | | 0 | | | 63,875 | |
Other equity securities | 28,850 | | | 0 | | | 35 | | | 28,885 | |
Total equity securities | 123,803 | | | 0 | | | 35 | | | 123,838 | |
| | | | | | | |
Other investments, at fair value: | | | | | | | |
Corporate bonds | 0 | | | 105,777 | | | 0 | | | 105,777 | |
Derivative assets | 2,090 | | | 232 | | | 9,207 | | | 11,529 | |
CLOs | 0 | | | 0 | | | 802 | | | 802 | |
Total other investments, at fair value | 2,090 | | | 106,009 | | | 10,009 | | | 118,108 | |
| | | | | | | |
Mortgage servicing rights (1) | 0 | | | 0 | | | 14,758 | | | 14,758 | |
| | | | | | | |
Total | $ | 127,248 | | | $ | 563,866 | | | $ | 33,455 | | | $ | 724,569 | |
| | | | | | | |
Liabilities: (2) | | | | | | | |
Derivative liabilities | $ | 0 | | | $ | 2,090 | | | $ | 0 | | | $ | 2,090 | |
Securities sold, not yet purchased | 16,479 | | | 30,158 | | | 0 | | | 46,637 | |
Contingent consideration payable | 0 | | | 0 | | | 200 | | | 200 | |
Total | $ | 16,479 | | | $ | 32,248 | | | $ | 200 | | | $ | 48,927 | |
(1) Included in other assets. (2) Included in other liabilities and accrued expenses. | | | | | | | |
|
| | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | — |
| | 26,799 |
| | — |
| | 26,799 |
|
Obligations of state and political subdivisions | — |
| | 56,934 |
| | — |
| | 56,934 |
|
Obligations of foreign governments | — |
| | 728 |
| | — |
| | 728 |
|
Certificates of deposit | 895 |
| | — |
| | — |
| | 895 |
|
Asset backed securities | — |
| | 1,460 |
| | — |
| | 1,460 |
|
Corporate bonds | — |
| | 58,571 |
| | — |
| | 58,571 |
|
Total available for sale securities, at fair value | 1,631 |
|
| 144,492 |
|
| 48 |
|
| 146,171 |
|
| | | | | | | |
Loans, at fair value: | | | | | | | |
Corporate loans | — |
| | 46,352 |
| | 129,206 |
| | 175,558 |
|
Mortgage loans held for sale | — |
| | 121,439 |
| | — |
| | 121,439 |
|
Non-performing loans | — |
| | — |
| | 74,923 |
| | 74,923 |
|
Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
Total loans, at fair value | — |
|
| 167,791 |
|
| 205,298 |
|
| 373,089 |
|
| | | | | | | |
Equity securities, trading, at fair value | 48,612 |
| | — |
| | — |
| | 48,612 |
|
| | | | | | | |
Other investments: | | | | | | | |
Derivative assets: |
| | | | | | |
Interest rate swaps | — |
| | 1,388 |
| | — |
| | 1,388 |
|
Interest rate lock commitments | — |
| | — |
| | 4,872 |
| | 4,872 |
|
TBA mortgage backed securities | — |
| | 1,678 |
| | — |
| | 1,678 |
|
Credit derivatives | — |
| | 12,598 |
| | — |
| | 12,598 |
|
Total derivative assets | — |
| | 15,664 |
| | 4,872 |
| | 20,536 |
|
CLOs | — |
| | — |
| | 974 |
| | 974 |
|
Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
Total other investments | — |
| | 19,621 |
| | 5,846 |
| | 25,467 |
|
| | | | | | | |
Total financial instruments attributable to non-CLOs included in consolidated assets | 50,243 |
|
| 331,904 |
|
| 211,192 |
|
| 593,339 |
|
| | | | | | | |
Financial instruments included in assets of consolidated CLOs: | | | | | | | |
Loans, at fair value | — |
| | 342,370 |
| | 585,870 |
| | 928,240 |
|
Total financial instruments included in assets of consolidated CLOs | — |
|
| 342,370 |
|
| 585,870 |
|
| 928,240 |
|
Total | $ | 50,243 |
|
| $ | 674,274 |
|
| $ | 797,062 |
|
| $ | 1,521,579 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities: | | | | | | | |
Interest rate swaps | $ | — |
| | $ | 1,042 |
| | $ | — |
| | $ | 1,042 |
|
Forward delivery contracts | — |
| | 84 |
| | — |
| | 84 |
|
TBA mortgage backed securities | — |
| | 269 |
| | — |
| | 269 |
|
Foreign currency forward contracts | — |
| | 3 |
| | — |
| | 3 |
|
Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 1,398 |
|
| — |
|
| 1,398 |
|
Contingent consideration payable | — |
| | — |
| | 1,852 |
| | 1,852 |
|
Preferred notes payable | — |
| | — |
| | 1,232 |
| | 1,232 |
|
Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 1,398 |
|
| 3,084 |
|
| 4,482 |
|
| | | | | | | |
Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
Notes payable of CLOs | — |
| | — |
| | 912,034 |
| | 912,034 |
|
Total financial instruments included in liabilities of consolidated CLOs | — |
|
| — |
|
| 912,034 |
|
| 912,034 |
|
| | | | | | | |
Total | $ | — |
|
| $ | 1,398 |
|
| $ | 915,118 |
|
| $ | 916,516 |
|
Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table representspresents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:
| | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2021 | | 2020 |
Balance at January 1, | $ | 33,455 | | | $ | 32,470 | |
Net realized and unrealized gains or losses included in: | | | |
Earnings | 7,015 | | | (4,332) | |
OCI | 20 | | | (649) | |
Origination of IRLCs | 26,347 | | | 27,880 | |
Purchases | 568 | | | 0 | |
Sales | (1,743) | | | (1,753) | |
| | | |
| | | |
| | | |
| | | |
Conversions to mortgage loans held for sale | (27,270) | | | (24,116) | |
Balance at March 31, | $ | 38,392 | | | $ | 29,500 | |
| | | |
Changes in unrealized gains (losses) included in earnings related to assets still held at period end | $ | 2,390 | | | $ | (6,519) | |
Changes in unrealized gains (losses) included in OCI related to assets still held at period end | $ | 20 | | | $ | (649) | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 (3) |
| Non-CLO assets | | CLO assets | | Non-CLO assets | | CLO assets |
Balance at January 1, | $ | 211,192 |
| | $ | 585,870 |
| | $ | 239,944 |
| | $ | 520,892 |
|
Net realized gains (losses) | 7,279 |
| | (1,667 | ) | | 4,450 |
| | 402 |
|
Net unrealized gains (losses) | 2,800 |
| | 89 |
| | 5,482 |
| | 15,584 |
|
Origination of IRLC | 54,468 |
| | — |
| | 38,554 |
| | — |
|
Purchases | 41,458 |
| | 76,122 |
| | 101,161 |
| | 157,144 |
|
Sales (1) | (74,010 | ) | | (193,205 | ) | | (56,824 | ) | | (72,612 | ) |
Issuances | 590 |
| | 676 |
| | 1,716 |
| | 1,546 |
|
Transfer into Level 3 (2) | 9,286 |
| | 17,601 |
| | 23,184 |
| | 32,858 |
|
Transfer adjustments (out of) Level 3 (2) | (7,641 | ) | | (23,427 | ) | | (15,280 | ) | | (66,215 | ) |
Deconsolidation of CLO due to sale | 1,342 |
| | (251,300 | ) | | — |
| | — |
|
Conversion to real estate owned | (9,793 | ) | | — |
| | (10,288 | ) | | — |
|
Conversion to mortgage held for sale | (53,069 | ) | | — |
| | (36,378 | ) | | — |
|
Warehouse transfer to CLO | — |
| | — |
| | (104,098 | ) | | 104,098 |
|
Other | (39 | ) | | — |
| | — |
| | — |
|
Balance at September 30, | $ | 183,863 |
| | $ | 210,759 |
| | $ | 191,623 |
| | $ | 693,697 |
|
| | | | | | | |
Changes in unrealized gains (losses) included in earnings related to assets still held at period end | $ | 4,790 |
| | $ | (168 | ) | | $ | 4,023 |
| | $ | 11,325 |
|
| |
(1) | Included within the CLO assets amount are sales related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
| |
(2) | All transfers are deemed to occur at end of period. Transfers between Level 2 and 3 were a result of subjecting third-party pricing on both CLO and Non-CLO assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation. |
| |
(3) | Items within the Level 3 rollforward have been restated to reflect assets purchased during a period as purchases rather than transfers. The presentation of gross origination of IRLC’s and gross conversion to mortgage held for sale have also been restated to show the break out from net realized and unrealized gains and losses, conversion to real estate owned, and transfers out of Level 3 assets. These changes have no impact on the total amount of Level 3 assets. |
The following table represents additional information about liabilities that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| Non-CLO liabilities | | CLO liabilities | | Non-CLO liabilities | | CLO liabilities |
Balance at January 1, | $ | 3,084 |
| | $ | 912,034 |
| | $ | 2,498 |
| | $ | 683,827 |
|
Net unrealized (gains) losses | — |
| | (3,071 | ) | | (262 | ) | | 23,169 |
|
Issuances | — |
| | — |
| | — |
| | 222,303 |
|
Settlements (1) | (4,838 | ) | | (155,194 | ) | | (377 | ) | | — |
|
Dispositions | — |
| | (49,010 | ) | | — |
| | (1,317 | ) |
FV adjustment | 3,192 |
| | — |
| | — |
| | — |
|
Deconsolidation of CLO due to sale | — |
| | (378,043 | ) | | — |
| | — |
|
Balance at September 30, | $ | 1,438 |
| | $ | 326,716 |
| | $ | 1,859 |
| | $ | 927,982 |
|
| | | | | | | |
Changes in unrealized (gains) losses included in earnings related to liabilities still held at period end | $ | 154 |
| | $ | (6,119 | ) | | $ | (262 | ) | | $ | 23,169 |
|
| |
(1) | Included within the CLO liabilities amount are settlements related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
The following is quantitative information about Level 3 significant unobservable inputs used in fair valuation.
|
| | | | | | | | | | | | | | | |
| Fair Value as of | | | | | | Actual or Range (Weighted average) |
Assets (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 |
Interest rate lock commitments | $ | 6,537 |
| | $ | 4,872 |
| | Internal model | | Pull through rate | | 45% - 95% | | 45% - 95% |
NPLs | 44,980 |
| | 74,923 |
| | Discounted cash flow | | See table below (2) | | See table below | | See table below |
Total | $ | 51,517 |
| | $ | 79,795 |
| | | | | | | | |
| |
(1) | Financial assets classified as Level 3 and fair valued using significant unobservable inputs classified as Level 3 have not been provided as these are not readily available to the Company (including servicing release premium for interest rate lock commitments and forward delivery contracts). |
| |
(2) | Significant changes in any of these inputs in isolation could result in a significant change to the fair value measurement. A decline in the discount rate in isolation would increase the fair value. A decrease in the housing pricing index in isolation would decrease the fair value. Individual loan characteristics, such as location and value of underlying collateral, affect the loan resolution timeline. An increase in the loan resolution timeline in isolation would decrease the fair value. A decrease in the value of underlying properties in isolation would decrease the fair value. |
The following table sets forth quantitative information aboutpresents the range and weighted average (WA) used to develop significant unobservable inputs used to measurefor the fair value measurements of our NPLs. For NPLs that are not making payments, discount rate, loan resolution time-line,Level 3 assets and liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | | | | | As of |
| March 31, 2021 | | December 31, 2020 | | | | | | March 31, 2021 | | December 31, 2020 |
| | | Valuation technique | | Unobservable input(s) (1) | | |
Assets | Fair Value | | | | Range | | WA | | Range | | WA |
IRLCs | $ | 8,284 | | | $ | 9,207 | | | Internal model | | Pull through rate | | 50% | to | 95% | | 62% | | 50% | to | 95% | | 68% |
Mortgage servicing rights | 20,894 | | | 14,758 | | | External model | | Discount rate | | 10% | to | 13% | | 11% | | 10% | to | 13% | | 11% |
| Cost to service | | $75 | to | $90 | | $82 | | $75 | to | $90 | | $82 |
| Prepayment speed | | 7% | to | 56% | | 16% | | 8% | to | 60% | | 22% |
Total | $ | 29,178 | | | $ | 23,965 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Contingent consideration payable - Smart AutoCare | $ | 200 | | | $ | 200 | | | Cash Flow Model | | Forecast Cash EBITDA | | $20,000 | to | $30,000 | | N/A | | $20,000 | to | $30,000 | | N/A |
| | Actuarial Analysis | | Assumed Claim Liabilities | | $55,000 | | $55,000 |
Total | $ | 200 | | | $ | 200 | | | | | | | | | | | | | | | | | |
(1) Unobservable inputs were weighted by the relative fair value of underlying properties, holdings costs and liquidation costs are the primary inputs used to measure fair value. For NPLs that are making payments, note rate and secondary market transaction prices/UPB are the primary inputs used to measure fair value.instruments.
|
| | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
Unobservable inputs | | High | | Low | | Average(1) | | High | | Low | | Average(1) |
Discount rate | | 30.0% | | 16.0% | | 23.2% | | 30.0% | | 16.0% | | 22.9% |
Loan resolution time-line (Years) | | 2.59 | | 0.48 | | 1.26 | | 2.3 | | 0.5 | | 1.2 |
Value of underlying properties | | $2,400 | | $40 | | $307 | | $1,800 | | $32 | | $234 |
Holding costs | | 22.0% | | 5.5% | | 7.7% | | 24.1% | | 5.4% | | 8.3% |
Liquidation costs | | 20.8% | | 8.1% | | 9.4% | | 25.0% | | 8.5% | | 9.6% |
Note rate | | 6.0% | | 3.0% | | 5.2% | | 6.0% | | 3.0% | | 4.8% |
Secondary market transaction prices/UPB | | 88.5% | | 75.5% | | 85.2% | | 88.5% | | 75.5% | | 83.7% |
| |
(1) | Weighted based on value of underlying properties (excluding the value of underlying properties line item). |
|
| | | | | | | | | | | | | | | |
| Fair Value as of | | | | | | Actual or Range (Weighted average) |
Liabilities (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 |
Contingent consideration payable - Reliance (2) | $ | — |
| | $ | 1,800 |
| | Cash Flow model (3) | | Forecast EBITDA | | $1,000 - $8,000 | | $951 - $6,005 |
| | | Book value growth rate | | N/A | | 5.0% |
| | | Asset volatility | | N/A | | 1.4% - 23.7% |
Contingent consideration payable - Luxury | 52 |
| | 52 |
| | Cash Flow model | | Projected cash available for distribution | | $1,059 - $1,316 | | $1,059 - $1,316 |
Preferred notes payable | 1,386 |
| | 1,232 |
| | Cash Flow model | | Discount rate | | 12.0% | | 12.0% |
Total | $ | 1,438 |
|
| $ | 3,084 |
| | | | | | | | |
| |
(1) | Not included in this table are the debt obligations of consolidated CLOs, measured and leveled on the basis of the fair value of the (more observable) financial assets of the consolidated CLOs. See Note—(10) Assets and Liabilities of Consolidated CLOs. |
(2) Settled in Q3 2017 with Class A common shares. See Note—(17) Stockholders’ Equity.
(3) Monte Carlo simulation is run, as needed.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 | | As of December 31, 2020 |
| Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value |
Assets: | | | | | | | | | | | |
Debentures (1) | 2 | | $ | 20,377 | | | $ | 20,377 | | | 2 | | $ | 17,703 | | | $ | 17,703 | |
Notes receivable, net | 2 | | 62,807 | | | 62,807 | | | 2 | | 62,075 | | | 62,075 | |
Total assets | | | $ | 83,184 | | | $ | 83,184 | | | | | $ | 79,778 | | | $ | 79,778 | |
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Debt, net | 3 | | $ | 421,938 | | | $ | 404,900 | | | 3 | | $ | 392,951 | | | $ | 377,582 | |
Total liabilities | | | $ | 421,938 | | | $ | 404,900 | | | | | $ | 392,951 | | | $ | 377,582 | |
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
| Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value |
Assets: | | | | | | | | | | | |
Notes and accounts receivable, net | 2 | | $ | 19,310 |
| | $ | 19,310 |
| | 2 | | $ | 28,293 |
| | $ | 28,732 |
|
Total assets | | | $ | 19,310 |
| | $ | 19,310 |
| | | | $ | 28,293 |
| | $ | 28,732 |
|
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Debt, net | 3 | | $ | 876,444 |
| | $ | 872,133 |
| | 3 | | $ | 798,806 |
| | $ | 799,828 |
|
Total liabilities | | | $ | 876,444 |
| | $ | 872,133 |
| | | | $ | 798,806 |
| | $ | 799,828 |
|
(1) Included in other investments.
Debentures: Sinceinterest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts.
Notes and Accounts Receivable: Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized asunder Level 2 ofin the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.
Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes payable is determined based on contractual cash flows discounted at market rates for mortgage notes payable and either dealer quotes or contractual cash flows discounted at market rates for other notes payable.quotes. Categorized asunder Level 3 ofin the fair value hierarchy.
Additionally, the following financial assets and liabilities on the condensed consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:
Loans Owned, at Amortized Cost: The fair value of loans owned, at amortized cost approximates its carrying value because the interest rates on the loans are based on a variable market interest rate. Categorized as Level 3 of the fair value hierarchy.
Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized asunder Level 1 ofin the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
Accounts and Premiums Receivable, net, retrospective commissions receivableRetrospective Commissions Receivable and other receivables: Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized asunder Level 2 ofin the fair value hierarchy. See Note—(6)Note (7) Notes and Accounts Receivable, net.
Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short‑short term nature. Categorized asunder Level 2 ofin the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(13) Liability for Unpaid Claims and Claim Adjustment Expenses
Roll forward of Claim Liability
The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short-durationshort duration contracts for the following periods:
| | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2021 | | 2020 |
Policy liabilities and unpaid claims balance as of January 1, | $ | 233,438 | | | $ | 144,384 | |
Less: liabilities of policy-holder account balances, gross | (5,419) | | | (11,589) | |
Less: non-insurance warranty benefit claim liabilities | (30,664) | | | (85) | |
Gross liabilities for unpaid losses and loss adjustment expenses | 197,355 | | | 132,710 | |
Less: reinsurance recoverable on unpaid losses - short duration | (113,163) | | | (88,599) | |
Less: other lines, gross | (247) | | | (230) | |
Net balance as of January 1, short duration | 83,945 | | | 43,881 | |
| | | |
Incurred (short duration) related to: | | | |
Current year | 50,013 | | | 43,604 | |
Prior years | (36) | | | 2,289 | |
Total incurred | 49,977 | | | 45,893 | |
| | | |
Paid (short duration) related to: | | | |
Current year | 36,498 | | | 36,437 | |
Prior years | 1,914 | | | 3,003 | |
Total paid | 38,412 | | | 39,440 | |
| | | |
Net balance as of March 31, short duration | 95,510 | | | 50,334 | |
Plus: reinsurance recoverable on unpaid losses - short duration | 124,375 | | | 88,428 | |
Plus: other lines, gross | 786 | | | 248 | |
Gross liabilities for unpaid losses and loss adjustment expenses | 220,671 | | | 139,010 | |
Plus: liabilities of policy-holder account balances, gross | 5,120 | | | 10,594 | |
Plus: non-insurance warranty benefit claim liabilities | 25,532 | | | 45,860 | |
Policy liabilities and unpaid claims balance as of March 31, | $ | 251,323 | | | $ | 195,464 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Policy liabilities and unpaid claims balance as of January 1 | $ | 103,391 |
| | $ | 80,663 |
|
Less : liabilities of policy-holder accounts balances, gross | (17,417 | ) | | (19,037 | ) |
Less : non-insurance warranty benefit claim liabilities | (91 | ) | | (116 | ) |
Gross liabilities for unpaid losses and loss adjustment expenses | 85,883 |
| | 61,510 |
|
Less : reinsurance recoverable on unpaid losses - short duration | (63,112 | ) | | (42,341 | ) |
Less : other lines, gross | (208 | ) | | (163 | ) |
Net balance as of January 1, short duration | 22,563 |
| | 19,006 |
|
| | | |
Incurred (short duration) related to: | | | |
Current year | 78,174 |
| | 55,461 |
|
Prior years | 2,958 |
| | (1,987 | ) |
Total incurred | 81,132 |
| | 53,474 |
|
| | | |
Paid (short duration) related to: | | | |
Current year | 57,875 |
| | 34,822 |
|
Prior years | 20,600 |
| | 13,992 |
|
Total paid | 78,475 |
| | 48,814 |
|
| | | |
Net balance as of September 30, short duration | 25,220 |
| | 23,666 |
|
Plus : reinsurance recoverable on unpaid losses - short duration | 69,813 |
| | 60,236 |
|
Plus : other lines, gross | 193 |
| | 164 |
|
Gross liabilities for unpaid losses and loss adjustment expenses | 95,226 |
| | 84,066 |
|
Plus : liabilities of policy-holder accounts balances, gross | 15,652 |
| | 17,766 |
|
Plus : non-insurance warranty benefit claim liabilities | 50 |
| | 80 |
|
Policy liabilities and unpaid claims balance as of September 30, | $ | 110,928 |
| | $ | 101,912 |
|
The following schedule reconciles the total on short duration contracts per the table above to the amount of total losses incurred as presented in the condensed consolidated statementstatements of operations, excluding the amount for member benefit claims:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Short duration incurred | $ | 49,977 | | | $ | 45,893 | | | | | | | |
Other lines incurred | 1 | | | 0 | | | | | | | |
Unallocated loss adjustment expenses | 273 | | | 83 | | | | | | | |
Total losses incurred | $ | 50,251 | | | $ | 45,976 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total incurred | $ | 27,236 |
| | $ | 19,247 |
| | $ | 81,132 |
| | $ | 53,474 |
|
Other lines incurred | 81 |
| | 44 |
| | 78 |
| | 74 |
|
Unallocated loss adjustment expense | 441 |
| | 623 |
| | 1,343 |
| | 1,554 |
|
Total losses incurred | $ | 27,758 |
| | $ | 19,914 |
| | $ | 82,553 |
| | $ | 55,102 |
|
ForDuring the ninethree months ended September 30, 2017,March 31, 2021, the Company’s specialty insurance businessCompany experienced an increasea decrease in prior year case development of $2,958. This included $1,772 in non-standard auto and $1,852 in warranty. This development was partially offset by favorable development in its credit lines of business. The warranty and credit lines of business are primarily in retrospective commission arrangements that minimally impact the operating income of the Company.
$36.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
ForDuring the ninethree months ended September 30, 2016,March 31, 2020, the Company’s specialty insurance businessCompany experienced a decreasean increase in prior year case development of $1,987. This decrease was due to the favorable development in credit$2,289, primarily as a result of higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business. This
Management considers the prior year development was partially offset by increased case development of $1,644 in non-standard auto and $1,328 in warranty. The warranty and credit lines of business are primarily in retrospective commission arrangements that minimally impacts the operating incomefor each of the Company.two years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings.
Based upon our internal analysis, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
(14) Revenue from Contracts with Customers
The Company’s revenues from insurance and warranty operations are primarily accounted for under Financial Services-Insurance (Topic 944) that are not within the scope of Revenue for Contracts with Customers (Topic 606). The Company’s remaining revenues that are within the scope of Topic 606 are primarily comprised of revenues from contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided for premiums, claims and reinsurance processing revenues, vehicle service contracts, vessel related revenue and warranty coverage revenues for household goods and appliances (collectively, remaining contracts).
The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Service and Administrative Fees: | | | | | | | | | |
Motor club revenue | $ | 9,184 | | | $ | 9,735 | | | | | | | |
Warranty coverage revenue | 33,068 | | | 21,218 | | | | | | | |
Vessel related revenue | 5,699 | | | 7,246 | | | | | | | |
| | | | | | | | | |
Other | 5,364 | | | 1,701 | | | | | | | |
Revenue from contracts with customers | $ | 53,315 | | | $ | 39,900 | | | | | | | |
Service and Administrative Fees
Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable.
Administrative fee revenue includes the administration of premium associated with our producers and their producer owned reinsurance companies (PORCs). In addition, we also earn fee revenue from debt cancellation programs, motor club programs, and warranty programs. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2021.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
Vessel Related Revenue
The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and at a specified daily charter rate. Charter revenues are recognized as earned on the straight-line basis over the term of the charter as service is provided.
Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to services to be rendered after the balance sheet date.
The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the following period:
| | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2021 | | | | | | March 31, 2021 |
| Beginning balance | | Additions | | Amortizations | | Ending balance |
Deferred acquisition costs | | | | | | | |
| | | | | | | |
Service and Administrative Fees: | | | | | | | |
Motor club revenue | $ | 13,081 | | | $ | 7,649 | | | $ | 7,079 | | | $ | 13,651 | |
Warranty coverage revenue | 48,734 | | | 18,277 | | | 5,396 | | | 61,615 | |
Total | $ | 61,815 | | | $ | 25,926 | | | $ | 12,475 | | | $ | 75,266 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Deferred revenue | | | | | | | |
Service and Administrative Fees: | | | | | | | |
Motor club revenue | $ | 16,969 | | | $ | 9,802 | | | $ | 9,184 | | | $ | 17,587 | |
Warranty coverage revenue | 348,391 | | | 58,467 | | | 33,068 | | | 373,790 | |
Total | $ | 365,360 | | | $ | 68,269 | | | $ | 42,252 | | | $ | 391,377 | |
For the periods presented, no write-offs for unrecoverable deferred acquisition costs and deferred revenue were recognized.
(15) Other Assets and Other Liabilities and Accrued Expenses
Other Assets
The following table presents the components of other assets as reported in the condensed consolidated balance sheets:
| | | | | | | | | | | |
| |
| | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
Right of use asset - Operating leases (1) | $ | 26,896 | | | $ | 27,291 | |
Furniture, fixtures and equipment, net | 15,445 | | | 15,798 | |
Income tax receivable | 19,766 | | | 19,513 | |
Mortgage servicing rights | 20,894 | | | 14,758 | |
Prepaid expenses | 8,825 | | | 8,159 | |
Loans eligible for repurchase | 75,952 | | | 70,593 | |
Other | 11,910 | | | 5,922 | |
Total other assets | $ | 179,688 | | | $ | 162,034 | |
(1) See Note (21) Commitments and Contingencies for additional information.
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Due from brokers | $ | 1,505 |
| | $ | 2,027 |
|
Furniture, fixtures and equipment, net | 5,669 |
| | 5,936 |
|
Prepaid expenses | 9,441 |
| | 5,020 |
|
Accrued interest receivable | 3,154 |
| | 2,052 |
|
Management fee receivable | 4,375 |
| | 4,308 |
|
Other fee receivable | 5,159 |
| | 5,022 |
|
Income tax receivable | 4,140 |
| | 4,842 |
|
Other | 15,101 |
| | 8,679 |
|
Total other assets | $ | 48,544 |
|
| $ | 37,886 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Depreciation expense related to furniture, fixtures and equipment | $ | 777 | | | $ | 752 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Depreciation expense related to furniture, fixtures and equipment | $ | 656 |
| | $ | 667 |
| | $ | 1,883 |
| | $ | 1,978 |
|
(15) Other Liabilities and Accrued Expenses
The following table presents the components of other liabilities and accrued expenses as reported in the condensed consolidated balance sheets:
| | | | | | | | | | | |
| |
| | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
Accounts payable and accrued expenses | $ | 71,556 | | | $ | 106,142 | |
Operating lease liability (1) | 32,700 | | | 32,914 | |
Deferred tax liabilities, net | 30,692 | | | 24,183 | |
Securities sold, not yet purchased | 39,625 | | | 46,637 | |
Due to brokers | 52,151 | | | 45,047 | |
Loans eligible for repurchase liability | 75,952 | | | 70,593 | |
Commissions payable | 11,371 | | | 18,678 | |
Other | 21,476 | | | 18,671 | |
Total other liabilities and accrued expenses | $ | 335,523 | | | $ | 362,865 | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Accounts payable and accrued expenses | $ | 46,544 |
| | $ | 67,837 |
|
Deferred tax liabilities, net | 30,789 |
| | 32,296 |
|
Due to brokers | 7,733 |
| | 8,457 |
|
Commissions payable | 11,007 |
| | 7,466 |
|
Accrued interest payable | 2,127 |
| | 1,729 |
|
Derivative liabilities, at fair value | 709 |
| | 1,398 |
|
Other liabilities | 16,949 |
| | 14,552 |
|
Total other liabilities and accrued expenses | $ | 115,858 |
| | $ | 133,735 |
|
(1) See Note (21) Commitments and Contingencies for additional information.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(16) Other IncomeRevenue and Other Expenses
Other Revenue
The following table presents the components of other incomerevenue as reported in the condensed consolidated statement of operations,operations. Other revenue is primarily comprisedgenerated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Other investment income (1) | $ | 12,733 | | | $ | 15,064 | | | | | | | |
Gain (loss) on sale of businesses (2) | (431) | | | 0 | | | | | | | |
| | | | | | | | | |
Other (3) | 2,254 | | | 1,990 | | | | | | | |
Total other revenue | $ | 14,556 | | | $ | 17,054 | | | | | | | |
(1) See Note (6) Investments for the components of interest incomeOther investment income.
(2) Relates to the impairment of Luxury. See Note (4) Assets and loan fee incomeLiabilities Held for Sale.
(3) Includes $2,129 and $1,885 for the three months ended March 31, 2021 and 2020, respectively, related to both loans at fair value and loans at amortized costs, net in our specialty finance business, and management fees from our asset management business:Insurance.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest income | $ | 5,254 |
| | $ | 4,215 |
| | $ | 14,439 |
| | $ | 13,455 |
|
Loan fee income | 3,201 |
| | 3,915 |
| | 9,451 |
| | 9,296 |
|
Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
Other | 1,383 |
| | 450 |
| | 3,352 |
| | 1,477 |
|
Total other income | $ | 11,379 |
| | $ | 12,419 |
| | $ | 33,820 |
| | $ | 31,725 |
|
Other Expenses
The following table presents the components of other expenses as reported in the condensed consolidated statement of operations:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Professional fees | $ | 4,506 |
| | $ | 5,283 |
| | $ | 13,980 |
| | $ | 17,581 |
|
Acquisition and transaction costs | 25 |
| | 248 |
| | 302 |
| | 631 |
|
General and administrative | 4,015 |
| | 3,178 |
| | 11,552 |
| | 10,788 |
|
Premium taxes | 2,810 |
| | 1,637 |
| | 8,840 |
| | 5,480 |
|
Mortgage origination expenses | 2,406 |
| | 2,308 |
| | 6,728 |
| | 5,944 |
|
Property operating expenses | 2,635 |
| | 1,854 |
| | 7,798 |
| | 5,439 |
|
Rent and related | 2,992 |
| | 3,091 |
| | 8,998 |
| | 9,189 |
|
Other | 3,775 |
| | 4,087 |
| | 15,182 |
| | 13,299 |
|
Total other expense | $ | 23,164 |
| | $ | 21,686 |
| | $ | 73,380 |
| | $ | 68,351 |
|
(17) Stockholders’ Equity
All shares of our Class A common stock have equal rights as to earnings, assets, dividends and voting. Shares of Class B common stock have the voting rights as the Class A common stock but no economic rights (including no right to receive dividends or other distributions upon liquidation, dissolution or otherwise). Distributions may be paid to holders of Class A common stock when duly authorized by our board of directors and declared out of legally available assets.
TFP owns a warrant to purchase 652,500 shares of Class A common stock at $11.33 per share which is immediately exercisable and expires on September 30, 2018. Such an exercise would be accounted for as treasury stock held at TFP and would have no impact on Tiptree’s financial statements.
On June 5, 2017, in settlement of an option, TFP delivered 1,510,920 shares of the Company’s Class A common stock to Tricadia for total consideration of approximately $8,100.
On June 21, 2017, a subsidiary of Tiptree purchased 1,000,000 shares of Class A common stock of Tiptree for aggregate consideration of $7,300. The shares acquired are accounted for as treasury shares and therefore are not outstanding for accounting or voting purposes.
On August 10, 2017, the Company settled a contingent consideration payable related to the acquisition of Reliance in 2015 with 756,046 shares of Class A common stock.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Professional fees | $ | 5,440 | | | $ | 7,209 | | | | | | | |
General and administrative | 8,003 | | | 5,338 | | | | | | | |
Premium taxes | 4,936 | | | 3,798 | | | | | | | |
Mortgage origination expenses | 4,195 | | | 3,576 | | | | | | | |
Rent and related | 4,136 | | | 3,481 | | | | | | | |
Operating expenses from vessels | 2,781 | | | 4,104 | | | | | | | |
Loss on extinguishment of debt | 0 | | | 353 | | | | | | | |
Other | 1,876 | | | 2,371 | | | | | | | |
Total other expenses | $ | 31,367 | | | $ | 30,230 | | | | | | | |
(17) Stockholders’ Equity
Stock Repurchases
The Board of Directors authorized the Company to make repurchases of up to $20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. The following table presents the Company’s stock repurchase activity and remaining authorization.
| | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Number of shares purchased | | Average price per share | | |
Share repurchase plan | 488,662 | | | $ | 5.02 | | | |
| | | | | |
| | | | | |
| | | | | |
Remaining repurchase authorization | | | $ | 14,101 | | | |
Warrants
As of March 31, 2021, there were warrants for 2,429,210 shares of Tiptree Class A common stock outstanding at an exercise price of $7.05.
Dividends
The Company declared cash dividends per share for the following periods presented below:
| | | | | | | | | | | | | |
| Dividends per share for the |
| Three Months Ended March 31, |
| 2021 | | 2020 | | |
First quarter (1) | $ | 0.04 | | | $ | 0.04 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | |
| | | |
| Dividends per share for |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
First Quarter | $ | 0.030 |
| | $ | 0.025 |
|
Second Quarter | 0.030 |
| | 0.025 |
|
Third Quarter | 0.030 |
| | 0.025 |
|
Total cash dividends declared | $ | 0.090 |
| | $ | 0.075 |
|
(1) See Note (24) Subsequent Events for when the dividend was declared.
Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions
The Company'sCompany’s U.S. insurance subsidiaries prepare financial statements in accordance with Statutory Accounting Principles (SAP) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (the NAIC) as well as state laws, regulations and administrative rules.
Statutory Capital and Surplus
The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as
of March 31, 2021 and December 31, 2020.
Statutory Dividends
The Company’s U.S. domiciled insurance company subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance department of the applicable state of domicile. The Company eliminatedeliminates all dividends from its subsidiaries in the condensed consolidated financial statements. ForThere were no dividends paid to the three and nine months ended September 30, 2017 and 2016, respectively, the Company’sCompany by its U.S domiciled insurance company subsidiaries did not pay any ordinary or extraordinary dividends.for the three months ended March 31, 2021 and 2020.
The following table presents the combined statutory capital and surplus of the Company's insurance company subsidiaries, the required minimum statutory capital and surplus, as required by the laws of the states in which they are domiciled, and the combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the following periods:
| | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | As of |
| | | | | March 31, 2021 | | December 31, 2020 |
Amount available for ordinary dividends of the Company's insurance company subsidiaries | | $ | 18,519 | | | $ | 13,418 | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Combined statutory capital and surplus of the Company's insurance company subsidiaries | $ | 108,666 |
| | $ | 100,920 |
|
| | | |
Required minimum statutory capital and surplus | $ | 19,200 |
| | $ | 17,200 |
|
| | | |
Amount available for ordinary dividends of the Company's insurance company subsidiaries | $ | 9,425 |
| | $ | 9,049 |
|
At September 30, 2017,March 31, 2021, the maximum amount of dividends that our U.S. domiciled regulated insurance company subsidiaries could pay under applicable laws and regulations without regulatory approval was approximately $9,425.$18,519. The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought.
Under the National Association of Insurance Commissioners (NAIC) Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of September 30, 2017.
The following table presents the net income of the Company’s statutory insurance companies for the following periods: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income of statutory insurance companies | $ | 391 |
| | $ | 4,199 |
| | $ | 6,745 |
| | $ | 10,326 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(18) Accumulated Other Comprehensive Income (Loss)
The following table presents the activity of AFS securities in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Total AOCI | | | | Amount attributable to non-controlling interests | | Total AOCI to Tiptree Inc. |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2019 | | | | | $ | 1,711 | | | | | $ | (13) | | | $ | 1,698 | |
Other comprehensive income (losses) before reclassifications | | | | | 301 | | | | | (8) | | | 293 | |
Amounts reclassified from AOCI | | | | | (3) | | | | | 0 | | | (3) | |
OCI | | | | | 298 | | | | | (8) | | | 290 | |
Adoption of accounting standard (1) | | | | | 42 | | | | | 0 | | | 42 | |
Balance at March 31, 2020 | | | | | $ | 2,051 | | | | | $ | (21) | | | $ | 2,030 | |
| | | | | | | | | | | |
Balance at December 31, 2020 | | | | | $ | 5,702 | | | | | $ | (28) | | | $ | 5,674 | |
Other comprehensive income (losses) before reclassifications | | | | | (2,995) | | | | | 11 | | | (2,984) | |
Amounts reclassified from AOCI | | | | | (98) | | | | | 0 | | | (98) | |
OCI | | | | | (3,093) | | | | | 11 | | | (3,082) | |
| | | | | | | | | | | |
Balance at March 31, 2021 | | | | | $ | 2,609 | | | | | $ | (17) | | | $ | 2,592 | |
(1) Amounts reclassified to retained earnings due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) on | | | | Amount attributable to noncontrolling interests | | |
| Available for sale securities | | Interest rate swaps | | Total AOCI | | TFP | | Other | | Total AOCI to Tiptree Inc. |
Balance at December 31, 2015 | $ | (222 | ) | | $ | 111 |
| | $ | (111 | ) | | $ | — |
| | $ | — |
| | $ | (111 | ) |
Other comprehensive income (losses) before reclassifications | 2,448 |
| | (357 | ) | | 2,091 |
| | (237 | ) | | 29 |
| | 1,883 |
|
Amounts reclassified from AOCI | (715 | ) | | (26 | ) | | (741 | ) | | — |
| | — |
| | (741 | ) |
Period change | 1,733 |
| | (383 | ) | | 1,350 |
| | (237 | ) | | 29 |
| | 1,142 |
|
Balance at September 30, 2016 | $ | 1,511 |
| | $ | (272 | ) | | $ | 1,239 |
| | $ | (237 | ) | | $ | 29 |
| | $ | 1,031 |
|
| | | | | | | | | | | |
Balance at December 31, 2016 | $ | (700 | ) | | $ | 1,759 |
| | $ | 1,059 |
| | $ | (128 | ) | | $ | (376 | ) | | $ | 555 |
|
Other comprehensive income (losses) before reclassifications | 1,165 |
| | (296 | ) | | 869 |
| | (154 | ) | | 48 |
| | 763 |
|
Amounts reclassified from AOCI | (238 | ) | | 143 |
| | (95 | ) | | — |
| | — |
| | (95 | ) |
Period change | 927 |
| | (153 | ) | | 774 |
| | (154 | ) | | 48 |
| | 668 |
|
Balance at September 30, 2017 | $ | 227 |
| | $ | 1,606 |
| | $ | 1,833 |
| | $ | (282 | ) | | $ | (328 | ) | | $ | 1,223 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the condensed consolidated statement of operations for the following periods:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Affected line item in condensed consolidated statements of operations |
Components of AOCI | 2021 | | 2020 | | | | | | |
Unrealized gains (losses) on available for sale securities | $ | 128 | | | $ | 4 | | | | | | | | Net realized and unrealized gains (losses) |
Related tax (expense) benefit | (30) | | | (1) | | | | | | | | Provision for income tax |
Net of tax | $ | 98 | | | $ | 3 | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Affected line item in Condensed Consolidated Statement of Operations |
Components of AOCI | 2017 | | 2016 | | 2017 | | 2016 |
Unrealized gains (losses) on available for sale securities | $ | 394 |
| | $ | 960 |
| | $ | 367 |
| | $ | 1,100 |
| Net realized and unrealized gains (losses) |
Related tax (expense) benefit | (138 | ) | | (336 | ) | | (129 | ) | | (385 | ) | Provision for income tax |
Net of tax | $ | 256 |
| | $ | 624 |
| | $ | 238 |
| | $ | 715 |
|
|
| | | | | | | | |
Unrealized gains (losses) on interest rate swaps | $ | 25 |
| | $ | (172 | ) | | $ | (212 | ) | | $ | 56 |
| Interest expense |
Related tax (expense) benefit | (8 | ) | | 54 |
| | 69 |
| | (30 | ) | Provision for income tax |
Net of tax | $ | 17 |
| | $ | (118 | ) | | $ | (143 | ) | | $ | 26 |
|
|
(19) Stock Based Compensation
Equity Plans
2007 Manager Equity Plan
The Care Investment Trust Inc. Manager Equity Plan (Manager Plan) was adopted in June 2007. On June 6, 2017, the 134,629 remaining shares of Class A common stock available for issuance under the Manager Plan was rolled into the 2017 Equity Plan and the Manager Plan was simultaneously terminated.
2013 Omnibus Incentive Plan
The Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) was adopted on August 8, 2013. On June 6, 2017, the 7,359 remaining shares of Class A common stock available for issuance under the 2013 Equity Plan was rolled into the 2017 Equity Plan and the 2013 Equity Plan was simultaneously terminated.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
2017 Omnibus Incentive Plan
The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of Class A common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on the 10th anniversary of its adoption.
June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2013 and 2017 Equity Plan for the periods indicated:
|
| | |
2013 Equity Plan | Number of shares (1)
|
Available for issuance as of December 31, 2016 | 961,650 |
|
Shares granted | (954,291 | ) |
Shares rolled into 2017 Equity Plan | (7,359 | ) |
Available for issuance as of September 30, 2017 | — |
|
| |
2017 Equity Plan | Number of shares (1)
|
Available for issuance as of December 31, 2016 | — |
|
Available from 2017 Equity Plan | 6,100,000 |
|
Shares granted | (71,016 | ) |
Available for issuance as of September 30, 2017 | 6,028,984 |
|
(1) Excludes sharesindicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Class Acommon stock:
| | | | | |
2017 Equity Plan | Number of shares (1) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Available for issuance as of December 31, 2020 | 3,788,417 | |
RSU, stock and option awards granted | (25,381) | |
Available for issuance as of March 31, 2021 | 3,763,036 | |
(1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.
Restricted Stock Units (RSUs)and Stock Awards
Tiptree Corporate Incentive Plans
The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs shall vest and become nonforfeitablenon-forfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.
Stock Awards - Directors’ Compensation
The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested.
The following table summarizespresents changes to the issuances of Class A commonRSUs and stock and RSUsawards under the 2017 Equity Plan for the periods indicated:
| | | | | | | | | | | |
| Number of shares issuable | | Weighted average grant date fair value |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Unvested units as of December 31, 2020 | 953,145 | | | $ | 6.52 | |
Granted | 25,381 | | | 5.03 | |
Vested | (379,514) | | | 6.32 | |
| | | |
Unvested units as of March 31, 2021 | 599,012 | | | $ | 6.59 | |
|
| | | | | | | |
| | Number of shares issuable | | Weighted average grant date fair value |
Unvested units as of December 31, 2016 | | 299,817 |
| | $ | 6.27 |
|
Granted (1) | | 454,680 |
| | 6.60 |
|
Vested | | (155,615 | ) | | 6.42 |
|
Unvested units as of September 30, 2017 | | 598,882 |
| | $ | 6.48 |
|
TIPTREE INC. AND SUBSIDIARIES
(1) Includes grants of 27,192 shares of Class A common stockNotes to directors.Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Included in vested shares for 2017 are 16,716 shares surrendered to pay taxes on behalffollowing tables present the detail of the employees withgranted and vested RSUs and stock awards for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
Granted | 2021 | | 2020 | | | | Vested | 2021 | | 2020 | | |
Directors | 25,381 | | | 9,232 | | | | | Directors | 25,381 | | | 9,232 | | | |
Employees (1) | 0 | | | 469,257 | | | | | Employees | 354,133 | | | 364,984 | | | |
Total Granted | 25,381 | | | 478,489 | | | | | Total Vested | 379,514 | | | 374,216 | | | |
| | | | | | | Taxes | (34,828) | | | (51,507) | | | |
| | | | | | | | | | | | |
| | | | | | | Net Vested | 344,686 | | | 322,709 | | | |
(1) Includes 256,619 shares vesting. During the nine months ended September 30, 2017, the Company granted 427,488 RSUs to employees of the Company. 142,175 sharesthat vest ratably over a period of three years that began in February 2017 and the remaining 285,313212,638 shares willthat cliff vest in February 2021 for the three months ended March 31, 2020.
Subsidiary Incentive Plans
Certain of Tiptree’sthe Company’s subsidiaries have established RSU programsincentive plans under which they are authorized to issue RSUs or their equivalents, representing equity of suchthose subsidiaries to certain of their employees. Such awards are accounted for as equity. These RSUsawards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting RSUs)awards) and time-vesting subject to continued employment (time vesting RSUs)awards). Following the service period, such vested RSUsawards may be exchanged at fair market value, at the option of the holder, for Tiptree Class A common stock under the 2017 Equity Plan.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in shares or cash.
The following table summarizespresents changes to the issuances of subsidiary RSU’sawards under the subsidiary incentive plans for the periods indicated:
| | | | | |
| Grant date fair value of equity shares issuable |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Unvested balance as of December 31, 2020 | $ | 4,305 | |
Granted | 1,079 | |
Vested | (1,358) | |
Unvested balance as of March 31, 2021 | $ | 4,026 | |
|
| | | | |
| | Grant date fair value of equity shares issuable |
Unvested balance as of December 31, 2016 | | $ | 8,089 |
|
Vested | | (2,436 | ) |
Grant value adjustment (1) | | (210 | ) |
Unvested balance as of September 30, 2017 (2) | | $ | 5,443 |
|
(1) DueThe net vested balance of subsidiary awards eligible for exchange as of March 31, 2021 translates to the approval2,570,055 shares of the 2017 Equity Plan, Tiptree changed the classification of the subsidiary RSU’s during the three months ended September 30, 2017 from liability to equity awards, because the Company expects to settle these awards incommon stock.
(2) The unvested balance translates to 1,093,139 shares of Class A common stock if converted as of September 30, 2017.
Stock OptionsOption Awards
Tiptree Corporate Incentive Plans
Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant; thosegrant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and generally vest overone third on each of the three, four, and five years beginning on the 3rd anniversaryyear anniversaries of the grant date. Options granted during the year ended December 31, 2016 contained aThe market requirement that, at any time duringis the option term, theCompany's 20-day volume weighted average stockper share trading price must exceed the December 31, 2015 book value per share. Options granted in 2017 contained a market requirement that, at any time during the option term, the 20-day volume weighted average stock price plus the sum of actual cash dividends paid must exceedfollowing issuance of the December 31, 2016 as exchangedoption that exceeds the book value per share. The market requirement may be met any time beforeon the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term.grant date. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively. There were no options granted for the three months ended March 31, 2021.
The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)
from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.
The following table presents the assumptions used to estimate the fair values of the stock options granted for the following period:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Valuation Input(1) | | Nine | | | Three Months Ended September 30, 2017March 31, 2020 | | |
| | Assumption | | | | | | | Assumption | | Average | | | | |
Historical volatility | | 47.20 | % | | | | | | 27.60% | | N/A | | | | |
Risk-free rate | | 2.44 | % | | | | | | 1.51% | | N/A | | | | |
Dividend yield | | 1.80 | % | | | | | | 2.20% | | N/A | | | | |
Expected term (years) | | | | 6.5 | | | | | | | 7.0 | | | | |
(1) Not applicable for the three months ended March 31, 2021 as there were no new grants during the period.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the Company's stock option activity for the current period:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2020 | 1,715,619 | | | $ | 6.49 | | | $ | 2.29 | | | 0 | |
| | | | | | | |
Balance, March 31, 2021 | 1,715,619 | | | $ | 6.49 | | | $ | 2.29 | | | 0 | |
| | | | | | | |
Weighted average remaining contractual term at March 31, 2021 (in years) | 6.9 | | | | | | |
|
| | | | | | | | | | | | | |
| Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
Balance, December 31, 2016 | 251,237 |
| | $ | 5.69 |
| | $ | 2.62 |
| | — |
|
Granted | 570,627 |
| | 6.65 |
| | 2.91 |
| | — |
|
Balance, September 30, 2017 | 821,864 |
| | $ | 6.36 |
| | $ | 2.82 |
| | — |
|
| | | | | | | |
Weighted average remaining contractual term at September 30, 2017 (in years) | 9.1 |
| | | | | | |
Stock-basedStock Based Compensation Expense
The following table presents the total time-based and performance-based stock-basedstock based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Employee compensation and benefits | $ | 955 | | | $ | 1,543 | | | | | | | |
Director compensation | 110 | | | 73 | | | | | | | |
Income tax benefit | (224) | | | (349) | | | | | | | |
Net stock based compensation expense | $ | 841 | | | $ | 1,267 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Employee compensation and benefits | $ | 1,135 |
| | $ | 633 |
| | $ | 4,275 |
| | $ | 1,597 |
|
Professional fees (1) | — |
| | 35 |
| | — |
| | 99 |
|
Income tax benefit | (401 | ) | | (236 | ) | | (1,509 | ) | | (599 | ) |
Net stock-based compensation expense | $ | 734 |
| | $ | 432 |
| | $ | 2,766 |
| | $ | 1,097 |
|
| |
(1) | Professional fees consist of the value of restricted stock units and options granted to persons providing services to the Company. |
Additional information on total non-vested stock-basedstock based compensation is as follows:
| | | | | | | | | | | |
| As of |
| March 31, 2021 |
| Stock options | | Restricted stock awards and RSUs |
Unrecognized compensation cost related to non-vested awards | $ | 434 | | | $ | 4,721 | |
Weighted - average recognition period (in years) | 2.07 | | 1.73 |
|
| | | | | | | |
| As of |
| September 30, 2017 |
| Stock options | | Restricted stock awards and RSUs |
Unrecognized compensation cost related to non-vested awards | $ | 1,798 |
| | $ | 9,176 |
|
Weighted - average recognition period (in years) | 3.1 |
| | 1.8 |
|
(20) Related Party Transactions
On June 30, 2012, TAMCO, TFP and Tricadia Holdings LP (Tricadia) entered into the Transition Services Agreement (TSA) in connection with the internalization of the management of Tiptree which was assigned to the Company in connection with the Contribution Transactions. Pursuant to the TSA, Tricadia provides the Company with the services of its Executive Chairman and office space and in 2016, information technology services. Payments to Tricadia for the services of our Executive Chairman are included in employee compensation and benefits.
TFP and Back Office Services Group, Inc. (BOSG) entered into an administrative services agreement on June 12, 2007 (Administrative Services Agreement), which was assigned to Tiptree on July 1, 2013 in connection with the Contribution Transactions, under which BOSG provided certain back office, administrative and accounting services to the Company and its subsidiaries. BOSG is an affiliate of Mariner Investment Group (Mariner). As of June 30, 2016, the Company has concluded that Mariner no longer meets the definition of a related party. This agreement was terminated on December 31, 2016.Payments under the TSA and Administrative Services Agreement in the three and nine months ended September 30, 2017 and 2016 were not material.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
(21)(20) Income Taxes
The following table representspresents the Company’s provision (benefit) for income tax expense (benefit)taxes reflected as a component of income (loss):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Total income tax expense (benefit) | $ | 8,752 | | | $ | (21,181) | | | | | |
| | | | | | | | | | | |
Effective tax rate (ETR) | 22.2 | % | (1) | | 25.9 | % | (2) | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income tax expense (benefit) | $ | (2,052 | ) | | $ | 3,712 | | | $ | (2,761 | ) | | $ | 5,298 | |
| | | | | | | | | | | |
Effective tax rate (ETR) | 37.8 | % | (1) | | 32.3 | % | (1) | | 27.3 | % | (2) | | 19.2 | % | (3) |
(1) Bears a customary relationship to the federal statutory income tax rate.
(2) LowerHigher than the U.S. federal statutory income tax rate primarilyof 21% due a change in fair value of a contingent consideration liability, an increase in a valuation allowance on net operating losses, and various other discrete items. The ETR for the nine months ended September 30, 2017 excludingto the effect of state taxes, offset by discrete items was 28.1%, which is loweritems.
(2) Higher than the U.S. federal statutory income tax rate primarilyof 21% due to a state tax benefit and the effect of non-controlling interests at certain subsidiaries.state taxes and other discrete items.
(3) Lower than the federal statutory income tax rate primarily due to $4,044 of discrete tax benefits for the period, primarily related to the tax restructuring that resulted in a consolidated corporate tax group effective January 1, 2016.
(22)(21) Commitments and Contingencies
Contractual ObligationsOperating Leases
The table below summarizesAll leases are office space leases and are classified as operating leases that expire through 2031. Some of our office leases include the Company’s contractual obligations by period that payments are due:option to extend for up to 5 years or less at management’s discretion. Such extension options were not included in the measurement of the lease liability. Below is a summary of our right of use asset and lease liability as of March 31, 2021:
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Less than one year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Operating lease obligations (1) | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
Total | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
| | | | | |
| As of |
| March 31, 2021 |
Right of use asset - Operating leases | $ | 26,896 | |
| |
(1)Operating lease liability | Minimum rental obligations for Tiptree, Care, Siena, Luxury, Reliance and Fortegra office leases.$ | 32,700 | |
| |
Weighted-average remaining lease term (years) | 6.9 |
| |
Weighted-average discount rate (1) | 7.4 | % |
(1) Discount rate was determined by applying available market rates to lease obligations based upon their term.
As of March 31, 2021, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows:
| | | | | |
| March 31, 2021 |
Remainder of 2021 | $ | 6,641 | |
2022 | 7,806 | |
2023 | 7,041 | |
2024 | 6,168 | |
2025 | 5,437 | |
2026 and thereafter | 16,043 | |
Total minimum payments | 49,136 | |
Less: liabilities held for sale | (757) | |
Less: present value adjustment | (15,679) | |
Total | $ | 32,700 | |
The following table presents rent expense for the Company’s office leases recorded on the condensed consolidated statements of operations:operations for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Rent expense for office leases (1) | $ | 2,195 | | | $ | 2,133 | | | | | | | |
(1) Includes lease expense of $153 and $101 for the three months ended March 31, 2021 and 2020, respectively, for assets held for sale.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rent expense for office leases | $ | 1,745 |
| �� | $ | 1,630 |
| | $ | 5,230 |
| | $ | 4,820 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In August 2017, Tiptree entered into a lease for office space. The terms of the lease are $2,322 per annum for five years starting on the one year anniversary of the commencement date. Upon the six year anniversary of the commencement date, the lease escalates to $2,520 per annum for five years. The expected commencement date is July 1, 2018.March 31, 2021
In addition, Tiptree’s subsidiary Siena issues standby letters of credit for credit enhancements that are required by its borrower’s respective businesses. As of September 30, 2017, there was $400 outstanding relating to these letters of credit.(in thousands, except share data)
Litigation
The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006, in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015,
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
the trial court issued an Order denying Fortegra’sthe Company’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied Fortegra’sthe Company’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on such motion with respectpolicies. In January 2018, the court vacated its November 2017 order granting Company’s Motion for Summary Judgment as to the life insurance policiescertificates at issue. In June, a new Special Master was appointed.issue with leave to refile. No trial or additional hearings are currently scheduled.
The Company considers such litigation customary in the insurance industry. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible.
The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’sthe Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on the Company’s financial position.
(23)(22) Earnings Per Share
The Company calculates basic net income per Class Ashare of common sharestock (common share) based on the weighted average number of Class A common shares outstanding, (inclusive ofwhich includes vested restricted share units). The unvested restricted share unitscorporate RSUs. Unvested corporate RSUs have thea non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method and for the three and nine months ended September 30, 2017 and September 30, 2016,under which the income available to common stockholders wasis allocated to the unvested restricted stock units.corporate RSUs.
Diluted net income per Class Aattributable to common shares for the periodstockholders includes the effect of potential equity of subsidiaries as well as potential Class A common stock, ifunvested subsidiaries’ RSUs, when dilutive. For the three months and nine months ended September 30, 2017, theThe assumed exercise of all potentially dilutive instruments were anti-dilutive and, therefore, were notare included in the diluted net income per Class A common share calculation.calculation, if dilutive.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)
The following table presents a reconciliation of basic and diluted net income per common share for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | | |
Net income (loss) | $ | 30,640 | | | $ | (60,570) | | | | | | | |
Less: | | | | | | | | | |
Net income (loss) attributable to non-controlling interests | 2,059 | | | (563) | | | | | | | |
Net income allocated to participating securities | 602 | | | 0 | | | | | | | |
Net income (loss) attributable to Tiptree Inc. common shares - basic | 27,979 | | | (60,007) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Effect of Dilutive Securities: | | | | | | | | | |
Securities of subsidiaries | (574) | | | 0 | | | | | | | |
Adjustments to income relating to exchangeable interests, net of tax | 1,961 | | | 0 | | | | | | | |
Net income (loss) attributable to Tiptree Inc. common shares - diluted | $ | 29,366 | | | $ | (60,007) | | | | | | | |
| | | | | | | | | |
Weighted average number of shares of common stock outstanding - basic | 32,420,982 | | | 34,566,330 | | | | | | | |
Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations | 3,763,037 | | | 0 | | | | | | | |
Weighted average number of shares of common stock outstanding - diluted | 36,184,019 | | | 34,566,330 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Basic net income (loss) attributable to common shares | $ | 0.86 | | | $ | (1.74) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Diluted net income (loss) attributable to common shares | $ | 0.81 | | | $ | (1.74) | | | | | | | |
(23) Related Party Transactions
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | (3,378 | ) | | $ | 7,838 |
| | $ | (7,360 | ) | | $ | 22,273 |
|
Less: | | | | | | | |
Net income (loss) attributable to non-controlling interests | (264 | ) | | 1,933 |
| | (903 | ) | | 4,680 |
|
Net income allocated to participating securities | — |
| | 60 |
| | — |
| | 148 |
|
Net income (loss) attributable to Tiptree Inc. Class A common shares - basic | $ | (3,114 | ) | | $ | 5,845 |
| | $ | (6,457 | ) | | $ | 17,445 |
|
Effect of Dilutive Securities: | | | | | | | |
Securities of subsidiaries | — |
| | (50 | ) | | — |
| | (148 | ) |
Adjustments to income relating to exchangeable interests, net of tax | — |
| | 1,362 |
| | — |
| | — |
|
Net income (loss) attributable to Tiptree Inc. Class A common shares - diluted | $ | (3,114 | ) | | $ | 7,157 |
| | $ | (6,457 | ) | | $ | 17,297 |
|
| | | | | | | |
Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - basic | 29,455,462 |
| | 29,143,470 |
| | 28,908,195 |
| | 32,845,124 |
|
Weighted average number of incremental shares of Tiptree Inc. Class A common stock issuable from exchangeable interests and contingent considerations | — |
| | 8,087,180 |
| | — |
| | 67,392 |
|
Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - diluted | 29,455,462 |
| | 37,230,650 |
| | 28,908,195 |
| | 32,912,516 |
|
| | | | | | | |
Basic: | | | | | | | |
Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.20 |
| | $ | (0.22 | ) | | $ | 0.53 |
|
| | | | | | | |
Diluted: | | | | | | | |
Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.19 |
| | $ | (0.22 | ) | | $ | 0.53 |
|
Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman. Tiptree invested $75,000 to seed new investment funds to be managed by Corvid Peak, which was completely funded in the first quarter of 2020. The Company pays Corvid Peak an annual management fee of 1.25% of the net asset value of invested capital and an incentive fee equal to 20% of the net profits, subject to a conventional high water mark. The Company incurred $308 and $212 of management and incentive fees to Corvid Peak for the three months ended March 31, 2021 and 2020, respectively.
Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another. Payments under the Transition Services Agreement in the three months ended March 31, 2021 and 2020 were not material.
Pursuant to the Emeritus Agreement, Tiptree agreed to provide Mr. Inayatullah, a greater than 5% stockholder of the Company, office space and support services, and reimburse Mr. Inayatullah for a portion of benefit expenses in exchange for advice and other consulting services as requested by the Company’s Executive Committee. Transactions related to the Emeritus Agreement in the three months ended March 31, 2021 and 2020 were not material.
(24) Subsequent Events
On November 2, 2017,May 4, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.03$0.04 per share to Class A stockholdersholders of common stock with a record date of November 20, 2017,May 24, 2021, and a payment date of November 27, 2017.June 1, 2021.
On October 16, 2017,Effective May 3, 2021, Corvid Peak entered into an investment advisory agreement (the “IAA”) with Fortegra completedand certain of its subsidiaries. As previously disclosed, Corvid Peak is a private placement offeringrelated party of $125,000Tiptree because Michael Barnes, Tiptree’s Executive Chairman, has an economic interest in Corvid Peak that predates Tiptree’s acquisition of 8.50% Fixed Rate Resetting Junior Subordinated Notes due 2057 (the “Notes”). Substantially allCorvid Peak. Under the IAA, Corvid Peak will provide Fortegra investment management services for fees ranging between 0.20% and 1.25% of net asset value depending on the asset class and the net proceeds fromasset value of certain asset classes. Entering into the Notes were usedIAA by Fortegra’s statutory insurance companies is subject to repay Fortegra’s existing credit facility, which was terminated thereafter. The Notes, which are issued under an indenture, areapproval by the unsecured obligations of Fortegra and rank in right of payment and upon liquidation, junior to all of Fortegra’s current and future senior indebtedness. The Notes are not obligations of or guaranteed by any of Fortegra’s subsidiaries or any other Tiptree entities. So long as no event of default has occurred and is continuing, Fortegra may defer all or part of the interest payments on the Notes on one or more occasions for up to five consecutive years per deferral period. The indenture governing the Notes contains customary affirmative and negative covenants and events of default.relevant state insurance regulatory authorities.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Conditions and Results of Operations is presented in this section as follows:
Overview
•Overview
•Results of Operations
•Non-GAAP Measures and Reconciliations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
•Off-Balance Sheet Arrangements
OVERVIEW
Tiptree is a holding company focused on enhancing shareholder value by generating consistentthat allocates capital across a broad spectrum of businesses, assets and growingother investments. Our principal operating subsidiary and primary source of earnings, at our operating companies. Our strategy employsFortegra, along with its subsidiaries, is a differentiated model, where we combine aleading provider of specialty insurance, underwriting platform withwarranty and service contract products and related service solutions. We also generate earnings from a diverse group of select investments that we refer to as Tiptree Capital, which includes our broader asset managementMortgage segment and capital allocation capabilities, which we believe distinguishes us from manyour other, insurance companies. When considering capital allocation decisions, we take a diversified approach, looking across sectors, geographies and asset classes, all with a longer-term horizon for ournon-insurance businesses and investments.assets. We evaluate our performance primarily by the comparison of our shareholder’sshareholders’ long-term total return on capital, as measured by Adjusted Net Income, Adjusted EBITDA and growth in book value per share plus dividends.
Our first quarter 2021 highlights include:
Overall:
•Net income of $28.6 million increased from a net loss of $60.0 million in 2020, which was driven by growth in insurance underwriting operations and growth in volume and margins in our mortgage business, in addition to realized and unrealized gains on investments as compared to unrealized losses in 2020.
•Adjusted net income increased 90.5% to $13.2 million, from $6.9 million in 2020, driven by improvement in insurance and mortgage operations. Adjusted return on average equity was 13.7%, as compared to 7.3% in 2020.
•Book value per share of $11.63 as of March 31, 2021, when combined with dividends paid.paid, increased 21.2% from the prior year, and 7.1% from year-end 2020, driven by a combination of net income and share repurchases at discounts to book value per share.
•In 2021, we purchased and retired 488,662 shares of our common stock for $2.5 million, at an average 57% discount to book value. Over the past four quarters, we returned $17.8 million to shareholders, including 2.3 million of share buybacks at an average 49% discount to book value per share.
We currently have four reporting segments: specialty•Cash and cash equivalents of $123.9 million as of March 31, 2021, of which $77.7 million resides outside our statutory insurance asset management, senior living,subsidiaries.
Insurance:
•Total revenues increased 55.3% to $222.6 million, from $143.3 million in 2020, driven by increases in earned premiums, net, service and specialty finance. Corporateadministrative fees, and other primarily contains corporate expenses not allocatednet realized and unrealized gains as compared to the operating businesses. See Note—(4) Operating Segment Data,losses in the notesprior year period.
•The combined ratio improved to 91.5%, as compared to 93.6% in 2020, driven by the accompanying condensed consolidated financial statementsshift in business mix toward warranty and commercial programs improving the underwriting ratio and continued scalability of our technology and shared service platform, which improved the expense ratio.
•Income before taxes of $21.5 million increased by $48.6 million as compared to a loss before taxes of $27.1 million in 2020. Return on average equity was 23.9% in 2021 as compared to (28.3)% in 2020. The increase in both metrics was driven operationally by growth in revenues and improvements in the combined ratio, in addition to net realized and unrealized gains on investments as compared to losses in the prior year.
•Adjusted net income increased 46.3% to $12.8 million, as compared to $8.7 million in 2020. Adjusted return on average equity was 17.9%, as compared to 12.7% in 2020. The increase in both metrics was driven by growth in revenues and the improved combined ratio.
•Gross written premiums and premium equivalents were $505.0 million for detailed information regarding our segments. Since differentthe three months ended March 31, 2021, as compared to $392 million for the three months ended March 31, 2020, up 28.7% as a result of growth in U.S. Insurance, U.S. Warranty Solutions and Europe Warranty Solutions.
•As of March 31, 2021, total cash and cash equivalents combined with total investments were $722.8 million, as compared to $588.3 million as of March 31, 2020. As of March 31, 2021, 77% of the portfolio was invested in
high-credit quality fixed income securities with an average S&P rating of AA and a weighted average duration of 2.4 years.
Mortgage:
•Income before taxes of $13.1 million in 2021, as compared to loss before taxes of $1.1 million in 2020, with the increase driven by growth in volumes and margins resulting from reduced interest rates and home price appreciation.
•Adjusted net income improved for the three months ended March 31, 2021 by $7.3 million, driven by the same factors affect the financial conditionthat impacted net income.
•Return on average equity of 60.9% and resultsadjusted return on average equity of operation of each segment, the following discussion is presented on both a consolidated45.6% in 2021, as compared to (6.8)% and segment basis.2.3%, respectively, in 2020.
Key Trends:
Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth, business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the other factors set forth in Part I, Item 1A. “Risk Factors” of1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. Generally, our businesses are positively affected by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and the aging U.S. population.global growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition.
Our specialtyinsurance business generally focuses on products which have low severity but high frequency loss experiences and are short duration. As a result, the business has historically generated significant fee-based revenues. In general, the types of products we offer tend to have limited aggregation risk and, thus, limited exposure to catastrophic and residual risk. We mitigate our underwriting risk through a combination of reinsurance and retrospective commission structures with our agents, distribution partners and/or third-party reinsurers. To mitigate counterparty risk, we ensure our distribution partners’ captive reinsurance entities are over-collateralized with highly liquid investments, primarily cash and cash equivalents. Our insurance results primarily depend on the appropriateness of our pricing, underwriting, risk retention and the accuracy of our methodology for the establishment of reserves, for future policyholder benefits and claims, thereinsurance arrangements, returns on and values of invested assets, and our ability to estimate policy and contract renewals and run-off. While our insurance operations have historically maintained a high percentage of fees to total revenue and a relatively stable combined ratio which support steady earnings, our initiatives to change our business mix along with economic factors could generate different results than we have historically seen. Inexperienced. We believe there will continue to be growth opportunities to expand our senior living operations, occupancy levelswarranty and operational costs could impact margins. While the aging demographics of the U.S. population generally favor seniors housing in the long term, in the short term, imbalances in the supplyspecialty programs insurance business model to other niche products and demand for available units could dampen occupancy levels and competition for qualified employees could increase payroll costs. In our asset management segment, improving business conditions and growing corporate loan demand, especially from small to medium sized businesses has generally supported growth in AUM. Slowing economic growth and/or economic uncertainty could reduce business investment and loan demand, slowing the growth in AUM and associated fees. Risk retention rules mandated by Dodd-Frank has also impacted our formation of new CLOs, while pressure to reduce management fees in more recent CLOs has slowed management fee growth.markets.
Our profitability is affected by netinsurance investment portfolio primarily serves as a source to pay claims and secondarily as a source of income and realized and unrealized gains and losses.for our operations. Our invested assets are held principally ininvestments include fixed maturity securities, equity securities, loans, CLOs, credit investment funds, and senior living related assets.equity securities. Many of our investments are held at fair value. Changes in fair value of this latter categoryfor loans, credit investment funds, and equity securities are reported quarterly as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, or market risk, including specific company or industry factors. Credit risk can impact our financial results in a number of ways, including the performance of our corporate loans, mortgage loans, holdings in CLO subordinated notes and other investments. When credit markets are performing well, loans held in our CLOs and credit fund investments may prepay, subjecting those investments to reinvestment risk. In deteriorating credit environments, default risk can impact the performance of our investments, as well as flowing through income as unrealized losses. Disruption in the credit markets can also impact our ability to raise third party funds to invest and grow our asset management fees. Our equity holdings are relatively concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value of our holdings and can result in unrealized gains and losses affecting our results.
Our business isbusinesses can also be impacted in various ways by changes in interest rates. In addition to the impact interest rates, which can have onresult in fluctuations in the fair value of our investments, revenues associated with floating rate investments, volume and revenues in our mortgage business and interest expense associated with floating rate debt used to fund many of our operations. Rising interest rates in the assets,first quarter impacted the value of certain of our fixed income securities in our investment portfolio, the unrealized loss on which was recorded in equity, and if realized, could impact our results of operations. Offsetting the impact of a rising interest rate environment, as our portfolio grows, new investments in fixed rate instruments from both maturities and portfolio growth can result in higher interest income on our investments over time. In declining interest rate environments, the opposite impacts could occur. In addition, certain of our investments are LIBOR based, which has resulted in lower investment income during the recent period of extended low rates, and which increased as rates rose in the first quarter. Rising interest rates can also impact the volumeour cost of LIBOR based debt obligations, while declining rates can decrease our cost of debt. Our secured revolving and revenues in our specialty finance business. In addition, most of our subsidiaries use debtterm credit agreements, preferred trust securities and asset-based revolving financing to fund their business activities, much of which isare all floating rate debt,obligations.
Low mortgage rates due to the Federal Reserve intervention in mortgage markets and the majority of which have LIBOR floors, LIBOR floors can resultrising home prices in certain markets, has resulted in a reductioncombination of higher mortgage volumes and margins beginning in net interest margins inthe second quarter of 2020 and
continuing into the first quarter of 2021, which has been a decliningbenefit to our mortgage operations. The recent low interest rate environment if earningsalso benefits our interest cost on debt, although our corporate debt remains above current LIBOR rates. There can be no assurance that these positive trends will continue, the reversal of which could have a materially negative impact on our assets do not have similar floors or areresults of operations, and which may only be partially mitigated by the benefit to our LIBOR based investments.
Common shares of Invesque represent a significant asset on different benchmarks than LIBOR, suchour condensed consolidated balance sheet, both as treasury rates or the prime rate. Certainpart of our subsidiaries have also entered into interest rate swap agreements to fix all or a portion of their interest rate exposureinsurance investment portfolio and separately in Tiptree Capital. Our investment in Invesque, which are currently designated as hedging relationships for accounting purposes.
All interim financial information includedoperates in the Management’s Discussionseniors housing and Analysisskilled nursing industries, is carried on our condensed consolidated balance sheet at fair value. In April 2020, in response to the uncertainty in the industry, Invesque suspended its dividend to conserve liquidity. In combination with the impact of Financial Conditionsthe COVID-19 pandemic on occupancy rates, Invesque’s stock declined significantly, which had a material impact on the carrying value of our investment and Resultsresults of Operationsoperations. While their stock price and the value of our investment increased in the first quarter of 2021, any additional declines in the fair value of Invesque’s common stock could have a significant impact on our results of operations and the value of our investment.
The maritime transportation industry is highly competitive and fragmented. Demand for shipping capacity is a function of global economic conditions and the related demand for commodities, production and consumption patterns, and is affected by events which interrupt production, trade routes, and consumption. The shipping industry is cyclical with high volatility in charter hire rates and profitability, which can change rapidly. General global economic conditions, along with company and industry specific factors, are unaudited.expected to continue to impact the fair value of our vessels and associated operating results. While there is a current imbalance in supply and demand for shipping capacity, which has led to a cyclical high toward the end of the current quarter in dry-bulk charter rates, a change in those factors and/or changes in global economic conditions could result in substantially lower charter rates, which could negatively impact our results of operations and the carrying value of our vessels.
RESULTS OF OPERATIONS
The following is a summary of our condensed consolidated financial results for the three and nine months ended September 30, 2017March 31, 2021 and 2016. Management2020. In addition to GAAP results, management uses the Non-GAAP measures Adjusted net income, Adjusted return on average equity, Adjusted EBITDA on a consolidated and segment basis, and book value per share as exchanged, as measurements of operating performance which are non-GAAP measures.performance. Management believes the use of Adjusted EBITDA providesthese measures provide supplemental information useful to investors as it isthey are frequently used by the financial community to analyze financial performance and to analyze a company’s ability to servicecomparison among companies. Management uses Adjusted net income and adjusted return on average equity as part of its debtcapital allocation process and to facilitate comparison among companies.assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting. The Company defines Adjusted EBITDA isas GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, plus non-cash fair value adjustments, plus significant non-recurring expenses, and plus unrealized gains (losses) on available for sale securities that are reported in other comprehensive income. Adjusted net income, Adjusted return on average equity and Adjusted EBITDA are not a measurementmeasurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. Book value per share, as exchanged assumes full exchangeSee “Non-GAAP Reconciliations” for a reconciliation of the limited partners unitsthese measures to their GAAP equivalents.
Selected Key Metrics
| | | | | | | | | | | | | | | | |
($ in thousands, except per share information) | Three Months Ended March 31, | |
GAAP: | 2021 | | 2020 | | | | | |
Total revenues | $ | 294,688 | | | $ | 129,671 | | | | | | |
Net income (loss) attributable to common stockholders | $ | 28,581 | | | $ | (60,007) | | | | | | |
Diluted earnings per share | $ | 0.81 | | | $ | (1.74) | | | | | | |
Cash dividends paid per common share | $ | 0.04 | | | $ | 0.04 | | | | | | |
Return on average equity | 31.8 | % | | (64.1) | % | | | | | |
| | | | | | | | |
Non-GAAP: (1) | | | | | | | | |
Adjusted net income | $ | 13,155 | | | $ | 6,907 | | | | | | |
Adjusted return on average equity | 13.7 | % | | 7.3 | % | | | | | |
Adjusted EBITDA | $ | 45,683 | | | $ | (70,529) | | | | | | |
Book value per share | $ | 11.63 | | | $ | 9.73 | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of TFP for Tiptree Class A common stock. Management believes the use of thisnon-GAAP financial measure provides supplemental information useful to investors as it is frequently used by the financial community to analyze company growth on a relative per share basis.
Summary Consolidated Statements of Operationsmeasures.
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
GAAP: | 2017 | | 2016 | | 2017 | | 2016 |
Total revenues | $ | 164,519 |
| | $ | 132,160 |
| | $ | 486,297 |
| | $ | 395,059 |
|
Net income before non-controlling interests | (3,378 | ) | | 7,838 |
| | (7,360 | ) | | 22,273 |
|
Net income attributable to Tiptree Inc. Class A common stockholders | (3,114 | ) | | 5,905 |
| | (6,457 | ) | | 17,593 |
|
Diluted earnings per share | (0.11 | ) | | 0.19 |
| | (0.22 | ) | | 0.53 |
|
Cash dividends paid per common share | 0.03 |
| | 0.025 |
| | 0.09 |
| | 0.075 |
|
| | | | | | | |
Non-GAAP: (1) | | | | | | | |
Adjusted EBITDA | $ | 4,776 |
|
| $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
Book Value per share, as exchanged | 9.67 |
| | 9.93 |
| | 9.67 |
| | 9.93 |
|
| |
(1) | For further information relating to the Company’s Adjusted EBITDA and book value per share, as exchanged, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.” |
Consolidated Results of Operations
Revenues
For the three months ended September 30, 2017, the Company reportedMarch 31, 2021, revenues of $164.5were $294.7 million, an increase of $32.4which increased $165.0 million, or 24.5%, from127.3% compared to the three months ended September 30, 2016. Forprior year period, primarily due to net realized and unrealized gains in the nine months ended September 30, 2017, revenues were $486.3 million, an increase of $91.2 million, or 23.1%, from2021 period compared to losses in the nine months ended September 30, 2016. The primary drivers of the increase in revenues for the three and nine months were2020 period. Additionally, growth in Fortegra’s commercial, credit and warranty programs resulted in increases to earned premiums, and net, investment income in our specialty insurance segment, increases in rental income attributable to acquisitions of seniors housing properties and improved specialty finance originations margins, partially offset by reduced service and administrative fees, ceding commissions, and unrealized losses, as comparedimprovement in mortgage volumes and margins led to prior period gains, in our specialty insurance segment investment portfolio.increased realized gains.
Net Income before non-controlling interests
ForThe combination of unearned premiums and deferred revenues on the three months ended September 30, 2017, the Company incurred a net loss of $3.4condensed consolidated balance sheet grew by $283.5 million, comparedor 27.4%, from March 31, 2020 to net income of $7.8 million in the 2016 period. The primary drivers of the decline were the unrealized losses in our specialty insurance investment portfolio in the three months ended September 30, 2017 compared to unrealized gains in the 2016 period, run-off in our older vintage CLOs
resulting in reduced management fees, and reduced CLO distributions as the Company reduced its investments over the last twelve months.
For the nine months ended September 30, 2017, the Company incurred a net loss of $7.4 million compared to net income of $22.3 million in the 2016 period, a decrease of $29.6 million. The decline was primarily a result of the unrealized losses in our specialty insurance investment portfolio in the nine months ended September 30, 2017, compared to unrealized gains in the prior period, combined with increased stock-based compensation expense in the specialty insurance segment and an increase in the fair value of the contingent earn-out liability associated with our Reliance acquisition. These drivers were partially offset by reduced losses in our senior living and improved operating results in our specialty finance segments, excluding the impact of the Reliance earn-out. Additionally, the tax provision has increased year-over-yearMarch 31, 2021 as a result of a $4.0 million tax benefitFortegra’s growth in the three months ended March 31, 2016 which was driven by the tax reorganization effective January 1, 2016. A discussion of the changes in revenues, expensesgross written premiums and net income is presented belowpremium equivalents, primarily related to commercial, credit and in more detail in our segment analysis.warranty programs.
The following table highlights certain non-cash, key drivers impactingbelow provides a break down between net realized and unrealized gains and losses from Invesque and other securities which impacted our consolidated results for the three and nine months ended September 30, 2017 and 2016. We believe highlighting these significant, non-cash items provides useful additional information to investors. As we mentioned above,on a pre-tax basis. Many of our investments are focused on a longer term investment horizon. In addition, our equity securities holdings are relatively concentrated, and are carried at fair value and marked to market through the current reporting period.unrealized gains and losses. As a result, we expect our earnings relating to these securitiesinvestments to be relatively volatile between periods in contrast to ourperiods. Our fixed income securities which are primarily marked to market through AOCI which is more consistent with the treatment used by other insurance companies. In order for investors to be able to compare the returns of both types of investments,in stockholders’ equity and to the portfolio performance of other insurance companies, wedo not impact net realized and unrealized gains and losses until they are highlighting the impact attributable to thesold.
| | | | | | | | | | | | | | | | |
($ in thousands) | For the Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Net realized and unrealized gains (losses)(1) | $ | 10,215 | | | $ | (24,791) | | | | | | |
Net realized and unrealized gains (losses) - Invesque | $ | 16,643 | | | $ | (58,713) | | | | | | |
| | | | | | | | |
(1) Excludes Invesque and Mortgage realized and unrealized gains and realized gains (losses) on equity securities in the table below.losses.
We have also highlighted the impact of stock based compensation on the two periods below. Since a significant portion of our stock based compensation is performance based, and vests over multiple years, we believe that providing this information separately to investors allows them to evaluate the alignment of non-cash compensation to management, both at the holding company and at certain of our subsidiaries, with our overall performance trends.
In connection with our acquisition of Reliance, a portion of the purchase price was contingent on Reliance’s performance in the three years post acquisition, payable in Tiptree stock to the sellers. That contingent purchase price is carried as a liability on our balance sheet and is re-valued in each period. Increases or decreases in each period flow through the income statement, and are not deductible for tax purposes. Given Reliance’s performance over the latest performance measurement period, the contingent earn-out liability has increased, with the incremental value treated as an added expense in our financial statements for the nine months ended September 30, 2017.
Lastly, depreciation and amortization has increased, primarily as a result of additional acquisitions at Care, partially offset by the reduction in VOBA at Fortegra. Because we carry our real estate assets at original cost, and our strategy at Care is to purchase properties that require actions to improve their performance, we believe that highlighting the impact depreciation and amortization have on Tiptree’s overall results period over period, and on the carrying value of our real estate assets, is useful additional information for investors.
Key Non-Cash Drivers of Pre-tax Income and Adjusted EBITDA
|
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | Variance | | 2017 | | 2016 | | Variance |
Unrealized & realized gains (losses) on equity securities | | $ | (11,125 | ) | | $ | 1,365 |
| | $ | (12,490 | ) | | $ | (21,183 | ) | | $ | 10,787 |
| | $ | (31,970 | ) |
Stock-based compensation | | (1,135 | ) | | (633 | ) | | (502 | ) | | (4,275 | ) | | (1,597 | ) | | (2,678 | ) |
Reliance contingent earn-out liability (1) | | 422 |
| | — |
| | 422 |
| | (3,039 | ) | | — |
| | (3,039 | ) |
Depreciation and amortization (1) | | (7,775 | ) | | (6,437 | ) | | (1,338 | ) | | (23,781 | ) | | (21,899 | ) | | (1,882 | ) |
| |
(1) | Added back to Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to GAAP financials, see “—Non-GAAP Reconciliations.” |
Net Income (Loss) AvailableAttributable to Class A Common Stockholderscommon stockholders
For the three months ended September 30, 2017,March 31, 2021, net loss availableincome attributable to Class A common stockholders was $3.1$28.6 million, a decreasean increase of $9.0$88.6 million from a net loss of $60.0 million for the prior year period. For the ninethree months ended September 30, 2017, net income available to Class A common stockholdersMarch 31, 2020. The increase for the three months ended March 31, 2021 was $6.5 million, a decrease of $24.1 million from the prior year period. The key drivers of net income available to Class A common stockholders wereprimarily driven by the same factors whichthat impacted revenues in the respective periods.
Adjusted net income before non-controlling interests.& Adjusted return on average equity - Non-GAAP
Adjusted net income for the three months ended March 31, 2021 was $13.2 million, an increase of $6.2 million, or 90.5%, from the three months ended March 31, 2020. For March 31, 2021, adjusted return on average equity was 13.7%, as compared to 7.3% at March 31, 2020, with the increase in both metrics driven by improved performance in our insurance and mortgage operations.
Adjusted EBITDA - Non-GAAP
Total Adjusted EBITDA for the three months ended September 30, 2017March 31, 2021 was $4.8$45.7 million, an increase of $116.2 million from 2020, which was substantially driven by realized and unrealized gains in the 2021 period compared to $20.1 million for the 2016 period, a decrease of $15.3 million, or 76.0%. Total Adjusted EBITDA for the nine months ended September 30, 2017 was $23.3 million compared to $52.9 million for the 2016 period, a decrease of $29.5 million, or 55.8%. The key drivers of the change in Adjusted EBITDA were the same as those which impacted our net income, excluding the increaselosses in the Reliance earn-out and the year-over-year change in the tax provision. See “— Non-GAAP Reconciliations” for a reconciliation to GAAP net income.2020 period.
Book Value per share - Non-GAAP
Total stockholders’ equity was $397.4 million as exchanged
As exchanged bookof March 31, 2021 compared to $373.5 million as of December 31, 2020. In the three months ended March 31, 2021, Tiptree returned $3.8 million to shareholders through share repurchases and dividends paid. Book value per share for the period ended September 30, 2017March 31, 2021 was $9.67, down$11.63, an increase from $9.93book value per share of $9.73 as of September 30, 2016.March 31, 2020. The key drivers of the year-over-year impactincrease over the past four quarters were increases from trailing twelve month diluted earningsnet income per share and re-purchasesthe purchase of 1.02.3 million shares at an average 28%49% discount to book value. Those increases were more thanvalue partially offset by cumulative dividends paid of $0.115, officer and director compensation share issuances over the last twelve months and the exercise of the Tricadia Option in June 2017 resulting in 1.5 million shares being issued at $5.36 per share. Given the strike price of the option, the impact was a $0.19 reduction to book value$0.16 per share.
Results by Segment
EffectiveWe classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations aggregated into Tiptree Capital - Other. Corporate activities include holding company interest expense, corporate employee compensation and benefits, and other expenses, including, but not limited to, public company expenses. For the three months ended March 31, 2021, Mortgage has been broken out of Tiptree Capital as a reportable segment because for the year ended December 31, 2016, Tiptree realigned2020 it met the principal investments formerly reported inquantitative threshold for disclosure. Prior year segments have been conformed to the corporate and other segment into their new reportable segments to align with the Company’s operating strategy. The table below reflects the credit and equity investments contributed to our insurance subsidiary in the specialty insurance segment and the CLO subordinated notes and related warehouse income in the asset management segment for the three and nine months ended September 30, 2017 and 2016.current year presentation.
Pre-tax Income by Segment
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
|
Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
Senior living | (1,535 | ) | | (473 | ) | | (5,359 | ) | | (5,487 | ) |
Specialty finance | 2,595 |
| | 4,181 |
| | 2,629 |
| | 5,510 |
|
Corporate and other | (7,118 | ) | | (9,292 | ) | | (22,198 | ) | | (22,751 | ) |
Pre-tax income | $ | (5,430 | ) | | $ | 11,550 |
| | $ | (10,121 | ) | | $ | 27,571 |
|
The following tables present the components of Income (loss) before taxes and Adjusted net income.
Income (loss) before taxes
| | | | | | | | | | | | | | | | |
($ in thousands) | For the Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Insurance | $ | 21,528 | | | $ | (27,117) | | | | | | |
Mortgage | 13,077 | | | (1,090) | | | | | | |
Tiptree Capital - other | 14,994 | | | (45,241) | | | | | | |
Corporate | (10,207) | | | (8,303) | | | | | | |
Income (loss) before taxes | $ | 39,392 | | | $ | (81,751) | | | | | | |
| | | | | | | | |
Adjusted EBITDA by Segmentnet income - Non-GAAP (1)
| | | | | | | | | | | | | | | | |
($ in thousands) | For the Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Insurance | $ | 12,776 | | | $ | 8,734 | | | | | | |
Mortgage | 7,465 | | | 196 | | | | | | |
Tiptree Capital - other | 567 | | | 3,291 | | | | | | |
Corporate | (7,653) | | | (5,314) | | | | | | |
Adjusted net income (1) | $ | 13,155 | | | $ | 6,907 | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | $ | 2,318 |
| | $ | 14,220 |
| | $ | 15,566 |
| | $ | 45,556 |
|
Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
Senior living | 2,859 |
| | 2,869 |
| | 8,293 |
| | 7,194 |
|
Specialty finance | 2,382 |
| | 4,479 |
| | 6,288 |
| | 6,327 |
|
Corporate and other | (5,756 | ) | | (7,915 | ) | | (19,897 | ) | | (20,867 | ) |
Adjusted EBITDA | $ | 4,776 |
| | $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
| |
(1)
| For further information relating to the Company’s Adjusted EBITDA, including a reconciliation of the Company’s segments’ Adjusted EBITDA to GAAP pre-tax income, see “—Non-GAAP Reconciliations.” |
Specialty Insurance
Our principal operating subsidiary, Fortegra, is a specialty insurance company that offers asset protectionprogram underwriter and service provider, which focuses on niche business mixes and fee-oriented services. Our combination of specialty insurance underwriting, warranty and service contract products, and related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting revenues, investment income and unregulated fee revenues. We are an agent-driven business model, distributing our products through niche commercialindependent insurance agents, consumer finance companies, online retailers, auto dealers, and personal linesregional big box retailers to deliver products that complement the consumer transaction.
The following tables present the Insurance segment results for the three months ended March 31, 2021 and 2020.
Results of insurance. We also offer administrationOperations
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| 2021 | | 2020 | | Change | | % Change |
Revenues: | | | | | | | |
Earned premiums, net | $ | 146,919 | | | $ | 121,321 | | | $ | 25,598 | | | 21.1 | % |
Service and administrative fees | 58,050 | | | 43,724 | | | 14,326 | | | 32.8 | % |
Ceding commissions | 3,025 | | | 6,525 | | | (3,500) | | | (53.6) | % |
Net investment income | 2,767 | | | 3,488 | | | (721) | | | (20.7) | % |
Net realized and unrealized gains (losses) | 9,672 | | | (33,601) | | | 43,273 | | | NM% |
Other revenue | 2,130 | | | 1,883 | | | 247 | | | 13.1 | % |
Total revenues | $ | 222,563 | | | $ | 143,340 | | | $ | 79,223 | | | 55.3 | % |
Expenses: | | | | | | | |
Net losses and loss adjustment expenses | $ | 50,251 | | | $ | 45,976 | | | $ | 4,275 | | | 9.3 | % |
Member benefit claims | 16,923 | | | 14,900 | | | 2,023 | | | 13.6 | % |
Commission expense | 88,645 | | | 70,401 | | | 18,244 | | | 25.9 | % |
Employee compensation and benefits | 19,089 | | | 17,042 | | | 2,047 | | | 12.0 | % |
Interest expense | 4,304 | | | 3,648 | | | 656 | | | 18.0 | % |
Depreciation and amortization | 4,191 | | | 2,270 | | | 1,921 | | | 84.6 | % |
Other expenses | 17,632 | | | 16,220 | | | 1,412 | | | 8.7 | % |
Total expenses | $ | 201,035 | | | $ | 170,457 | | | $ | 30,578 | | | 17.9 | % |
Income (loss) before taxes (1) | $ | 21,528 | | | $ | (27,117) | | | $ | 48,645 | | | NM% |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Key Performance Metrics: | | | | | | | |
Gross written premiums and premium equivalents | $ | 505,001 | | | $ | 392,411 | | | $ | 112,590 | | | 28.7 | % |
Return on average equity | 23.9 | % | | (28.3) | % | | | | |
Underwriting ratio | 74.2 | % | | 75.7 | % | | | | |
Expense ratio | 17.3 | % | | 17.9 | % | | | | |
Combined ratio | 91.5 | % | | 93.6 | % | | | | |
| | | | | | | |
Non-GAAP Financial Measures (2): | | | | | | | |
Adjusted net income | $ | 12,776 | | | $ | 8,734 | | | $ | 4,042 | | | 46.3 | % |
Adjusted return on average equity | 17.9 | % | | 12.7 | % | | | | |
(1) Net income was $17,099 for the three months ended March 31, 2021 compared to a net loss of $19,454 for the three months ended March 31, 2020.
(2) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues
Earned Premiums, net
Earned premiums, net represent the earned portion of our gross written premiums, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements, as well as the earned portion of our assumed premiums. Our insurance policies generally have a term of six months to seven years depending on the underlying product and fronting services for our self-insured clients who own captive producer owned reinsurance companies (“PORCs”).premiums are earned pro rata over the term of the policy. At the end of each reporting period, premiums written but not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy.
Our specialty insurance business generates income from insurance underwriting operationsService and an investment portfolio. Insurance underwriting operations revenues are primarily generated from net premiums, serviceAdministrative Fees
Service and administrative fees represent the earned portion of our gross written premiums and ceding commissions. We measure insurance underwriting operations performance bypremium equivalents, which is generated from non-insurance programs including warranty service contracts, motor club programs and other services offered as adjusted underwriting margin, combined ratiopart of our vertically integrated product offerings. Such fees are typically positively correlated with transaction volume and Adjustedare recognized as revenue when realized and earned. At the end of each reporting period, gross written premiums and premium equivalents written for service contracts not earned are classified as deferred revenue, which are earned in subsequent periods over the remaining term of the policy.
Ceding Commissions and Other Revenue
Ceding commissions and other revenue consists of commissions earned on policies written on behalf of third-party insurance companies with no exposure to the insured risk and certain fees earned in conjunction with underwriting policies. Other revenue also includes the interest income earned on our premium finance product offering.
EBITDA.
Net Investment Income
We earn investment income on our portfolio of invested assets. Our invested assets are primarily comprised of fixed maturity securities, and may also include cash and cash equivalents and equity securities. The principal factors that influence net investment income are the size of our investment portfolio, income consiststhe yield on that portfolio and expenses due to external investment managers.
Net Realized and Unrealized Gains (Losses)
Net realized and unrealized gains (losses) on investments are a function of investment income,the difference between the amount received by us on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances for credit losses which are recognized in earnings. In addition, we carry our equity securities at fair value with unrealized gains and losses and is measured by net portfolio income which is the equivalent of Adjusted EBITDA.included in this line.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net earned premiums | $ | 96,073 |
| | $ | 47,609 |
| | $ | 272,781 |
| | $ | 138,516 |
|
Service and administrative fees | 24,018 |
| | 25,842 |
| | 70,861 |
| | 84,421 |
|
Ceding commissions | 2,513 |
| | 1,397 |
| | 6,801 |
| | 22,645 |
|
Net investment income | 3,840 |
| | 3,307 |
| | 12,032 |
| | 8,409 |
|
Net realized and unrealized gains (losses) | (8,554 | ) | | 3,745 |
| | (13,618 | ) | | 12,767 |
|
Other income | 824 |
| | 730 |
| | 2,874 |
| | 1,985 |
|
Total revenues | $ | 118,714 |
| | $ | 82,630 |
| | $ | 351,731 |
| | $ | 268,743 |
|
Expenses: | | | | | | | |
Policy and contract benefits | 31,570 |
| | 25,881 |
| | 94,364 |
| | 72,436 |
|
Commission expense | 63,066 |
| | 24,032 |
| | 176,405 |
| | 91,906 |
|
Employee compensation and benefits | 10,073 |
| | 9,180 |
| | 30,800 |
| | 28,065 |
|
Interest expense | 3,499 |
| | 2,322 |
| | 10,534 |
| | 6,018 |
|
Depreciation and amortization expenses | 3,134 |
| | 3,032 |
| | 9,625 |
| | 10,414 |
|
Other expenses | 9,717 |
| | 7,524 |
| | 28,279 |
| | 24,277 |
|
Total expenses | $ | 121,059 |
| | $ | 71,971 |
| | $ | 350,007 |
| | $ | 233,116 |
|
Pre-tax income (loss) | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
|
Results
Our specialty insurance segment is currently expanding product lines in an effort to increase the duration of our products and increase investable assets. As part of this process, the business is investing in products and people to grow warranty and program products, while maintaining a leading position in the credit protection space. That, combined with the earnings performance of the investment portfolio, are key drivers in comparing 2017 versus 2016 results. The combination of unearned premiums and deferred revenue on the balance sheet are key indicators of volume growth and contract duration extension which over the trailing twelve months has increased by 12.7% from $469.3 million as of September 30, 2016 to $529.0 million as of September 30, 2017.
In the fourth quarter of 2016, our captive reinsurance subsidiary replaced a third party as reinsurer of certain credit protection products, thus avoiding reinsurance costs and gaining additional investment flexibility. This transaction was consistent with our strategy to grow underwriting and investment profits at our specialty insurance subsidiaries. As a result, several income statement line items increased for the three and nine months ended September 30, 2017 whenRevenues - Q1 2021 compared to prior periods including earned premiums, commission expense and policy and contract benefits, partially offset by the decline in ceding commissions.Q1 2020
The application of push-down accounting to the acquisition of Fortegra resulted in purchase price accounting adjustments (Value of Business Acquired or “VOBA”) whereby deferred service and administrative fees and costs associated with deferred commission expense on acquired contracts were recognized differently from those related to newly originated contracts. For the nine months ended September 30, 2017 and 2016, the VOBA impacts on pre-tax income were modest at $1.0 million and $1.5 million, respectively. Where significant to the period over period comparisons of revenue and expense, VOBA impacts are discussed separately below.
For the three months ended September 30, 2017, the specialty insurance segment incurred a pre-tax loss of $2.3March 31, 2021, total revenues increased 55.3%, to $222.6 million, a decrease of $13.0 million over the prior year operating results. The primary drivers of the decline in results were associated with our investment portfolio including a period-over-period reduction in net realized and unrealized gains and losses of $12.3 million, increases in interest expense of $1.2 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases in net investment income of $0.5 million. From insurance operations, underwriting margins were up $3.1 millionas compared to prior year partially offset by increases in employee payroll and compensation of $0.9 million and increases in other expenses of $2.2 million related to premium tax related to the growth in written premiums.
Pre-tax income was $1.7 million for the nine months ended September 30, 2017, a decrease of $33.9 million, or 95.2%, over the prior year operating results. The primary drivers of the decline in results were associated with our investment portfolio including period-over-period reductions in net realized and unrealized gains and losses of $26.4 million, increases in interest expense of $4.5 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases in net investment
income of $3.6 million. Insurance operations results were down versus prior year driven primarily by increases in stock-based compensation expense of $2.7 million and increased other expenses of $4.0 million primarily related to premium tax, which was partially offset by increased underwriting margin of $2.4 million.
Revenues
Revenues are generated by the sale of the following insurance products: credit protection, warranty, programs, services and other. Credit protection products include credit life, credit disability, credit property, involuntary unemployment, and accidental death and dismemberment. Warranty products include mobile device protection, furniture and appliance service contracts and auto service contracts. Programs are primarily personal and commercial lines and other property-casualty products. Earned premiums associated with these products are recognized over the life of these contracts. Services and other revenues principally represent investment income, unrealized and realized gains and losses, fees for insurance sales and business process outsourcing services, and interest for premium financing, and also include the impact to fee income, ceding commissions, and commissions expense from the purchase accounting effect of VOBA related to the insurance contracts.
Total revenues were $118.7$143.3 million for the three months ended September 30, 2017, up $36.1March 31, 2020. Earned premiums, net of $146.9 million increased $25.6 million, or 43.7%21.1%, over the prior year period. The increase was primarily driven by an increasegrowth in earned premiumscommercial, credit and warranty insurance programs. Service and administration fees of $48.5$58.1 million increased by 32.8% driven by growth in warranty and consumer goods service contract revenues. Ceding commissions of $3.0 million decreased by $3.5 million, or 101.8%53.6%, which were partially offsetdriven by decreaseslower fees associated with the decrease in serviceceded premiums in certain credit insurance and administrative fees of $1.8collateral protection programs. Other revenues increased by $0.2 million, or 7.1%13.1%, and ceding commissions of $1.1 million. For the nine months ended September 30, 2017, total revenues were $351.7 million, up $83.0 million, or 30.9%, over the prior year period. The increase was primarily driven by an increase in earned premiums of $134.3 million, or 96.9%, and other income of $0.9 million, which were partially offset by decreases in service and administrative fees of $13.6 million, or 16.1%, and ceding commissions of $15.8 million. For both periods, the increase in earned premiums was driven by growth in our credit protectionpremium and warranty finance programs.
For the three months ended March 31, 2021, 28.4% of our revenues were derived from fees that are not solely dependent upon the underwriting performance of our insurance products, resulting in more diversified and consistent earnings. For the three months ended March 31, 2021, 83.0% of our fee-based revenues were generated in non-regulated service companies, with the primary driver beingremainder in our captive reinsurance subsidiary replacing a third party as reinsurer of certain credit protection products. Ceding commissions declines are consistent with this strategy to retain a higher portion of written business which results in less revenues from experience refunds. Service and administrative fees are lower year-over-year primarily from a reduction in fee-related revenues on our mobile protection and roadside assistance products.regulated insurance companies.
The revenues onFor the investment portfolio, includingthree months ended March 31, 2021, net investment income was $2.8 million driven by interest income on fixed income securities and dividends on equity securities as compared to $3.5 million in the prior year period, driven by lower interest rates, partially offset by growth in investments. Net realized and unrealized gains were a loss$9.7 million, an increase of $4.7$43.3 million, for the three months ended September 30, 2017 compared to income of $7.1 million in the 2016 period, a decrease of $11.8 million. For the nine months ended September 30, 2017, revenues on the investment portfolio, including net investment income anddriven by realized and unrealized gains were a loss of $1.6 millionon equity securities in the 2021 period, as compared to $21.2 million of incomelosses on equity securities and other investments in the 2016 period, a decrease of $22.8 million. See “—Specialty Insurance Investment Portfolio” for further discussion of the investment results.2020 period.
Expenses
TotalUnderwriting and fee expenses include policy and contract benefits, commissions expense and operating expenses. For the three months ended September 30, 2017, total expenses were $121.1 million compared to $72.0 million in the 2016 period. For the nine months ended September 30, 2017, total expenses were $350.0 million compared to $233.1 million in the 2016 period. The primary drivers of the increase were policy and contract benefits and commission expense as net written premiums increased over the 2016 period.
There are two types of expenses for claims payments under insurance and warranty service contracts which are included in policyinclude losses and contract benefits:loss adjustment expenses, member benefit claims and net lossescommissions expense.
Net Losses and loss adjustment expenses. Member benefit claims represent the costs of services and replacement devices incurred in car club and warranty protection service contracts. Loss Adjustment Expenses
Net losses and loss adjustment expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded and the costs of administering claims for credit life and other insurance lines, such as non-standard auto.lines. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Loss occurrences in our insurance products are characterized by low severity and high frequency. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements. Forsettlements, and original pricing of the three months ended September 30, 2017, policyproduct for purposes of the loss ratio in relation to loss emergence over time. Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods.
Member Benefit Claims
Member benefit claims represent the costs of services and replacement devices incurred in warranty and motor club service contracts. Member benefit claims represent claims paid on behalf of contract benefits were $31.6 million, up $5.7 million fromholders directly to third-party providers for roadside assistance and for the prior year. For the nine months ended September 30, 2017, policy andrepair or replacement of covered products. Claims can also be paid directly to contract benefits were $94.4 million, up $21.9 million from the prior year primarilyholders as a resultreimbursement payment, provided supporting documentation of increased retentionloss is submitted to the Company. Claims are recognized as expense when incurred.
Commission Expense
Commission expenses reflect commissions we pay retail agents, program administrators and managing general underwriters, net of ceding commissions we receive on business ceded under certain reinsurance contracts. In addition, commission expenses include premium-related taxes. Commission expenses related to each policy we write are deferred and amortized to expense in our credit protection and program products.proportion to the premium earned over the policy life.
Commission expense is incurred on most product lines, thelines. The majority of whichcommissions are retrospective commissions paid to agents, distributors and retailers selling our products, including credit insurance policies, warranty service contracts and motor club memberships, mobile device protection and warranty service contracts. Credit insurance commissionmemberships. When claims increase, in most cases our distribution partners bear the risk through a reduction in their retrospective commissions. Commission rates are, in many cases, set by state regulators, such as in credit and collateral protection programs and are also impacted by market conditions and the retention levels. Total commission expense for three months ended September 30, 2017 was $63.1 million compared to $24.0 million in 2016. Total commission expense for nine months ended September 30, 2017 was $176.4 million compared to $91.9 million in 2016. The primary driverslevels of the increase were the commission expense associated with the higher retention rate on our credit protection products along with VOBA purchase accounting impacts.distribution partners.
Operating expenses are composed of employee compensation and benefits, interest expense, depreciation and amortization expensesOther Expenses
Operating and other expenses. Forexpenses represent the three months ended September 30, 2017, operatinggeneral and administrative expenses were $26.4 million compared to $22.1 million in the 2016 period. For the nine months ended September 30, 2017, operating expenses were $79.2 million compared to $68.8 million in the 2016 period. The increases for the three and nine months were driven primarily by increased stock-based compensation, increased premium taxes as written premiums grow, and increased interest expense on asset based borrowings within theof our insurance investment portfolio. For the nine months ended September 30, 2017 total employee compensation and benefits were $30.8 million, up $2.7 million from 2016 primarily as a result of increased stock based compensation expense. Interest expense of $10.5 million in nine months ended September 30, 2017 increased by $4.5 million versus the prior year, primarily from increased asset based borrowings on certain investments within the investment portfolio. Other expenses for the nine months ended September 30, 2017 were $28.3 million, up $4.0 million from 2016 primarily as a result of increased premium taxes as written and earned premiums grew. Depreciation and amortization expense was lower year-over-year as a result of the decline in VOBA purchase accounting impact from the amortization of the fair value attributed to the insurance policies and contracts acquired, which was $0.2 million for the nine months ended September 30, 2017 versus $3.0 million for the prior year period. This was partially offset by amortization of other intangiblesoperations including customer relationships and trade names.
Insurance Operating Ratios
We use the combined ratio as an insurance operating metric to evaluate our underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits and other expenses, including, technology costs, office rent, and professional services fees, such as legal, accounting and actuarial services.
Interest Expense
Interest expense consists primarily of interest expense on our corporate revolving debt, our Notes, our preferred trust securities due June 15, 2037 (Preferred Trust Securities) and asset-based debt for our premium finance and warranty service contract financing, which is non-recourse to net earned premiums, serviceFortegra.
Depreciation and administrative fees,Amortization
Depreciation expense is primarily associated with furniture, fixtures and other income. Investors use this ratio to evaluate our ability to profitably underwrite the risks we assume over time and manage our operating costs. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. Since VOBAequipment. Amortization expense is primarily associated with purchase accounting adjustments impact revenuesamortization including values associated with acquired customer relationships, trade names and internally developed software and technology.
Expenses - Q1 2021 compared to Q1 2020
For the three months ended March 31, 2021, net losses and loss adjustment expenses relatedwere $50.3 million, member benefit claims were $16.9 million and commission expense was $88.6 million, as compared to acquired contracts differently from newly originated, we also show the combined ratio on an as adjusted basis, eliminating the accounting effects of VOBA. Management believes showing an as adjusted combined ratio provides useful information to investors to compare period-over-period operating results. Following is a summary of these performance metrics$46.0 million, $14.9 million and $70.4 million, respectively, for the three and nine months ended September 30, 2017March 31, 2020. The increases in net losses and 2016.
Operating Ratios
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Insurance operating ratios: | 2017 | | 2016 | | 2017 | | 2016 |
Combined ratio | 92.6 | % |
| 87.9 | % | | 93.2 | % | | 86.3 | % |
As adjusted Combined ratio - Non-GAAP (1) | 92.8 | % |
| 89.4 | % | | 93.6 | % |
| 88.5 | % |
(1)loss adjustment expenses of $4.3 million, or 9.3%, and member benefit claims of $2.0 million, or 13.6%, were driven by growth in our U.S. Insurance and U.S Warranty Solutions programs. For further information relating to the Company’s as adjusted combined ratio, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
The as adjusted combined ratios were 92.8% and 93.6% for the three and nine months ended September 30, 2017,March 31, 2021, we experienced favorable loss development of $0.04 million as compared to 89.4% and 88.5% for the corresponding prior year periods. The increases across both the three and nine months were driven primarily by the higher retention impacting underwriting margins and higher premium tax, combined with the increased stock based compensation mentioned above. These factors caused the combined ratio to deteriorate modestly in the nine month period.
Key Operating Metrics and Non-GAAP Operating Results
Adjusted EBITDA
Adjusted EBITDA wasunfavorable loss development of $2.3 millionand$15.6 million for the three and nine months ended September 30, 2017,March 31, 2020, which represented a 1.3% impact to the underwriting ratio, primarily driven by higher than expected claims frequency by a small group of producers. Commission expense increased by $18.2 million, or 25.9%, driven by growth in revenues and an increase in retrospective commission payments, which were partially offset by lower proportional net losses and loss adjustment expenses.
For the three months ended March 31, 2021, employee compensation and benefits were $19.1 million and other expenses were $17.6 million, as compared to $14.2$17.0 million and $45.6$16.2 million, respectively, for the comparable prior year periods. Net portfolio income fromthree months ended March 31, 2020. Employee compensation and benefits increased by $2.0 million, or 12.0% driven by the investment portfolio was a lossacquisition of $6.4Sky Auto and investments in human capital associated with our growth objectives in admitted, E&S and warranty programs. Other expenses increased by $1.4 million, or 8.7%, driven primarily by increases in premium taxes, which grew in line with written premiums, partially offset by reduced deal related expenses. Included in other expenses were $0.3 million and $6.7$2.2 million
for the three months ended March 31, 2021 and 2020, respectively, related to non-recurring professional fees associated with investment banking and legal expenses for our acquisitions of Sky Auto and Smart AutoCare.
For the three months ended March 31, 2021, interest expense was $4.3 million as compared to $3.6 million for the three and nine months ended September 30, 2017, compared to income of $6.4 million and $19.5 million in the respective prior year periods. Adjusted EBITDA from insurance underwriting operations was $8.7 million and $22.3 million for the three and nine months ended September 30, 2017 compared to $7.9 million and $26.1 million for the respective prior year periods.March 31, 2020. The increase in interest expense of $0.7 million, or 18.0%, was primarily driven by higher outstanding revolver balances and asset-based debt for our premium and warranty finance programs.
For the three months ended March 31, 2021, depreciation and decreaseamortization expense was $4.2 million, including $3.8 million of intangible amortization related to purchase accounting associated with the acquisitions of Fortegra, Smart AutoCare and Sky Auto, as compared to $2.3 million including $2.2 million of intangible amortization from purchase accounting related to Fortegra and Smart AutoCare for 2020.
Key Performance Metrics
We discuss certain key performance metrics, described below, which provide useful information about our business and the nine months were driven by the sameoperational factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.underlying our financial performance.
Gross & Net Written Premiums and Premium Equivalents
Gross written premiums representsand premium equivalents represent total gross written premiums from insurance policies and warranty service contracts that we writeissued, as well as premium finance volumes during a reporting period. They represent the volume of insurance policies written or assumed and warranty service contracts issued during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. Gross written premiums is a volume measure commonly used in the insurance industry to compare sales performance by period. Premium equivalents are used to compare sales performance of warranty service and administrative contract volumes to gross written premiums. Investors also use these measures to compare sales growth among comparable companies, while management uses these measures to evaluate the relative performance of various sales channels.
The below table shows gross written premiums and premium equivalents by business mix for the three months ended March 31, 2021 and 2020.
| | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| |
| 2021 | | 2020 | | |
U.S. Insurance | $ | 338,159 | | | $ | 245,969 | | | |
U.S. Warranty Solutions | 150,786 | | | 133,337 | | | |
Europe Warranty Solutions | 16,056 | | | 13,105 | | | |
Total | $ | 505,001 | | | $ | 392,411 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total gross written premiums and premium equivalents for the three months ended March 31, 2021 were $505.0 million as compared to $392.4 million in 2020. For the three months ended March 31, 2021, U.S. Insurance increased by $92.2 million, or 37.5%, driven by growth in commercial, credit, warranty and niche personal insurance lines. For the three months ended March 31, 2021, U.S. Warranty Solutions increased by $17.4 million, or 13.1%, driven by growth in auto and consumer goods service contracts. Europe Warranty Solutions increased by $3.0 million, or 22.5% driven by growth in auto and consumer goods warranty programs.
Fortegra has continued to expand product lines to increase gross written premiums and premium equivalents, including the acquisitions of Smart AutoCare (January 2020) and Sky Auto (December 2020) and the formation of Fortegra Specialty Insurance Company (October 2020). The growth in gross written premiums and premium equivalents, combined with higher retention in select products for March 31, 2021, has resulted in an increase of $283.5 million, or 27.4%, in unearned premiums and deferred revenue on the condensed consolidated balance sheets as compared to March 31, 2020. As of March 31, 2021, unearned premiums and deferred revenues were $1,316.6 million, as compared to $1,033.1 million as of March 31, 2020.
Combined Ratio, Underwriting Ratio and Expense Ratio
Combined ratio is an operating measure, which equals the sum of the underwriting ratio and the expense ratio. Underwriting ratio is the ratio of the GAAP line items net losses and loss adjustment expenses, member benefit claims and commission
expense to earned premiums, net, service and administrative fees and ceding commissions and other revenue. Expense ratio is the ratio of the GAAP line items employee compensation and benefits and other underwriting, general and administrative expenses to earned premiums, net, service and administrative fees and ceding commissions and other revenue.
A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss. These ratios are commonly used in the insurance industry as a measure of underwriting profitability, excluding earnings on the insurance portfolio. Investors commonly use these measures to compare underwriting performance among companies separate from the performance of the investment portfolio. Management uses these measures to compare the profitability of various products we underwrite as well as profitability among programs of our various agents and sales channels.
The combined ratio was 91.5% for the three months ended March 31, 2021, which consisted of an underwriting ratio of 74.2% and an expense ratio of 17.3%, as compared to 93.6%, 75.7% and 17.9%, respectively, for the three months ended March 31, 2020. The improvement in the combined ratio year over year is primarily due to the shift in business mix as the growth in commercial and warranty programs benefitted the underwriting ratio, while the decrease in the expense ratio is primarily driven by the continued scalability of our technology and shared service platform.
Return on Average Equity
Return on average equity is expressed as the ratio of net income to average stockholders’ equity during the period. Management uses this ratio as a measure of the on-going performance of the totality of the Company’s operations.
Return on average equity was 23.9% for the three months ended March 31, 2021, as compared to (28.3)%, for the three months ended March 31, 2020, with the increase in net income and annualized return on average equity driven operationally by growth in revenues and improvements in the combined ratio, in addition to net realized and unrealized gains in the 2021 period compared to net realized and unrealized losses in the 2020 period.
Non-GAAP Financial Measures
Underwriting and Fee Revenues and Underwriting and Fee Margin - Non-GAAP(1)
In order to better explain to investors the underwriting performance of the Company’s programs and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics – underwriting and fee revenues and underwriting and fee margin. We generally manage our exposure to the risks we underwrite using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our agents (e.g., commissions paid are adjusted based on the effective dateactual underlying losses incurred), which mitigate our risk. Period-over-period comparisons of revenues and expenses are often impacted by the agents and their PORC’s choice as to their risk retention appetite, specifically earned premiums, net, service and administration fees, ceding commissions, and other revenue, all components of revenue, and losses and loss adjustment expenses, member benefit claims, and commissions paid to our agents and reinsurers. Generally, when losses are incurred, the risk which is retained by our agents and reinsurers is reflected in a reduction in commissions paid.
Underwriting and fee revenues represents total revenues excluding net investment income, net realized and unrealized gains (losses). See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee revenues to total revenues in accordance with GAAP.
Underwriting and fee margin represents income before taxes excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. We deliver our products and services on a vertically integrated basis to our agents. As such, underwriting and fee margin exclude general and administrative expenses, interest income, depreciation and amortization and other corporate expenses, including income taxes, as these corporate expenses support our vertically integrated delivery model and are not specifically supporting any individual business line. See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee margin to total revenues in accordance with GAAP.
The below table shows underwriting and fee revenues and underwriting and fee margin by business mix for the three months ended March 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
($ in thousands) | Underwriting and Fee Revenues (1) | | Underwriting and Fee Margin (1) |
| 2021 | | 2020 | | | | 2021 | | 2020 | | |
U.S. Insurance | $ | 147,565 | | | $ | 129,368 | | | | | $ | 28,841 | | | $ | 24,622 | | | |
U.S. Warranty Solutions | 52,467 | | | 39,522 | | | | | 21,987 | | | 15,594 | | | |
Europe Warranty Solutions | 10,092 | | | 4,563 | | | | | 3,477 | | | 1,961 | | | |
Total | $ | 210,124 | | | $ | 173,453 | | | | | $ | 54,305 | | | $ | 42,177 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Underwriting and fee revenues were $210.1 million for the three months ended March 31, 2021 as compared to $173.5 million for the three months ended March 31, 2020. Total underwriting and fee revenues increased $36.7 million, or 21.1%, driven by growth in U.S. Insurance, U.S. Warranty Solutions and Europe Warranty Solutions. The increase in U.S. Insurance was $18.2 million, or 14.1%, driven by growth in commercial, credit and warranty insurance programs. The increase in U.S. Warranty Solutions was $12.9 million, or 32.8%, driven by growth in auto, consumer goods, and premium and warranty finance programs. Europe Warranty Solutions increased by $5.5 million, or 121.2%, driven by growth in auto and consumer goods warranty programs.
Underwriting and fee margin was $54.3 million for the three months ended March 31, 2021 as compared to $42.2 million for the three months ended March 31, 2020. Total underwriting and fee margin increased $12.1 million, or 28.8%, driven by growth across all business lines. U.S. Insurance underwriting ratio of 80.5% decreased by 0.5% driven by change in mix of business toward more profitable lines. For the three months ended March 31, 2021, we experienced favorable loss development of $0.04 million as compared to unfavorable loss development of $2.3 million for the three months ended March 31, 2020, which represented a 1.3% impact to the underwriting ratio in the prior year, primarily driven by higher than expected claims frequency by a small group of producers. U.S. Warranty Solutions underwriting ratio of 58.1% decreased by 2.4% driven by increased fee related programs. Europe Warranty Solutions underwriting ratio of 65.5% increased by 8.5% as the rapidly growing book of business normalized.
Adjusted Net Income and Adjusted Return on Average Equity
Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting.
Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
Management uses both these measures for executive compensation and as a measure of the individual policy. on-going performance of our operations. See “—Non-GAAP Reconciliations” for a reconciliation of adjusted net income and adjusted return on average equity to income before taxes and adjusted return on average equity.
For the three months ended March 31, 2021, adjusted net income and adjusted return on average equity were $12.8 million and 17.9%, respectively, as compared to $8.7 million and 12.7%, respectively, for the three months ended March 31, 2020. The improvement in both of these metrics was driven by the growth in underwriting and fee revenues in addition to a 2.1 percentage point improvement in the combined ratio.
Net written premiumsInvestment Income and Net Realized and Unrealized Gains (Losses) on Investments
Our insurance investment portfolio includes investments held in statutory insurance companies and in unregulated entities. The portfolios held in statutory insurance companies are gross written premiums less that portionsubject to different regulatory considerations, including with respect to types of premiums that we cedeassets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to third party reinsurers or the PORCs under reinsurance agreements. The amount cededachieve attractive risk-adjusted returns across select asset classes, sectors and geographies while maintaining adequate liquidity to each reinsurer
meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on Available for Sale (AFS) securities impact AOCI.
is basedOur net investment income includes interest and dividends, net of investment expenses, on our invested assets. We report net realized and unrealized gains and losses on our investments separately from our net investment income.
For the contractual formula containedthree months ended March 31, 2021, net investment income was $2.8 million driven by interest income on fixed income securities and dividends on equity securities as compared to $3.5 million in the individual reinsurance agreements.prior year period, driven by lower interest rates, partially offset by growth in investments. Net earned premiums arerealized and unrealized gains were $9.7 million, an increase of $43.3 million, driven by realized and unrealized gains on equity securities in the earned portion2021 period, as compared to losses on equity securities and other investments in the 2020 period.
Tiptree Capital
Tiptree Capital consists of our net written premiums. Mortgage segment, which includes the operating results of Reliance, our mortgage business, and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments. As of March 31, 2021, Tiptree Capital - Other includes our Invesque shares, maritime transportation operations, and the mortgage operations of Luxury, which is held for sale.
Mortgage
Through our Mortgage operating subsidiary, Reliance, we originate, sell, securitize and service one-to-four-family, residential mortgage loans, comprised of conforming mortgage loans, Federal Housing Administration (“FHA”), Veterans Administration (“VA”), United States Department of Agriculture (“USDA”), and to a lesser extent, non-agency jumbo prime.
We earn insurance premiums on a pro-rata basis over the termare an approved seller/servicer for Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”). The Company is also an approved issuer and servicer for Government National Mortgage Association (“GNMA” or “Ginnie Mae”). The Company originates residential mortgage loans through its retail distribution channel (directly to consumers), with branches in 37 states as of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums, which are earned in subsequent periods over the remaining term of the policy.year ended December 31, 2020.
Product Underwriting Margin - Non-GAAP
The following tables present productthe Mortgage segment results for the three months ended March 31, 2021 and 2020.
Results of Operations
| | | | | | | | | | | | | |
| |
| | | | | |
($ in thousands) | Three Months Ended March 31, | | |
| 2021 | | 2020 | | |
Revenues: | | | | | |
Net realized and unrealized gains (losses) | $ | 30,077 | | | $ | 12,714 | | | |
Other revenue | 4,417 | | | 3,506 | | | |
Total revenues | $ | 34,494 | | | $ | 16,220 | | | |
Expenses: | | | | | |
Employee compensation and benefits | $ | 15,342 | | | $ | 11,500 | | | |
Interest expense | 298 | | | 423 | | | |
Depreciation and amortization | 225 | | | 235 | | | |
Other expenses | 5,552 | | | 5,152 | | | |
Total expenses | $ | 21,417 | | | $ | 17,310 | | | |
Income (loss) before taxes | $ | 13,077 | | | $ | (1,090) | | | |
| | | | | |
Key Performance Metrics: | | | | | |
Return on average equity | 60.9 | % | | (6.8) | % | | |
| | | | | |
Non-GAAP Financial Measures (1): | | | | | |
Adjusted net income | $ | 7,465 | | | $ | 196 | | | |
Adjusted return on average equity | 45.6 | % | | 2.3 | % | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues
Net Realized and Unrealized Gains (Losses)
Net realized and unrealized gains (losses) include gains on sale of mortgage loans and the fair value adjustment in mortgage servicing rights. Gains on the sale of mortgage loans represent the difference between the selling price and carrying value of loans sold and are recognized upon settlement. Such gains also include the changes in fair value of loans held for sale and loan-related hedges and derivatives. We transfer the risk of loss or default to the loan purchaser, however, in some cases we are required to indemnify purchasers for losses related to non-compliance with borrowers’ creditworthiness and collateral requirements. Because of this, we recognize gains on sale net of required indemnification and premium recapture reserves. The fair value adjustment on mortgage servicing rights represents fair value adjustments considering estimated prepayments and other factors associated with changes in interest rates, plus actual run-off in the servicing portfolio. We report these adjustments separate from servicing income and servicing expense.
Other Revenue
Other revenue includes loan origination fees, interest income, and mortgage servicing income. Loan origination fees are earned as mortgage loans are funded. Servicing fees are earned over the life of the loan. Interest income includes interest earned on loans held for sale and interest income on bank balances and short-term investments.
Revenues
For the three months ended March 31, 2021, we funded $419.9 million of loans, compared to $312.7 million for 2020, an increase of $107.2 million, or 34.3%. The increase in origination volumes is primarily attributed to the lower interest rate environment and rising home prices in the three months ended March 31, 2021 compared to 2020. Gain on sale margins also increased to 6.0% for the three months ended March 31, 2021, up approximately 170 basis points from 4.3% for the three months ended March 31, 2020.
Net realized and unrealized gains (losses) for the three months ended March 31, 2021 were $30.1 million, compared to $12.7 million for 2020, an increase of $17.4 million or 136.6%. The primary drivers of increased gains on sale were increases in origination volumes and gains on sale margins, in addition to positive fair value adjustments in our mortgage servicing rights of $3.4 million as interest rates increased from year-end 2020.
Other revenue for the three months ended March 31, 2021 was $4.4 million, compared to $3.5 million for 2020, an increase of $0.9 million or 26.0% driven by increased loan origination volumes and servicing fees.
Expenses
Employee Compensation and Benefits
Employee compensation and benefits includes salaries, commissions, benefits, bonuses, other incentive compensation and related taxes for employees. Commissions expense for sales staff generally varies with loan origination volumes.
Interest Expense
Interest expense represents borrowing costs under our warehouse and other credit facilities used primarily to fund loan originations. Amortization of deferred financing costs, including commitment fees, is included in interest expense.
Depreciation and Amortization
Depreciation expense is mainly associated with furniture, fixtures and equipment while amortization expense is primarily associated with a trade name and internally developed software.
Other Expenses
Other expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing expense.
Expenses
For the three months ended March 31, 2021, employee compensation and benefits was $15.3 million, compared to $11.5 million in 2020, an increase of $3.8 million or 33.4%. This increase was driven primarily by increased commissions on higher origination volumes, in addition to increased incentive compensation.
For the three months ended March 31, 2021, interest expense was $0.3 million compared to $0.4 million in 2020, a decrease of $0.1 million or 29.8%. This is due to the reduced interest rate environment decreasing our cost of funds and reduced warehouse borrowings.
For the three months ended March 31, 2021 and 2020, depreciation and amortization expense was $0.2 million.
For the three months ended March 31, 2021, other expenses were $5.6 million compared to $5.2 million in 2020. The $0.4 million increase was driven by increased loan origination expenses, including marketing costs.
Income (loss) before taxes
Income before taxes for the three months ended March 31, 2021 was $13.1 million, compared to a loss before taxes of $1.1 million in 2020. The primary driver of the increase was the increase in revenue noted above, partially offset by higher compensation and other costs associated with the improved financial performance.
Tiptree Capital - Other
The following tables present a summary of Tiptree Capital - Other results for the three months ended March 31, 2021 and 2020.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
($ in thousands) | Total revenue | | Income (loss) before taxes |
| 2021 | | 2020 | | | | 2021 | | 2020 | | |
Senior living (Invesque) | $ | 13,766 | | | $ | (46,018) | | | | | $ | 13,766 | | | $ | (46,018) | | | |
Maritime transportation | 5,699 | | | 7,246 | | | | | 513 | | | 1,166 | | | |
Other (1) | 18,166 | | | 8,883 | | | | | 715 | | | (389) | | | |
Total | $ | 37,631 | | | $ | (29,889) | | | | | $ | 14,994 | | | $ | (45,241) | | | |
(1) Includes our held for sale mortgage originator (Luxury), asset management, and certain intercompany elimination transactions.
Revenues
Tiptree Capital - Other earns revenues from the following sources: net interest income; revenues on our held for sale mortgage originator; realized and unrealized gains on the Company’s investment holdings (primarily Invesque); and charter revenue from vessels within our maritime transportation operations.
Revenues for the three months ended March 31, 2021 were $37.6 million compared to negative revenues of $29.9 million for 2020. The primary driver of the change in revenues for the three months ended March 31, 2021 was unrealized gains of $13.8 million on Invesque, partially offset by the suspension of its monthly dividend payment in April 2020, and growth in mortgage gain on sale revenues in our held for sale mortgage originator. These drivers were partially offset by declines in our maritime transportation business as shipping rates on our two tankers declined from the prior year and one tanker was in dry-dock for its five year maintenance requirement for a portion of the period.
Income (loss) before taxes
The income before taxes from Tiptree Capital - Other for the three months ended March 31, 2021 was $15.0 million, compared to a loss before taxes of $45.2 million in 2020. The primary driver of the increase was unrealized gains in the 2021 period compared to losses in the 2020 period on our investment in Invesque, partially offset by a decline in income before taxes in our maritime transportation business as shipping rates on our two tankers declined from the prior year and one tanker was in dry-dock for its five year maintenance requirement for a portion of the period.
Adjusted net income - Non-GAAP(1)
| | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Senior living (Invesque) (1) | $ | — | | | $ | 2,000 | | | | | | |
Maritime transportation | 521 | | | 1,317 | | | | | | |
Other | 46 | | | (26) | | | | | | |
Total | $ | 567 | | | $ | 3,291 | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Adjusted net income decreased to $0.6 million for the three months ended March 31, 2021 compared to $3.3 million in 2020. The key drivers of the decrease were the dividend income on our investment in Invesque being discontinued in April 2020 and declines in our maritime transportation business as shipping rates on our two tankers declined from the prior year and one tanker was in dry-dock for its five year maintenance requirement for a portion of the period.
Corporate
The following tables present a summary of corporate results for the three months ended March 31, 2021 and 2020.
Results of Operations
| | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Employee compensation and benefits | $ | 2,067 | | | $ | 2,146 | | | | | | |
Employee incentive compensation expense | 3,553 | | | 1,367 | | | | | | |
Interest expense | 2,564 | | | 1,993 | | | | | | |
Depreciation and amortization | 198 | | | 200 | | | | | | |
Other expenses | 1,825 | | | 2,596 | | | | | | |
Total expenses | $ | 10,207 | | | $ | 8,302 | | | | | | |
Corporate expenses include expenses of the holding company for interest expense, employee compensation and benefits, and public company and other expenses. Corporate employee compensation and benefits includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses.
Employee compensation and benefits, including incentive compensation expense, was $5.6 million for the three months ended March 31, 2021 compared to $3.5 million for 2020, driven by an increase in employee incentive compensation. Interest expense for the three months ended March 31, 2021 was $2.6 million, up from $2.0 million in 2020, driven by a higher average outstanding balance during the 2021 periods associated with our increased borrowing in February 2020. As of March 31, 2021, the outstanding borrowing was $118.8 million, compared to $120.3 million at December 31, 2020. Other expenses of $1.8 million decreased by $0.8 million driven by non-recurring deal expenses in the three months ended March 31, 2020.
Provision for Income Taxes
The total income tax expense of $8.8 million for the three months ended March 31, 2021, and the total income tax benefit of $21.2 million for the three months ended March 31, 2020 are reflected as components of net income (loss).
For the three months ended March 31, 2021, the Company’s effective tax rate was equal to 22.2%. The effective rate for the three months ended March 31, 2021 was higher than the U.S. federal statutory income tax rate of 21.0%, primarily from the impact of state taxes, partially offset by discrete items. For the three months ended March 31, 2020, the Company’s effective tax rate was equal to 25.9%. The effective rate for the three months ended March 31, 2020 was higher than the U.S. federal statutory income tax rate of 21.0%, primarily from the impact of state taxes and other discrete items.
Balance Sheet Information
Tiptree’s total assets were $3,048.6 million as of March 31, 2021, compared to $2,995.8 million as of December 31, 2020. The $52.9 million increase in assets is primarily attributable to the growth in our Insurance segment.
Total stockholders’ equity was $397.4 million as of March 31, 2021, compared to $373.5 million as of December 31, 2020, primarily driven by net income for three months ended March 31, 2021, partially offset by stock repurchases and dividends. As of March 31, 2021, there were 32,538,486 shares of common stock outstanding, as compared to 32,682,462 as of December 31, 2020.
The following table is a summary of certain balance sheet information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 |
| | | Tiptree Capital | | | | |
($ in thousands) | Insurance | | Mortgage | | Other | | Corporate | | Total |
Total assets | $ | 2,471,077 | | | $ | 241,926 | | | $ | 294,008 | | | $ | 41,602 | | | $ | 3,048,613 | |
| | | | | | | | | |
Corporate debt | $ | 180,380 | | | $ | — | | | $ | — | | | $ | 118,750 | | | $ | 299,130 | |
Asset based debt | 26,830 | | | 65,578 | | | 15,250 | | | — | | | 107,658 | |
| | | | | | | | | |
Tiptree Inc. stockholders’ equity | $ | 264,958 | | | $ | 64,602 | | | $ | 118,822 | | | $ | (69,939) | | | $ | 378,443 | |
Non-controlling interests - Other | 9,102 | | | 6,002 | | | 2,094 | | | 1,758 | | | 18,956 | |
Total stockholders’ equity | $ | 274,060 | | | $ | 70,604 | | | $ | 120,916 | | | $ | (68,181) | | | $ | 397,399 | |
NON-GAAP MEASURES AND RECONCILIATIONS
Non-GAAP Reconciliations
In addition to GAAP results, management uses the non-GAAP financial measures underwriting and fee revenues and underwriting and fee margin in order to better explain to investors the underwriting performance of the Company’s programs and the respective retentions between the Company and its agents and reinsurance partners. We also use the non-GAAP financial measures adjusted net income, adjusted return on average equity and Adjusted EBITDA as measures of operating performance and as part of our resource and capital allocation process, to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and to compare relative performance among comparable companies. Adjusted net income, adjusted return on average equity, Adjusted EBITDA, underwriting and fee revenues and underwriting and fee margin are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for earned premiums, net income or any other measure derived in accordance with GAAP.
Underwriting and Fee Revenues and Underwriting and Fee Margin — Non-GAAP (Insurance only)
The following tables present program specific revenue and expenses within the specialty insurance segment for the three and nine months ended September 30, 2017 and 2016. As mentioned above, weby business mix. We generally limitmanage our exposure to the underwriting risk we assume through the use ofusing both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid adjustare adjusted based on the actual underlying losses incurred), which manage and mitigate our risk. Period-over-period comparisons of revenues and expenses are often impacted by the PORCs and distribution partnerspartners’ choice as to whether to retain risk, specifically with respect to the relationship between service and administration expensesfees and ceding commissions, both components of revenue, and the offsetting policy and contract benefits and commissions paid to our partners and reinsurers. Generally, when losses are incurred, the risk which is retained by our partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the net financial impactunderwriting performance of the risk retained byCompany’s programs and the respective retentions between the Company of the insurance contracts written and the impact on profitability,its agents and reinsurance partners, we use the non-GAAP metrics underwriting and fee revenues and underwriting and fee margin.
Underwriting and Fee Revenues — Non-GAAP
We define underwriting and fee revenues as total revenues from our Insurance segment excluding net investment income and net realized and unrealized gains (losses). Underwriting and fee revenues represents revenues generated by our underwriting and fee-based operations and allows us to evaluate our underwriting performance without regard to investment income. We
use this metric -as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP, and other companies may define underwriting and fee revenues differently.
| | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Total revenues | $ | 222,563 | | | $ | 143,340 | | | | | | |
Less: Net investment income | (2,767) | | | (3,488) | | | | | | |
Less: Net realized and unrealized gains (losses) | (9,672) | | | 33,601 | | | | | | |
Underwriting and fee revenues | $ | 210,124 | | | $ | 173,453 | | | | | | |
Underwriting and Fee Margin — Non-GAAP
We define underwriting and fee margin as income before taxes from our Insurance segment, excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. Underwriting and fee margin represents the underwriting performance of our underwriting and fee-based programs. As such, underwriting and fee margin excludes general administrative expenses, interest expense, depreciation and amortization and other corporate expenses as those expenses support the vertically integrated business model and not any individual component of our business mix. We use this metric as we believe it gives our management and other users of our financial information useful insight into the specific performance of our underlying underwriting and fee program. Underwriting and fee income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define underwriting and fee margin differently.
| | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Income (loss) before income taxes | $ | 21,528 | | | $ | (27,117) | | | | | | |
Less: Net investment income | (2,767) | | | (3,488) | | | | | | |
Less: Net realized and unrealized gains (losses) | (9,672) | | | 33,601 | | | | | | |
Plus: Depreciation and amortization | 4,191 | | | 2,270 | | | | | | |
Plus: Interest expense | 4,304 | | | 3,648 | | | | | | |
Plus: Employee compensation and benefits | 19,089 | | | 17,042 | | | | | | |
Plus: Other expenses | 17,632 | | | 16,220 | | | | | | |
Underwriting and fee margin | $ | 54,305 | | | $ | 42,176 | | | | | | |
Adjusted Underwriting Margin. ForNet Income — Non-GAAP
We define adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the same reasonsafter-tax impact of various expenses that we adjustconsider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. We use adjusted net income as an internal operating performance measure in the management of business as part of our combined ratiocapital allocation process. We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently.
We present adjustments for amortization associated with acquired intangible assets. The intangible assets were recorded as part of purchase accounting in connection with Tiptree’s acquisition of FFC in 2014, Defend in 2019, and Smart AutoCare and Sky Auto in 2020. The intangible assets acquired contribute to overall revenue generation, and the respective purchase accounting adjustments will continue to occur in future periods until such intangible assets are fully amortized in accordance with the respective amortization periods required by GAAP.
Adjusted Return on Average Equity — Non-GAAP
We define adjusted return on average equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “—Adjusted Net Income—Non-GAAP” above.
We use adjusted return on average equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| | | Tiptree Capital | | | | |
($ in thousands) | Insurance | | Mortgage | | Other | | Corporate Expenses | | Total |
Income (loss) before taxes | $ | 21,528 | | | $ | 13,077 | | | $ | 14,994 | | | $ | (10,207) | | | $ | 39,392 | |
Less: Income tax (benefit) expense | (4,429) | | | (3,096) | | | (2,907) | | | 1,680 | | | (8,752) | |
Less: Net realized and unrealized gains (losses)(1) | (9,624) | | | (3,420) | | | (13,766) | | | — | | | (26,810) | |
Plus: Intangibles amortization (2) | 3,834 | | | — | | | — | | | — | | | 3,834 | |
Plus: Stock-based compensation expense | 372 | | | 165 | | | 8 | | | 520 | | | 1,065 | |
Plus: Non-recurring expenses | 270 | | | — | | | — | | | — | | | 270 | |
Plus: Non-cash fair value adjustments | — | | | — | | | (657) | | | — | | | (657) | |
| | | | | | | | | |
Less: Tax on adjustments | 825 | | | 739 | | | 2,895 | | | 354 | | | 4,813 | |
Adjusted net income | $ | 12,776 | | | $ | 7,465 | | | $ | 567 | | | $ | (7,653) | | | $ | 13,155 | |
| | | | | | | | | |
Adjusted net income | $ | 12,776 | | | $ | 7,465 | | | $ | 567 | | | $ | (7,653) | | | $ | 13,155 | |
Average stockholders’ equity | $ | 285,885 | | | $ | 65,533 | | | $ | 113,218 | | | $ | (79,166) | | | $ | 385,470 | |
Adjusted return on average equity | 17.9 | % | | 45.6 | % | | 2.0 | % | | NM% | | 13.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| | | Tiptree Capital | | | | |
($ in thousands) | Insurance | | Mortgage | | Other | | Corporate Expenses | | Total |
Income (loss) before taxes | $ | (27,117) | | | $ | (1,090) | | | $ | (45,241) | | | $ | (8,303) | | | $ | (81,751) | |
Less: Income tax (benefit) expense | 7,663 | | | 515 | | | 9,672 | | | 3,331 | | | 21,181 | |
Less: Net realized and unrealized gains (losses) | 33,601 | | | 1,348 | | | 48,555 | | | — | | | 83,504 | |
Plus: Intangibles amortization (2) | 2,168 | | | — | | | — | | | — | | | 2,168 | |
Plus: Stock-based compensation expense | 351 | | | — | | | 151 | | | 1,169 | | | 1,671 | |
Plus: Non-recurring expenses | 2,195 | | | — | | | — | | | 407 | | | 2,602 | |
Plus: Non-cash fair value adjustments | — | | | — | | | 351 | | | — | | | 351 | |
Less: Tax on adjustments | (10,127) | | | (577) | | | (10,197) | | | (1,918) | | | (22,819) | |
Adjusted net income | $ | 8,734 | | | $ | 196 | | | $ | 3,291 | | | $ | (5,314) | | | $ | 6,907 | |
| | | | | | | | | |
Adjusted net income | $ | 8,734 | | | $ | 196 | | | $ | 3,291 | | | $ | (5,314) | | | $ | 6,907 | |
Average stockholders’ equity | 274,922 | | | 33,656 | | | 147,480 | | | (78,182) | | | 377,876 | |
Adjusted return on average equity | 12.7 | % | | 2.3 | % | | 8.9 | % | | NM% | | 7.3 | % |
___________________________
The footnotes below correspond to the tables above, under “—Adjusted Net Income - Non-GAAP and “—Adjusted Return on Average Equity - Non-GAAP”.
| | | | | |
Notes |
(1) | Results for the three months ended March 31, 2021 included $48 of incentive fees paid with respect to specific unrealized and realized gains that are added-back to Adjusted net income. |
(2) | Specifically associated with acquisition purchase accounting. See Note (3) Acquisitions. |
Adjusted EBITDA - Non-GAAP
The Company defines Adjusted EBITDA as GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, VOBA impacts can also mask the actual relationship between revenues earnedplus non-cash fair value adjustments, plus significant non-recurring expenses, and the offsetting reductionsplus unrealized gains (losses) on available for sale securities reported in commissions paid, and thus the period-over-period net financial impact of the risk retained by the Company. As such, we believe that presenting underwriting margin provides useful informationother comprehensive income. Adjusted EBITDA is used to investors and aligns more closely to how management measures the underwriting performance of the business.
Written Premium Metrics and As Adjusted Underwriting Margin - Non-GAAP
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Gross written premiums | $ | 149,115 |
| $ | 132,111 |
|
| $ | 25,530 |
| $ | 16,618 |
|
| $ | 34,512 |
| $ | 32,674 |
|
| $ | 11 |
| $ | 8 |
|
| $ | 209,168 |
| $ | 181,411 |
|
Net written premiums | 96,375 |
| 30,987 |
|
| 17,217 |
| 13,142 |
|
| 5,418 |
| 11,884 |
|
| — |
| — |
|
| 119,010 |
| 56,013 |
|
| | | | | | | | | | | | | | |
As Adjusted Revenues: | | | | | | | | | | | | | | |
Net earned premiums | $ | 78,951 |
| $ | 29,173 |
| | $ | 10,900 |
| $ | 9,139 |
| | $ | 6,222 |
| $ | 9,297 |
| | $ | — |
| $ | — |
| | $ | 96,073 |
| $ | 47,609 |
|
Service and administrative fees | 10,434 |
| 10,865 |
| | 9,409 |
| 11,788 |
| | 2,721 |
| 2,504 |
| | 1,690 |
| 1,819 |
| | 24,254 |
| 26,976 |
|
Ceding commissions | 2,523 |
| 1,465 |
| | — |
| 1 |
| | — |
| — |
| | — |
| — |
| | 2,523 |
| 1,466 |
|
Other income | 135 |
| 71 |
| | — |
| (22 | ) | | — |
| 5 |
| | 689 |
| 676 |
| | 824 |
| 730 |
|
Less product specific expenses: | | | | | | | | | | | | | | |
Policy and contract benefits | 14,420 |
| 7,918 |
| | 11,694 |
| 10,099 |
| | 5,456 |
| 7,900 |
| | — |
| (36 | ) | | 31,570 |
| 25,881 |
|
Commission expense | 59,949 |
| 18,386 |
| | 2,287 |
| 5,979 |
| | 1,178 |
| 1,611 |
| | 190 |
| 176 |
| | 63,604 |
| 26,152 |
|
As Adjusted underwriting margin (1) | $ | 17,674 |
| $ | 15,270 |
| | $ | 6,328 |
| $ | 4,828 |
| | $ | 2,309 |
| $ | 2,295 |
| | $ | 2,189 |
| $ | 2,355 |
| | $ | 28,500 |
| $ | 24,748 |
|
Total gross written premiumsdetermine incentive compensation for the three months ended September 30, 2017 were $209.2 million, an increase of $27.8 million, or 15.3%, from the prior year period. The amount of business retained was 56.9%, up from 30.9% in the prior year period as the Company retained more risk in 2017 than 2016. Total net premiums written were $119.0 million, up $63.0 million over prior year, or 112.5%. Credit protection net premiums written for the three months ended September 30, 2017 were $96.4 million, higher than the prior year period by $65.4 million. The increase in retention and net written premiums was consistent with the Company’s strategy and was largely driven by our captive reinsurer retaining credit protection products as discussed above. Warranty product net written premiums were $17.2 million, up $4.1 million and program products were $5.4 million, down $6.5 million from prior year period, primarily driven by the run-off of certain non-standard auto programs.
As adjusted underwriting margin for the three months ended September 30, 2017 was $28.5 million, up from $24.7 million in 2016. Credit protection increased by $2.4 million primarily from increased product retention over 2016. Warranty increased by $1.5 million driven by increased policies written for furniture, appliances and auto products. The amount of warranty product ceded year-over-year increased as we enter new products and continue to build our underwriting performance and relationships with distributors. Programs written premiums declined as we continue to run-off non-core specialty programs that didexecutive officers. Adjusted EBITDA is not meet underwriting performance standards. We believe there are additional opportunities to expand our warranty and programs insurance business model to other niche products and markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Gross written premiums | 371,123 |
| 364,842 |
|
| 83,075 |
| 44,078 |
|
| 106,348 |
| 131,306 |
|
| 23 |
| 21 |
|
| 560,569 |
| 540,247 |
|
Net written premiums | 238,658 |
| 90,212 |
|
| 44,641 |
| 35,045 |
|
| 19,025 |
| 27,120 |
|
| — |
| — |
|
| 302,324 |
| 152,377 |
|
| | | | | | | | | | | | | | |
As Adjusted Revenues: | | | | | | | | | | | | | | |
Net earned premiums | $ | 221,080 |
| $ | 88,192 |
|
| $ | 31,525 |
| $ | 27,394 |
|
| $ | 20,176 |
| $ | 22,930 |
|
| $ | — |
| $ | — |
|
| $ | 272,781 |
| $ | 138,516 |
|
Service and administrative fees | 31,204 |
| 33,975 |
|
| 27,330 |
| 41,093 |
|
| 8,108 |
| 8,577 |
|
| 4,961 |
| 5,752 |
|
| 71,603 |
| 89,397 |
|
Ceding commissions | 6,847 |
| 23,018 |
|
| — |
| 2 |
|
| — |
| — |
|
| — |
| 1 |
|
| 6,847 |
| 23,021 |
|
Other income | 338 |
| 199 |
|
| — |
| 64 |
|
| — |
| 5 |
|
| 2,536 |
| 1,717 |
|
| 2,874 |
| 1,985 |
|
Less product specific expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 44,226 |
| 21,727 |
|
| 32,406 |
| 30,529 |
|
| 17,548 |
| 20,172 |
|
| 184 |
| 8 |
|
| 94,364 |
| 72,436 |
|
Commission expense | 165,990 |
| 76,707 |
|
| 7,919 |
| 20,280 |
|
| 3,747 |
| 4,036 |
|
| 641 |
| 377 |
|
| 178,297 |
| 101,400 |
|
As Adjusted underwriting margin (1) | $ | 49,253 |
| $ | 46,950 |
|
| $ | 18,530 |
| $ | 17,744 |
|
| $ | 6,989 |
| $ | 7,304 |
|
| $ | 6,672 |
| $ | 7,085 |
|
| $ | 81,444 |
| $ | 79,083 |
|
(1) For further information relating to the Company’s adjusted underwriting margin, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
Total gross written premiums for the nine months ended September 30, 2017 were $560.6 million, which represented an increase of $20.3 million, or 3.8%, from the prior year period. The amount of business retained was 53.9%, up from 28.2% in the prior year period. Total net premiums written for the nine months ended September 30, 2017 were $302.3 million, up $149.9 million, or 98.4%. Credit protection net premiums written for the nine months ended September 30, 2017 were $238.7 million, higher than the prior year period by $148.4 million. For the nine months ended September 30, 2017, warranty product net written premiums were $44.6 million, up $9.6 million from 2016 and program products were $19.0 million, down $8.1 million from the 2016 period. The factors that drove the variances were the same for the three and nine months.
As adjusted underwriting margin for the nine months ended September 30, 2017 was $81.4 million, up from $79.1 million in 2016. Credit protection as adjusted underwriting margin was $49.3 million, an increase from 2016 results by $2.3 million, or 4.9%. As adjusted underwriting margin for warranty products was $18.5 million for 2017, up $0.8 million, or 4.4%, from 2016. The effects experienced in previous periods from our mobile protection products has slowed, and was more than offset by growth in furniture, appliances, and auto warranty business. Programs as adjusted underwriting margin for 2017 was $7.0 million, down 4.3% from 2016, as certain non-standard auto programs were exited over the last year. We believe our warranty service contracts and light commercial programs provide opportunity for growth through expanded product offerings, new clients and geographic expansion. Services and other contributed $6.7 million in 2017, down $0.4 million from 2016 as certain business processing services are in run-off.
Policy and contract benefits, which include net losses, loss adjustments and member benefit claims, were $94.4 million for the nine months ended September 30, 2017, up $21.9 million period-over-period. The increase in net losses over the prior year period was a function of growth in earned premiums, including the contract assumptions mentioned above, partially offset by lower claims in mobile devices consistent with the decline in written premiums.
Commission expense, excluding the impacts of VOBA, was $178.3 million for the nine months ended September 30, 2017, up $76.9 million, driven primarily by the increase in retention of credit insurance products, partially offset by declines in commissions related to the mobile protection and other warranty products.
Specialty Insurance Investment Portfolio
The investment portfolio consists of assets contributed by Tiptree, cash generated from operations, and from written premiums. The investment portfolio of our regulated insurance companies, captive reinsurance company and warranty business are subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns over the entire investment horizon across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance.
In managing our investment portfolio we analyze net investments and net portfolio income, which are non-GAAP measures. Our presentation of net investments equals total investments plus cash and cash equivalents minus asset based financing related to certain investments. Our presentation of net portfolio income equals net investment income plus realized and unrealized gains and losses and minus interest expense associated with asset based financing of investments. Net investments and net portfolio income are used to calculate average annualized yield, which is one of the measures management uses to analyze the profitability of our investment portfolio. Management believes this information on a cumulative basis is useful since it allows investors to evaluate the performance of our investment portfolio based on the capital at risk and on a non-consolidated basis. Our calculation of net investments and net
portfolio income may differ from similarly titled non-GAAP financial measures used by other companies. Net investments and net portfolio income are not measuresmeasurement of financial performance or liquidity under GAAP and should not be considered aas an alternative or substitute for total investments orGAAP net investment income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP total investments and investment income.
Specialty Insurance Investment Portfolio - Non-GAAP
|
| | | | | | | | | | | | | | | |
($ in thousands) | | | As of September 30, |
| | | | | 2017 |
| 2016 |
Cash and cash equivalents (1) | | | |
| $ | 60,199 |
|
| $ | 4,402 |
|
Available for sale securities, at fair value | | | |
| 164,093 |
|
| 137,195 |
|
Equity securities, trading, at fair value | | | |
| 28,106 |
|
| 44,670 |
|
Loans, at fair value (2) | | | |
| 84,493 |
|
| 101,383 |
|
Real estate, net | | | |
| 23,106 |
|
| 10,233 |
|
Other investments | | | |
| 3,956 |
|
| 4,012 |
|
Net investments | | | |
| $ | 363,953 |
|
| $ | 301,895 |
|
| | | | | | | |
(1) Cash and cash equivalents, plus restricted cash, net of due from/due to brokers on consolidated loan funds, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials. |
(2) Loans, at fair value, net of asset based debt, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials.
|
|
Specialty Insurance Net Investment Portfolio Income - Non-GAAP |
|
|
|
|
|
|
|
|
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 |
| 2016 | | 2017 |
| 2016 |
Net investment income | $ | 3,840 |
|
| $ | 3,307 |
|
| $ | 12,032 |
| | $ | 8,409 |
|
Realized gains (losses) | 1,462 |
|
| 1,056 |
|
| 6,425 |
|
| 4,187 |
|
Unrealized gains (losses) | (10,016 | ) |
| 2,689 |
|
| (20,042 | ) |
| 8,580 |
|
Interest expense | (1,678 | ) |
| (697 | ) |
| (5,143 | ) |
| (1,708 | ) |
Net portfolio income | $ | (6,392 | ) |
| $ | 6,355 |
|
| $ | (6,728 | ) |
| $ | 19,468 |
|
Average Annualized Yield % (1) | (7.2 | )% |
| 8.3 | % |
| (3.7 | )% |
| 8.5 | % |
(1) Average Annualized Yield % represents the ratio of annualized net investment income, realized and unrealized gains (losses) less investment portfolio interest expense to the average of the prior two quarters total investments less investment portfolio debt plus cash, but does not reflect the cumulative return on the portfolio.
Net investments of $364.0 million have grown 20.6% from September 30, 2016 through a combination of internal growth, increased retention of premiums written, and assets contributed by the Company to further capitalize Fortegra.
Our net investment income includes interest, dividends and rental income, net of investment expenses, on our invested assets. We report net realized gains and losses on our investments separately from our net investment income. Net realized gains occur when we sell our investment securities for more than their costs or amortized costs, as applicable. Net realized losses occur when we sell our investment securities for less than their costs or amortized costs, as applicable, or we write down the investment securities as a result of other-than-temporary impairment. We report net unrealized gains (losses) on securities classified as available-for-sale separately within accumulated other comprehensive income on our balance sheet. For loans, at fair value, and equity securities classified as trading securities, we report unrealized gains (losses) within net realized gains (losses) on investment on the condensed consolidated statement of income. The treatment of loans at fair value, primarily related to our credit asset investments and non-performing loans, and equity securities, is currently different from most other insurance companies.
For the three months ended September 30, 2017, the net investment portfolio loss was $6.4 million compared to $6.4 million of income in the comparable 2016 period. The decline was driven by $10.0 million of unrealized losses in the 2017 period compared to $2.7 million of unrealized gains in the 2016 period of which $11.1 million of unrealized losses were attributable to fair market valuations on publicly traded equity positions. This decline was partially offset by increases in net investment income of $0.5 million as the loans, equities and real estate continue to yield positive interest, dividend and rental income, along with increases in realized gains of $0.4 million primarily from gains on sales of our non-performing residential loans.
For the nine months ended September 30, 2017, the net investment portfolio loss was $6.7 million compared to $19.5 million of income in the comparable 2016 period. The average annualized yield for the nine months declined from 8.5% in 2016 to (3.7)% in 2017 as a result of year to date unrealized losses of $20.0 million compared to unrealized gains of $8.6 million in 2016. For the nine month period, fair market valuation on equities resulted in $21.2 million of unrealized losses. In addition, interest expense increased by $3.4 million as a result of increased borrowings on credit asset investments and non-performing loans. Those factors were partially offset by increases in net investment income of $3.6 million, as interest and dividend payments improved year-over-year, and realized
| | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | |
| 2021 | | 2020 | | | | | |
Net income (loss) attributable to common stockholders | $ | 28,581 | | | $ | (60,007) | | | | | | |
Add: net (loss) income attributable to non-controlling interests | 2,059 | | | (563) | | | | | | |
| | | | | | | | |
Income (loss) from continuing operations | $ | 30,640 | | | $ | (60,570) | | | | | | |
Corporate debt related interest expense(1) | 6,064 | | | 5,265 | | | | | | |
Consolidated provision (benefit) for income taxes | 8,752 | | | (21,181) | | | | | | |
Depreciation and amortization(2) | 5,934 | | | 3,863 | | | | | | |
Non-cash fair value adjustments(3) | (1,980) | | | (780) | | | | | | |
Non-recurring expenses(4) | 270 | | | 2,519 | | | | | | |
Unrealized gains (losses) on AFS securities | (3,997) | | | 355 | | | | | | |
Adjusted EBITDA | $ | 45,683 | | | $ | (70,529) | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
gains improved by $2.2 million, from gains on sales of our non-performing residential loans.
Asset Management
The Company’s asset management segment earns revenues from CLOs under management, including management fees, distributions and realized and unrealized gains on the Company’s holdings of CLO subordinated notes. Also included in the segment are the management fees, investment earnings and costs associated with our legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. As of September 30, 2017, total fee earning AUM was $1.6 billion, which was down from $1.9 billion as of September 30, 2016 as the run-off in our older CLOs have not been replaced with new AUM. Total investment in CLO subordinated notes and management fee participation rights, at fair market value, as of September 30, 2017 was $20.2 million, down from $52.4 million as of September 30, 2016. In January 2017, the Company sold its investment in Telos 5 for consideration of $15.9 million which resulted in deconsolidation for the 2017 period. In August 2017, the Company liquidated Telos 7 for $21.9 million which resulted in deconsolidation of the assets and liabilities. Many of the Telos 7 assets were sold to a refinanced Telos 3. For risk retention purposes, we purchased a vertical tranche of Telos 3 in the insurance investment portfolio.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | (349 | ) | | $ | 695 |
| | $ | 839 |
| | $ | 226 |
|
Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
Other income | 256 |
| | 212 |
| | 822 |
| | 3,031 |
|
Total revenue | $ | 1,448 |
| | $ | 4,746 |
| | $ | 8,239 |
| | $ | 10,754 |
|
| | | | | | | |
Expenses: | | | | | | | |
Employee compensation and benefits | 889 |
| | 2,267 |
| | 3,953 |
| | 4,861 |
|
Interest expense | 5 |
| | — |
| | 7 |
| | 746 |
|
Other expenses | 164 |
| | 36 |
| | 589 |
| | 524 |
|
Total expenses | $ | 1,058 |
| | $ | 2,303 |
| | $ | 4,549 |
| | $ | 6,131 |
|
Net income attributable to consolidated CLOs | 2,583 |
| | 4,032 |
| | 9,393 |
| | 10,049 |
|
Pre-tax income (loss) | $ | 2,973 |
| | $ | 6,475 |
| | $ | 13,083 |
| | $ | 14,672 |
|
Results
For the three months ended September 30, 2017, pre-tax income was $3.0 million, down from $6.5 million in the prior year period. This decline was driven by reduced income from consolidated CLOs, primarily related to reductions in distributions on the subordinated notes as a result of sales and liquidation, and reduced management and incentive fees from our older vintage CLOs. This was partially offset by favorable realized gains on the liquidation of Telos 7 (which is embedded in the net income attributable to consolidated CLOs) and reduced incentive compensation expense.
Pre-tax income was $13.1 million for the nine months ended September 30, 2017 compared to $14.7 million for the 2016 period, a decrease of $1.6 million primarily driven by declining management fees on older vintage CLOs and reduced subordinated note distributions as our investments declined. Expenses for the 2017 period were $4.5 million compared to $6.1 million for the 2016 period, primarily driven by decreases in interest expense associated with the Telos 7 warehouse and decreases in employee incentive compensation as management and incentive fees decreased period-over-period. Net income attributable to consolidated CLOs was down $0.7 million primarily due to reductions in subordinated note distributions, partially offset by favorable fair value marks on our CLO subordinated notes in the 2017 period as compared to the 2016 period.
Operating Results - Non-GAAP
As Adjusted Revenues
Asset management as adjusted revenues include revenues from CLOs, legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. The Company earns revenues from CLOs under management, whether consolidated or deconsolidated, which include fees earned for managing the CLOs, distributions received from the Company’s holdings of subordinated notes issued by the CLOs and realized and unrealized gains and losses from the Company’s holdings of subordinated notes. The revenue associated with the management fees and distributions earned and gains and losses on the subordinated notes attributable to the consolidated CLOs are reported as “net income (loss) attributable to the consolidated CLOs” in the Company’s financial statements.
The table below shows the Company’s share of the results attributable to the CLOs which were consolidated, on a deconsolidated basis. This presentation is a non-GAAP measure. Management believes this information is helpful for period-over-period comparative purposes as certain of our CLOs were consolidated for only some of the periods presented below. In addition, the Non-GAAP presentation allows investors the ability to calculate management fees as a percent of AUM, a common measure used by investors to evaluate asset managers, and which is one of the performance measures upon which management is compensated. While consolidation versus deconsolidation impacts the presentation of revenues, it does not impact expenses or pre-tax income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP revenues.
As Adjusted Revenues (1)
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
As Adjusted Revenues: | | | | | | | |
Management fees | $ | 1,852 |
|
| $ | 4,582 |
| | $ | 7,616 |
| | $ | 9,666 |
|
Distributions | 2,168 |
|
| 4,368 |
| | 6,560 |
| | 11,058 |
|
Realized and unrealized gains (losses) | 11 |
|
| (339 | ) | | 3,443 |
| | (2,824 | ) |
Other income | — |
|
| 167 |
| | 13 |
| | 2,903 |
|
Total as adjusted revenues | $ | 4,031 |
|
| $ | 8,778 |
| | $ | 17,632 |
| | $ | 20,803 |
|
| | | | | |
(1)
| For further information relating to the Asset Management as adjusted revenues, including a reconciliation to GAAP revenues, see “Non-GAAP Reconciliations”. |
Fee earning AUM has declined as older CLO vintages run-off, which has resulted in reduced base management fees. Incentive fees have decreased as performance fees within the Telos 1 and 2 CLOs run-off. Our investments in subordinated notes of the CLOs have also declined, which resulted in lower distributions period-over-period. Realized and unrealized gains were favorable as a result of the gain on sale of Telos 5 and Telos 7, and unrealized mark to market gains on our remaining CLO subordinated notes and other investments for year to date 2017 as compared to an unrealized loss in the 2016 period. Other income includes legacy tax-exempt securities, CLO warehouse facilities and our credit hedging strategies which declined year-over-year as those products were in place in the 2016 period and not in the 2017 period.
For the three months ended September 30, 2017, as adjusted revenues were $4.0 million compared to $8.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.7 million, and lower distributions of $2.2 million and other income of $0.2 million, partially offset by improved realized and unrealized gains on CLO subordinated notes and other investments of $0.4 million.
For the nine months ended September 30, 2017, as adjusted revenues were $17.6 million compared to $20.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.1 million, and lower distributions of $4.5 million and other income of $2.9 million, partially offset by favorable realized and unrealized gains on CLO subordinated notes and other investments of $6.3 million.
Adjusted EBITDA
Adjusted EBITDA was $3.0 millionand$13.1 million for the three and nine months ended September 30, 2017, respectively, compared to $6.5 million and $14.7 million for the comparable prior year periods. The decrease for both the quarter and for the year to date was driven by the same factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Senior Living
We operate our senior living segment through Care which is focused on investing in seniors housing properties including senior apartments, independent living, assisted living, memory care and to a lesser extent, skilled nursing facilities. As of September 30, 2017, Care’s portfolio consists of 40 properties across 10 states primarily in the Mid-Atlantic and Southern United States comprised of 22 Triple Net Lease (“NNN”) Properties and 18 Managed Properties. Additionally, Care manages one property within our specialty insurance investment portfolio on behalf of Fortegra.
In Triple Net Lease Properties, we own between 90-100% of the real estate and enter into a long term lease with an operator who is typically responsible for bearing operating costs, including maintenance, utilities, taxes, insurance, repairs and capital improvements. The operations of the Triple Net Lease Properties are not consolidated since we do not manage or own the underlying operations. For Triple Net Lease Properties’ operations, we recognize primarily rental income from the lease since substantially all expenses are passed through to the tenant. In Managed Properties, we generally own between 65-90% of both the real estate and the operations with affiliates of the management company owning the remainder. We therefore consolidate all of the assets, liabilities,
income and expense of the Managed Properties operations in segment reporting. For the three and nine months ended September 30, 2017 and 2016, operating results include amounts attributable to non-controlling interests related to our Managed Properties.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | — |
| | $ | 51 |
| | $ | — |
| | $ | — |
|
Rental and related revenue | 19,170 |
| | 15,371 |
| | 54,819 |
| | 43,389 |
|
Other income | 413 |
| | 273 |
| | 1,108 |
| | 815 |
|
Total revenue | $ | 19,583 |
| | $ | 15,695 |
| | $ | 55,927 |
| | $ | 44,204 |
|
| | | | | | | |
Expenses: | | | | | | | |
Employee compensation and benefits | 7,723 |
| | 6,270 |
| | 22,499 |
| | 17,661 |
|
Interest expense | 3,609 |
| | 2,271 |
| | 9,309 |
| | 6,220 |
|
Depreciation and amortization expenses | 4,369 |
| | 3,094 |
| | 13,350 |
| | 10,634 |
|
Other expenses | 5,417 |
| | 4,533 |
| | 16,128 |
| | 15,176 |
|
Total expenses | $ | 21,118 |
| | $ | 16,168 |
| | $ | 61,286 |
| | $ | 49,691 |
|
Pre-tax income (loss) | $ | (1,535 | ) | | $ | (473 | ) | | $ | (5,359 | ) | | $ | (5,487 | ) |
Results
In 2017, twelve properties were acquired (two Managed Properties and ten Triple Net Lease Properties) for an aggregate purchase price of $80.7 million, bringing our total purchase price of the 40 properties to $407.6 million, excluding transaction costs. Ten of those properties were acquired in the second quarter of 2017. For the three months ended September 30, 2017, our senior living segment incurred a pre-tax loss of $1.5 million compared with a pre-tax loss of $0.5 million for the same period in 2016. For the nine months ended September 30, 2017, we incurred a pre-tax loss of $5.4 million compared with a pre-tax loss of $5.5 million for the same period in 2016. The properties acquired in the last twelve months have generated higher rental and related revenue year-over-year, however the higher revenues have been offset by additional expenses as a consequence of the acquisition of these properties. For the three months ended September 30, 2017, the additional operating costs, interest expense, and depreciation and amortization outpaced the incremental revenues from the acquired properties. For the nine months ended September 30, 2017, the primary driver of the lower loss compared to 2016 was an unrealized expense of $1.4 million related to interest rate swaps in the first quarter of 2016.
Revenues
Revenues were $19.6 million for the three months ended September 30, 2017, compared with $15.7 million for the 2016 period, an increase of $3.9 million, or 24.8%. The increase in rental and related revenue was primarily due to the fourteen properties acquired over the last twelve months (three Managed Properties, eleven Triple Net Leases). For the nine months ended September 30, 2017, revenues were $55.9 million compared with $44.2 million for the 2016 period, an increase of $11.7 million, or 26.5%. The increase in rental and related revenue was primarily due to the facilities acquired since the first quarter of 2016, including twelve properties acquired in 2017 and four properties acquired in 2016. The three and nine month revenues increases as a result of acquisitions were partially offset by declining rental and related income resulting from reduced occupancy levels in 2016 at properties undergoing renovations and capital upgrades. These upgrades were completed in the first quarter of 2017, but occupancy and rental income has not yet recovered to stabilized levels.
Expenses
Expenses are comprised of interest expenses on borrowings, payroll expenses (including employees of the managers at each of Care’s Managed Properties), professional fees, depreciation and amortization of properties and leases acquired and other expenses.
Expenses for the three months ended September 30, 2017 were $21.1 million, compared with $16.2 million for 2016, an increase of $5.0 million, or 30.6%. The primary increases period-over-period primarily related to acquired properties and include property operating expenses of $2.1 million (including employee compensation and benefits and other expenses at the managed properties), interest expense of $1.3 million, depreciation and amortization expenses of $1.3 million, and payroll and other costs of $0.2 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the three Managed Properties acquired in the last twelve months.
Expenses for the nine months ended September 30, 2017 were $61.3 million, compared with $49.7 million for 2016, an increase of $11.6 million, or 23.3%. The primary increases period-over-period include property operating expenses of $7.0 million (including employee compensation and benefits and other expenses at the managed properties), interest expense of $3.1 million and depreciation and amortization expenses of $2.7 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the two Managed Properties acquired in the first quarter of 2016 and the three Managed Properties acquired in the last fifteen months.
The Company is party to interest rate swaps in order to hedge interest rate exposure associated with its real estate holdings. These instruments swap fixed to floating rate cash streams in order to maintain the economics on the mortgage debt. As a result of movements in interest rates in the three months ended March 31, 2016, an unrealized loss was recorded in other expenses for $1.4 million for swaps that had not been previously designated as hedging relationships, which is an offsetting factor in the year-over-year increase in other expenses.
Operating Results - Non-GAAP
Segment NOI
In addition to Adjusted EBITDA, we also evaluate performance of our senior living segment based on net operating income (“NOI”), which is a non-GAAP measure. NOI is a common non-GAAP measure in the real estate industry used to evaluate property level operations. We consider NOI an important supplemental measure to evaluate the operating performance of our senior living segment because it allows investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results between periods and to the operating results of other senior living companies on a consistent basis. Agreements with our operators are structured such that they are incentivized to grow NOI, and it is a significant component in determining the compensation paid to Care’s management team. We define NOI as rental and related revenue less property operating expense. Property operating expenses and resident fees and services are not relevant to Triple Net Lease Properties since we do not manage the underlying operations and substantially all expenses are passed through to the tenant. Our calculation of NOI may differ from similarly titled non-GAAP financial measures used by other companies. NOI is not a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax income.
Product NOI - Non-GAAP (1)
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Triple Net Leases | $ | 3,371 |
| | $ | 1,844 |
| | $ | 8,218 |
| | $ | 5,533 |
|
Managed Properties | 4,071 |
| | 3,927 |
| | 12,024 |
| | 10,256 |
|
Segment NOI | $ | 7,442 |
| | $ | 5,771 |
| | $ | 20,242 |
| | $ | 15,789 |
|
| | | | | | | |
Managed Property NOI Margin % (2) | 25.8 | % | | 29.0 | % | | 25.8 | % | | 27.1 | % |
| |
(1)
| For further information relating to the Senior Living NOI, including a reconciliation to GAAP pre-tax income, see “—Non-GAAP Reconciliations.” |
| |
(2) | NOI Margin % is the relationship between Managed Property segment NOI and Rental and related revenue. |
NOI was $7.4 million for the three months ended September 30, 2017, compared with $5.8 million in the prior year period, an increase of $1.7 million, or 29.0%. For the nine months ended September 30, 2017, NOI was $20.2 million, compared with $15.8 million in the prior year period, an increase of $4.5 million, or 28.2%. The primary drivers of improvement in NOI in both periods was an increase in rental revenue from newly acquired properties partially offset by the associated increase in property operating expenses. Several of our recent acquisitions included properties that the Company and its operating partners are enhancing through renovation projects and other capital upgrades in an effort to grow revenue and to allow them to operate more efficiently. As indicated in the table above, NOI margins on Managed Properties declined from 29.0% to 25.8% for the three months year-over-year and 27.1% to 25.8% for the nine months year-over-year. This decline was a result of dampened revenues as occupancy declined during these periods of renovation and capital upgrades, with the resulting ramp up of leasing revenues post-upgrade not yet completed. As the more recently acquired facilities ramp up and stabilize, we expect our results to reflect additional NOI margin improvements.
Adjusted EBITDA
Adjusted EBITDA was $2.9 million and $8.3 million for the three and nine months ended September 30, 2017, respectively, compared to $2.9 million and $7.2 million in the three and nine months ended September 30, 2016, driven primarily by increases in NOI partially offset by increased interest expense on new acquisitions. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Specialty Finance
The specialty finance segment is comprised of our mortgage origination business, including, Reliance, which is 100% owned by us and Reliance management, and Luxury, which is 67.5% owned by us, and the lending operations of Siena, a commercial asset-based finance company, which is 62% owned by us.
Operating Results
|
| | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | | |
Net realized and unrealized gains (losses) | | $ | 16,700 |
| | $ | 21,682 |
| | $ | 48,029 |
| | $ | 49,499 |
|
Other income | | 8,276 |
| | 7,331 |
| | 22,296 |
| | 18,291 |
|
Total revenue | | $ | 24,976 |
| | $ | 29,013 |
| | $ | 70,325 |
| | $ | 67,790 |
|
| | | | | | | | |
Expenses: | | | | | | | | |
Employee compensation and benefits | | 14,631 |
| | 16,865 |
| | 42,434 |
| | 41,801 |
|
Interest expense | | 1,949 |
| | 1,932 |
| | 4,743 |
| | 4,352 |
|
Depreciation and amortization expenses | | 209 |
| | 248 |
| | 620 |
| | 665 |
|
Other expenses | | 5,592 |
| | 5,787 |
| | 19,899 |
| | 15,462 |
|
Total expenses | | $ | 22,381 |
| | $ | 24,832 |
| | $ | 67,696 |
| | $ | 62,280 |
|
Pre-tax income (loss) | | $ | 2,595 |
| | $ | 4,181 |
| | $ | 2,629 |
| | $ | 5,510 |
|
Results
For the three months ended September 30, 2017, the specialty finance segment contributed pre-tax income of $2.6 million compared with pre-tax income of $4.2 million for the comparable 2016 period. For the nine months ended September 30, 2017, pre-tax income was $2.6 million compared with $5.5 million for the comparable 2016 period. Expenses decreased by $2.5 million for the three months ended September 30, 2017 as result of lower mortgage production volumes which impacted employee compensation and benefits. In the nine months ended September 30, 2017, expenses increased by $5.4 million driven primarily by the $3.0 million increase in fair value of the contingent earn-out liability in connection with our acquisition of Reliance, which in turn was driven by their improved performance. In addition, since the contingent earn-out is payable in Tiptree stock, its fair value increases as Tiptree’s stock price improves. This was partially offset by improved underlying performance driven by increased net revenue margins on mortgage originations volume and higher earning assets in the commercial lending businesses.
Revenues
Revenues are comprised of gain on sale of mortgages originated and sold to investors, gains and losses on the mortgage pipeline of interest rate lock commitments and mortgage loans held for sale and their associated hedges, and net interest income and fees associated with our commercial asset-based lending products and the mortgage origination business.
Revenues decreased from $29.0 million in three months ended September 30, 2016 to $25.0 million in the comparable 2017 period. Mortgage origination volume declined 23.8% from $565.8 million for the three months ended September 30, 2016 to $431.2 million for three months ended September 30, 2017, which was partially offset by 31.2 basis points improvement in net revenue margins year-over-year. Commercial lending grew with average earning assets of $138.7 million in the three months ended September 30, 2017, compared with $90.6 million in the three months ended September 30, 2016, an increase of 53.1%.
Revenues increased from $67.8 million in nine months ended September 30, 2016 to $70.3 million in the 2017 period, primarily driven by higher margins on relatively stable mortgage volume and increased commercial lending originations volume. Mortgage origination volume declined 10.9% from $1.3 billion for the nine months ended September 30, 2016 to $1.2 billion for nine months ended September 30, 2017 which was more than offset by 53.1 basis points improvement in net revenue margins year-over-year. This was primarily a result of the change in product mix towards higher margin government and agency products. In addition, commercial asset-based lending grew with average earning assets of $117.1 million in the nine months ended September 30, 2017, compared with $72.8 million in the prior year period, an increase of 60.9%. The improvement in commercial asset-based lending was driven by increased loan originations and higher utilization rates of facilities by borrowers which increased interest income and loan fees, reported in other income.
Expenses
Lower revenues were offset by lower expenses, which decreased from $24.8 million for the three months ended September 30, 2016 to $22.4 million for three months ended September 30, 2017. Higher revenues in the nine months ended September 30, 2017 were offset by higher expenses which increased from $62.3 million for the nine months ended September 30, 2016 to $67.7 million in the comparable period in 2017. Expenses are composed of payroll and employee commissions, interest expense, professional fees, fair value changes to the contingent earn-out liability in connection with our acquisition of Reliance and other expenses. In addition to the Reliance earn-out increase, expenses were higher in the nine month 2017 period from higher payroll and employee commissions as underlying business performance improved.
Operating Results - Non GAAP
Adjusted EBITDA
Adjusted EBITDA was $2.4 millionand$6.3 million for the three and nine months ended September 30, 2017, respectively, compared to $4.5 million and $6.3 million for the comparable prior year periods. The decrease in the three month period was driven by the same factors discussed above under “Results”, combined with the add-back of the change in fair value for earn-out liability at Reliance in each respective period. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Corporate and Other
Corporate and other incorporates revenues from non-core legacy principal investments and expenses including interest expense on the holding company credit facility and employee compensation and benefits, and other expenses.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | (271 | ) | | $ | 42 |
| | $ | (67 | ) | | $ | 3,462 |
|
Other income | 69 |
| | 34 |
| | 142 |
| | 106 |
|
Total revenue | $ | (202 | ) | | $ | 76 |
| | $ | 75 |
| | $ | 3,568 |
|
| | | | |
| |
|
Expenses: | | | | |
| |
|
Employee compensation and benefits | 3,280 |
| | 4,185 |
| | 9,751 |
| | 9,787 |
|
Interest expense | 1,299 |
| | 1,314 |
| | 3,851 |
| | 3,434 |
|
Depreciation and amortization expenses | 63 |
| | 63 |
| | 186 |
| | 186 |
|
Other expenses | 2,274 |
| | 3,806 |
| | 8,485 |
| | 12,912 |
|
Total expenses | $ | 6,916 |
| | $ | 9,368 |
| | $ | 22,273 |
| | $ | 26,319 |
|
Pre-tax income (loss) | $ | (7,118 | ) | | $ | (9,292 | ) | | $ | (22,198 | ) | | $ | (22,751 | ) |
Results
For the three months ended September 30, 2017, the Company recorded a loss of $7.1 million compared with a loss of $9.3 million for the 2016 period, an increase in pre-tax income of $2.2 million. For the nine months ended September 30, 2017, the Company recorded a loss of $22.2 million compared with a loss of $22.8 million for the 2016 period, a lower pre-tax loss of $0.6 million. The key drivers of year-over-year improvement in the nine month period were decreases in total corporate expenses of $4.0 million primarily related to reduced professional fees, partially offset by $3.5 million of reduced revenues in the 2016 period from realized gains on the sale of certain legacy principal investments which did not repeat in 2017.
Expenses include holding company interest expense, employee compensation and benefits, and other expenses. Corporate employee compensation and benefits expense includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses.
Employee compensation and benefits were $3.3 million in the three months ended September 30, 2017, compared to $4.2 million for the 2016 period. For the nine months ended September 30, 2017, employee compensation and benefits were $9.8 million compared to $9.8 million in the nine months ended September 30, 2016, as corporate staff increased from our efforts to improve our reporting and controls infrastructure, which was offset by lower accrued incentive compensation.
Interest expense was $1.3 million in the three months ended September 30, 2017, compared to $1.3 million in the 2016 period. Interest expense was $3.9 million in the nine months ended September 30, 2017, compared to $3.4 million in the nine months ended September 30, 2016. The increase in interest expense for the nine months was related to increased borrowings on the Fortress credit facility year-over-year.
Other expenses were $2.3 million in the three months ended September 30, 2017 as compared to $3.8 million in the 2016 period. For the nine months ended September 30, 2017, other expenses were $8.5 million as compared to $12.9 million in 2016. The year-over-year decrease of $4.4 million in the nine months was driven by reduced audit fee accruals and external consulting spend as a result of our improved reporting and controls infrastructure. Included within the year-to-date 2017 results were approximately $1.0 million of expenses primarily related to the delayed filing of the first quarter Form 10-Q.
Operating Results - Non-GAAP
Adjusted EBITDA
Adjusted EBITDA was a loss of $5.8 million and $19.9 million for the three and nine months ended September 30, 2017, respectively, compared to a loss of $7.9 million and $20.9 million in the comparable prior year periods. The improvement in Adjusted EBITDA for the three and nine month periods were driven by the same factors that impacted pre-tax income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Provision for income taxes
The total income tax benefit of $2.8 million and expense of $5.3 million for the nine months ended September 30, 2017 and 2016, respectively, is reflected as a component of net income. Below is a table that breaks down the components of the Company’s effective tax rate (“ETR”).
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Impact of state tax and permanent items | 3.8 |
| | (2.2 | ) | | 4.0 |
| | (0.9 | ) |
Impact of non-controlling interests | (0.7 | ) | | (1.2 | ) | | 2.9 |
| | (0.6 | ) |
Impact of restructuring | — |
| | — |
| | — |
| | (14.7 | ) |
Impact of Reliance contingent liability valuation | 4.5 |
| | — |
| | (10.5 | ) | | — |
|
Impact of other discrete | (4.8 | ) | | 0.7 |
| | (4.1 | ) | | 0.4 |
|
ETR | 37.8 | % | | 32.3 | % | | 27.3 | % | | 19.2 | % |
For the three months ended September 30, 2017, the Company’s ETR was equal to 37.8%, which does bear a customary relationship to the federal statutory income tax rate. For the three months ended September 30, 2016, the Company’s ETR was equal to 32.3%, which does bear a customary relationship to the federal statutory income tax rate.
For the nine months ended September 30, 2017, the Company’s ETR was equal to 27.3% which is lower than the federal statutory income tax rate, primarily due a change in fair value of a contingent consideration liability, an increase in a valuation allowance on net operating losses, and various other discrete items. The ETR for the nine months ended September 30, 2017 excluding the effect of discrete items was 28.1%, which is lower than the federal statutory income tax rate, primarily due to a state tax benefit and the effect of non-controlling interests at certain subsidiaries. For the nine months ended September 30, 2016, the Company’s ETR was equal to approximately 19.2%, which is lower than the federal statutory income tax rate primarily due to the impact of tax restructuring to create the consolidated group.
Balance Sheet Information - as of September 30, 2017 compared to the year ended December 31, 2016
Tiptree’s total assets were $2.4 billion as of September 30, 2017, compared to $2.9 billion as of December 31, 2016. The $441.2 million decrease in assets is primarily attributable to decreases in assets of consolidated CLOs, due to the deconsolidation of two CLOs during the nine months ended September 30, 2017 as a result of selling the subordinated notes. Additionally, loans at fair value and equity securities decreased, partially offset by increases in real estate from acquisitions in our senior living segment, notes and accounts receivable and reinsurance receivable in our specialty insurance segment. In addition, the combination of unearned premiums and deferred revenues increased as a result of growth in written premiums and extending contract durations in the insurance business.
Total stockholders’ equity of Tiptree was $292.0 million as of September 30, 2017 compared to $293.4 million as of December 31, 2016, primarily driven by the losses in the period, partially offset by the net increase in equity outstanding as a result of the Tricadia
Option, net of the share re-purchase. As of September 30, 2017 there were 29,793,481 shares of Tiptree Class A common stock outstanding, net of Treasury shares held at a subsidiary, as compared to 28,387,616 as of December 31, 2016, presented on the same basis.
NON-GAAP RECONCILIATIONS
EBITDA and Adjusted EBITDA
The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated interest expense, consolidated income taxes and consolidated depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and (v) any significant one-time expenses.
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| 2017 |
| 2016 |
Net income (loss) available to Class A common stockholders | $ | (3,114 | ) |
| $ | 5,905 |
|
| $ | (6,457 | ) |
| $ | 17,593 |
|
Add: net (loss) income attributable to noncontrolling interests | (264 | ) |
| 1,933 |
|
| (903 | ) |
| 4,680 |
|
Income (loss) | $ | (3,378 | ) |
| $ | 7,838 |
|
| $ | (7,360 | ) |
| $ | 22,273 |
|
Consolidated interest expense | 10,361 |
|
| 7,839 |
|
| 28,444 |
|
| 20,770 |
|
Consolidated income taxes | (2,052 | ) |
| 3,712 |
|
| (2,761 | ) |
| 5,298 |
|
Consolidated depreciation and amortization expense | 7,775 |
|
| 6,437 |
|
| 23,781 |
|
| 21,899 |
|
EBITDA | $ | 12,706 |
|
| $ | 25,826 |
|
| $ | 42,104 |
|
| $ | 70,240 |
|
Consolidated non-corporate and non-acquisition related interest expense(1) | (7,340 | ) |
| (4,989 | ) |
| (19,510 | ) |
| (13,223 | ) |
Effects of Purchase Accounting (2) | (306 | ) |
| (957 | ) |
| (1,205 | ) |
| (4,446 | ) |
Non-cash fair value adjustments (3) | (309 | ) |
| — |
|
| 3,378 |
|
| 1,416 |
|
Significant acquisition expenses (4) | 25 |
|
| 248 |
|
| 302 |
|
| 631 |
|
Separation expense adjustments (5) | — |
|
| — |
|
| (1,736 | ) |
| (1,736 | ) |
Adjusted EBITDA of the Company | $ | 4,776 |
|
| $ | 20,128 |
|
| $ | 23,333 |
|
| $ | 52,882 |
|
|
| |
(1) | The consolidated non-corporate and non-acquisition related |
| |
| |
| | | | | |
Notes |
(1) | Corporate debt interest expense is subtractedincludes interest expense from EBITDA to arrive at Adjusted EBITDA. This includes interestsecured corporate credit agreements, junior subordinated notes and preferred trust securities. Interest expense associated with asset-specific debt at subsidiaries in the specialty insurance, asset management, senior living and specialty finance segments.is not added-back for Adjusted EBITDA. |
(2) | Represents total depreciation and amortization expense less purchase accounting amortization related adjustments at our insurance companies. Following the purchase accounting adjustments, current period expenses associated with deferred costs were more favorably stated and current period income associated with deferred revenues were less favorably stated. Thus, the purchase accounting effect related to Fortegraour insurance companies increased EBITDA above what the historical basis of accounting would have generated. The impact of this purchase accounting adjustments have been reversed to reflect an adjusted EBITDA without such purchase accounting effect. The impact for the three months ended September 30, 2017 and 2016 was an effective increase to pre-tax earnings of $307 thousand and $408 thousand, respectively. |
(3) | For our senior living segment, Adjusted EBITDA excludes the impact of the change of fair value of interest rate swaps hedging the debt at the property level. For Reliance, within our specialty finance segment, Adjusted EBITDA excludes the impact of changes in contingent earn-outs. For our specialty insurance segment,maritime transportation operations, depreciation and amortization on senior living real estate that is within net investment income is added back to Adjusted EBITDA.deducted as a reduction in the value of the vessel. |
(4) | Acquisition, start-up and disposition costs, includeincluding debt extinguishment, legal, taxes, banker fees and other costs associated with senior living acquisitions in 2017 and 2016. |
(5) | Consists of payments pursuant to a separation agreement, dated as of November 10, 2015.costs. |
Segment EBITDA and Adjusted EBITDA
The tables below present EBITDA and Adjusted EBITDA by our four reporting segments specialty insurance, asset management, senior living and specialty finance. Corporate and other contains corporate expenses no allocated to the operating business.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | Specialty insurance | Asset management | Senior living | Specialty finance | Corporate and other | Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Pre-tax income/(loss) | $ | (2,345 | ) | $ | 10,659 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | (1,535 | ) | $ | (473 | ) |
| $ | 2,595 |
| $ | 4,181 |
|
| $ | (7,118 | ) | $ | (9,292 | ) |
| $ | (5,430 | ) | $ | 11,550 |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 3,499 |
| 2,322 |
|
| 5 |
| — |
|
| 3,609 |
| 2,271 |
|
| 1,949 |
| 1,932 |
|
| 1,299 |
| 1,314 |
|
| 10,361 |
| 7,839 |
|
Depreciation and amortization expenses | 3,134 |
| 3,032 |
|
| — |
| — |
|
| 4,369 |
| 3,094 |
|
| 209 |
| 248 |
|
| 63 |
| 63 |
|
| 7,775 |
| 6,437 |
|
Segment EBITDA | $ | 4,288 |
| $ | 16,013 |
|
| $ | 2,978 |
| $ | 6,475 |
|
| $ | 6,443 |
| $ | 4,892 |
|
| $ | 4,753 |
| $ | 6,361 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 12,706 |
| $ | 25,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific debt interest | (1,777 | ) | (836 | ) |
| (5 | ) | — |
|
| (3,609 | ) | (2,271 | ) |
| (1,949 | ) | (1,882 | ) |
| — |
| — |
|
| (7,340 | ) | (4,989 | ) |
Effects of purchase accounting | (306 | ) | (957 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (306 | ) | (957 | ) |
Non-cash fair value adjustments | 113 |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (422 | ) | — |
|
| — |
| — |
|
| (309 | ) | — |
|
Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
| — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
Segment Adjusted EBITDA | $ | 2,318 |
| $ | 14,220 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | 2,859 |
| $ | 2,869 |
|
| $ | 2,382 |
| $ | 4,479 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 4,776 |
| $ | 20,128 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | Specialty insurance |
| Asset management |
| Senior living |
| Specialty finance |
| Corporate and other |
| Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Pre-tax income/(loss) | $ | 1,724 |
| $ | 35,627 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | (5,359 | ) | $ | (5,487 | ) |
| $ | 2,629 |
| $ | 5,510 |
|
| $ | (22,198 | ) | $ | (22,751 | ) |
| $ | (10,121 | ) | $ | 27,571 |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 10,534 |
| 6,018 |
|
| 7 |
| 746 |
|
| 9,309 |
| 6,220 |
|
| 4,743 |
| 4,352 |
|
| 3,851 |
| 3,434 |
|
| 28,444 |
| 20,770 |
|
Depreciation and amortization expenses | 9,625 |
| 10,414 |
|
| — |
| — |
|
| 13,350 |
| 10,634 |
|
| 620 |
| 665 |
|
| 186 |
| 186 |
|
| 23,781 |
| 21,899 |
|
Segment EBITDA | $ | 21,883 |
| $ | 52,059 |
| | $ | 13,090 |
| $ | 15,418 |
| | $ | 17,300 |
| $ | 11,367 |
| | $ | 7,992 |
| $ | 10,527 |
| | $ | (18,161 | ) | $ | (19,131 | ) | | $ | 42,104 |
| $ | 70,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific debt interest | (5,451 | ) | (2,057 | ) |
| (7 | ) | (746 | ) |
| (9,309 | ) | (6,220 | ) |
| (4,743 | ) | (4,200 | ) |
| — |
| — |
|
| (19,510 | ) | (13,223 | ) |
Effects of purchase accounting | (1,205 | ) | (4,446 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,205 | ) | (4,446 | ) |
Non-cash fair value adjustments | 339 |
| — |
|
| — |
| — |
|
| — |
| 1,416 |
|
| 3,039 |
| — |
|
| — |
| — |
|
| 3,378 |
| 1,416 |
|
Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
| — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,736 | ) | (1,736 | ) |
| (1,736 | ) | (1,736 | ) |
Segment Adjusted EBITDA | $ | 15,566 |
| $ | 45,556 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | 8,293 |
| $ | 7,194 |
|
| $ | 6,288 |
| $ | 6,327 |
|
| $ | (19,897 | ) | $ | (20,867 | ) |
| $ | 23,333 |
| $ | 52,882 |
|
Book Value per share as exchanged - Non-GAAP
Book value per share, as exchanged assumes full exchange of the limited partners units of TFP for Tiptree Class A common stock. Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares, as of September 30, 2017 and September 30, 2016.shares.
| | | | | | | | | | | | | |
| |
| | | | | |
($ in thousands, except per share information) | As of March 31, |
| 2021 | | 2020 | | |
Total stockholders’ equity | $ | 397,399 | | | $ | 344,336 | | | |
Less: Non-controlling interests | 18,956 | | | 10,483 | | | |
Total stockholders’ equity, net of non-controlling interests | $ | 378,443 | | | $ | 333,853 | | | |
| | | | | |
Total common shares outstanding | 32,538 | | | 34,302 | | | |
| | | | | |
Book value per share | $ | 11.63 | | | $ | 9.73 | | | |
|
| | | | | | | |
($ in thousands, except per share information) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Total stockholders’ equity | $ | 391,138 |
| | $ | 381,341 |
|
Less non-controlling interest - other | 25,081 |
| | 19,939 |
|
Total stockholders’ equity, net of non-controlling interests - other | $ | 366,057 |
| | $ | 361,402 |
|
Total Class A shares outstanding (1) | 29,793 |
| | 28,351 |
|
Total Class B shares outstanding | 8,049 |
| | 8,049 |
|
Total shares outstanding | 37,842 |
| | 36,400 |
|
Book value per share, as exchanged | $ | 9.67 |
| | $ | 9.93 |
|
(1) As of September 30, 2017, excludes 5,209,523 shares of Class A common stock held by a consolidated subsidiary of the Company. See Note 23—Earnings per Share, for further discussion of potential dilution from warrantsSpecialty Insurance - As Adjusted Underwriting Margin - Non-GAAP
Underwriting margin is a measure of the underwriting profitability of our specialty insurance segment. It represents net earned premiums, service and administrative fees, ceding commissions and other income less policy and contract benefits and commission expense. We use the combined ratio as an insurance operating metric to evaluate our underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net earned premiums, service and administrative fees, and other income. The following table provides a reconciliation between as adjusted underwriting margin and pre-tax income for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net earned premiums | $ | 96,073 |
|
| $ | 47,609 |
|
| $ | — |
|
| $ | — |
|
| $ | 96,073 |
|
| $ | 47,609 |
|
Service and administrative fees | 24,018 |
|
| 25,842 |
|
| 236 |
|
| 1,134 |
|
| 24,254 |
|
| 26,976 |
|
Ceding commissions | 2,513 |
|
| 1,397 |
|
| 10 |
|
| 69 |
|
| 2,523 |
|
| 1,466 |
|
Other income | 824 |
|
| 730 |
|
| — |
|
| — |
|
| 824 |
|
| 730 |
|
Less underwriting expenses: |
|
|
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 31,570 |
|
| 25,881 |
|
| — |
|
| — |
|
| 31,570 |
|
| 25,881 |
|
Commission expense | 63,066 |
|
| 24,032 |
|
| 538 |
|
| 2,120 |
|
| 63,604 |
|
| 26,152 |
|
Underwriting Margin - Non-GAAP | $ | 28,792 |
|
| $ | 25,665 |
|
| $ | (292 | ) |
| $ | (917 | ) |
| $ | 28,500 |
|
| $ | 24,748 |
|
Less operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits | 10,073 |
|
| 9,180 |
|
| — |
|
| — |
|
| 10,073 |
|
| 9,180 |
|
Other expenses | 9,717 |
|
| 7,524 |
|
| 31 |
|
| 40 |
|
| 9,748 |
|
| 7,564 |
|
Combined Ratio | 92.6 | % |
| 87.9 | % |
| — | % |
| — | % |
| 92.8 | % |
| 89.4 | % |
Plus investment revenues: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income | 3,840 |
|
| 3,307 |
|
| — |
|
| — |
|
| 3,840 |
|
| 3,307 |
|
Net realized and unrealized gains | (8,554 | ) |
| 3,745 |
|
| — |
|
| — |
|
| (8,554 | ) |
| 3,745 |
|
Less other expenses: |
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 3,499 |
|
| 2,322 |
|
| — |
|
| — |
|
| 3,499 |
|
| 2,322 |
|
Depreciation and amortization expenses | 3,134 |
|
| 3,032 |
|
| (16 | ) |
| (549 | ) |
| 3,118 |
|
| 2,483 |
|
Pre-tax income (loss) | $ | (2,345 | ) |
| $ | 10,659 |
|
| $ | (307 | ) |
| $ | (408 | ) |
| $ | (2,652 | ) |
| $ | 10,251 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net earned premiums | $ | 272,781 |
| | $ | 138,516 |
|
| $ | — |
|
| $ | — |
|
| $ | 272,781 |
|
| $ | 138,516 |
|
Service and administrative fees | 70,861 |
| | 84,421 |
|
| 742 |
|
| 4,976 |
|
| 71,603 |
|
| 89,397 |
|
Ceding commissions | 6,801 |
| | 22,645 |
|
| 46 |
|
| 376 |
|
| 6,847 |
|
| 23,021 |
|
Other income | 2,874 |
| | 1,985 |
|
| — |
|
| — |
|
| 2,874 |
|
| 1,985 |
|
Less underwriting expenses: | | |
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 94,364 |
| | 72,436 |
|
| — |
|
| — |
|
| 94,364 |
|
| 72,436 |
|
Commission expense | 176,405 |
| | 91,906 |
|
| 1,892 |
|
| 9,494 |
|
| 178,297 |
|
| 101,400 |
|
Underwriting Margin - Non-GAAP | $ | 82,548 |
| | $ | 83,225 |
|
| $ | (1,104 | ) |
| $ | (4,142 | ) |
| $ | 81,444 |
|
| $ | 79,083 |
|
Less operating expenses: |
| |
|
|
|
|
|
|
|
|
|
Employee compensation and benefits | 30,800 |
| | 28,065 |
|
| — |
|
| — |
|
| 30,800 |
|
| 28,065 |
|
Other expenses | 28,279 |
| | 24,277 |
|
| 120 |
|
| 304 |
|
| 28,399 |
|
| 24,581 |
|
Combined Ratio | 93.2 | % | | 86.3 | % |
| — |
|
| — |
|
| 93.6 | % |
| 88.5 | % |
Plus investment revenues: |
| |
|
|
|
|
|
|
|
|
|
Net investment income | 12,032 |
| | 8,409 |
|
| — |
|
| — |
|
| 12,032 |
|
| 8,409 |
|
Net realized and unrealized gains | (13,618 | ) | | 12,767 |
|
| — |
|
| — |
|
| (13,618 | ) |
| 12,767 |
|
Less other expenses: |
| |
|
|
|
|
|
|
|
|
|
Interest expense | 10,534 |
| | 6,018 |
|
| — |
|
| — |
|
| 10,534 |
|
| 6,018 |
|
Depreciation and amortization expenses | 9,625 |
| | 10,414 |
|
| (182 | ) |
| (2,977 | ) |
| 9,443 |
|
| 7,437 |
|
Pre-tax income (loss) | $ | 1,724 |
| | $ | 35,627 |
|
| $ | (1,042 | ) |
| $ | (1,469 | ) |
| $ | 682 |
|
| $ | 34,158 |
|
Specialty Insurance Investment Portfolio - Non-GAAP
The following table provides a reconciliation between segment total investments and net investments for the following periods:
|
| | | | | | | |
($ in thousands) | As of September 30, |
| 2017 |
| 2016 |
Total Investments | $ | 426,753 |
|
| $ | 398,505 |
|
Investment portfolio debt (1) | (122,999 | ) |
| (101,012 | ) |
Cash and cash equivalents | 62,790 |
|
| 16,555 |
|
Restricted cash (2) | 3,637 |
|
| 6,683 |
|
Receivable due from brokers (3) | 1,505 |
|
| — |
|
Liability due to brokers (3) | (7,733 | ) |
| (18,836 | ) |
Net investments - Non-GAAP | $ | 363,953 |
|
| $ | 301,895 |
|
(1) Consists of asset-based financing on loans, at fair value including certain credit investments and NPLs, net of deferred financing costs, see Note 11 - Debt, net for further details.
(2) Restricted cash available to invest within certain credit investment funds which are consolidated under GAAP.
(3) Receivable due from and Liability due to brokers for unsettled trades within certain credit investment funds which are consolidated under GAAP.
Senior Living Product NOI - Non-GAAP
The following table provides a reconciliation between segment NOI and pre-tax income (loss) for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total |
Rental and related revenue | $ | 3,371 |
|
| $ | 15,799 |
|
| $ | 19,170 |
| | $ | 1,844 |
|
| $ | 13,526 |
|
| $ | 15,370 |
| | $ | 8,218 |
| | $ | 46,600 |
| | $ | 54,818 |
| | $ | 5,533 |
| | $ | 37,856 |
| | $ | 43,389 |
|
Less: Property operating expenses | — |
|
| 11,728 |
|
| 11,728 |
| | — |
|
| 9,599 |
|
| 9,599 |
| | — |
| | 34,576 |
| | 34,576 |
| | — |
| | 27,600 |
| | 27,600 |
|
Segment NOI | $ | 3,371 |
|
| $ | 4,071 |
|
| $ | 7,442 |
| | $ | 1,844 |
|
| $ | 3,927 |
|
| $ | 5,771 |
| | $ | 8,218 |
| | $ | 12,024 |
| | $ | 20,242 |
| | $ | 5,533 |
| | $ | 10,256 |
| | $ | 15,789 |
|
Segment NOI Margin % (1) | | | 25.8 | % | | | | | | 29.0 | % | | | | | | 25.8 | % | | | | | | 27.1 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other income | | | | | $ | 414 |
| | | | | | $ | 324 |
| | | | | | $ | 1,109 |
| | | | | | $ | 815 |
|
Less: Expenses | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | | | 3,609 |
| | | | | | 2,271 |
| | | | | | 9,309 |
| | | | | | 6,220 |
|
Payroll and employee commissions | | | | | 790 |
| | | | | | 617 |
| | | | | | 2,323 |
| | | | | | 1,900 |
|
Depreciation and amortization | | | | | 4,369 |
| | | | | | 3,095 |
| | | | | | 13,350 |
| | | | | | 10,635 |
|
Other expenses | | | | | 623 |
| | | | | | 583 |
| | | | | | 1,728 |
| | | | | | 3,335 |
|
Pre-tax income (loss) | | | | | $ | (1,535 | ) | | | | | | $ | (471 | ) | | | | | | $ | (5,359 | ) | | | | | | $ | (5,486 | ) |
(1) NOI Margin % is the relationship between segment NOI and rental and related revenue.
Asset Management As Adjusted Revenues
The following table provides a reconciliation between asset management segment revenues and non-GAAP, as adjusted revenues for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
Management fee income | $ | 1,541 |
|
| $ | 3,839 |
|
| $ | 311 |
|
| $ | 743 |
|
| $ | 1,852 |
|
| $ | 4,582 |
|
Distributions | — |
|
| — |
|
| 2,168 |
|
| 4,368 |
|
| 2,168 |
|
| 4,368 |
|
Net realized and unrealized gains (losses) | (349 | ) |
| 695 |
|
| 360 |
|
| (1,034 | ) |
| 11 |
|
| (339 | ) |
Other income | 256 |
|
| 212 |
|
| (256 | ) |
| (45 | ) |
| — |
|
| 167 |
|
Total revenues | $ | 1,448 |
|
| $ | 4,746 |
|
| $ | 2,583 |
|
| $ | 4,032 |
|
| $ | 4,031 |
|
| $ | 8,778 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
Management fee income | $ | 6,578 |
|
| $ | 7,497 |
|
| $ | 1,038 |
|
| $ | 2,169 |
|
| $ | 7,616 |
|
| $ | 9,666 |
|
Distributions | — |
|
| — |
|
| 6,560 |
|
| 11,058 |
|
| 6,560 |
|
| 11,058 |
|
Net realized and unrealized gains (losses) | 839 |
|
| 226 |
|
| 2,604 |
|
| (3,050 | ) |
| 3,443 |
|
| (2,824 | ) |
Other income | 822 |
|
| 3,031 |
|
| (809 | ) |
| (128 | ) |
| 13 |
|
| 2,903 |
|
Total revenues | $ | 8,239 |
|
| $ | 10,754 |
|
| $ | 9,393 |
|
| $ | 10,049 |
|
| $ | 17,632 |
|
| $ | 20,803 |
|
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our holdings of unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries, including subordinated notes of CLOs, income from our investment portfolio and sales of assets and investments. We intend to use our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs. In February 2020, we refinanced our existing facility with Fortress, extending the maturity to February 2025 and increasing the principal amount to $125 million, generating approximately $53 million of cash after repaying the existing facility and expenses. A portion of those funds were invested in Insurance to fund our warranty business, with the remainder used to provide additional liquidity.
Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect our cash and cash equivalents and distributions from operating subsidiaries, and our subsidiaries’ access to financing, and sales of investments to be adequate to fund our operations for at least the next 12 months.
As of September 30, 2017, we hadMarch 31, 2021, cash and cash equivalents, excluding restricted cash, of $111.8were $123.9 million, compared to $63.0$136.9 million at December 31, 2016, an increase2020, a decrease of $48.7 million.$13.0 million primarily as a result of additional invested assets at Fortegra.
Our approach to debt is generally to use non-recourse (other than customary carveouts, including fraud and environmental liability), asset specific debt where possible that is amortized by cash flows from the underlyingmortgage business or assets financed. Our mortgage businesses relyrelies on short term uncommitted sources of financing as a part of their normal course of operations. To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note—Note (11) Debt, net in the notes to condensed consolidated financial statements, for additional information regarding our mortgage warehouse borrowings.
We believe that our cash flow from operations will provide us with sufficient capital to continue to grow our business and fund interest on the outstanding debt, capital expenditures and other general corporate needs over the next several years. As we continue to expand our business, including by any acquisitions we may make, we may, in the future, require additional working capital for increased costs.
For purposes of determining enterprise value and Adjusted EBITDA, we consider secured corporate credit agreements and preferred trust securities, which we refer to as corporate debt, as corporate financing and associated interest expense is added back. The below table outlines this amount by debt outstanding and interest expense by segment.at the insurance company and corporate level.
Corporate Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Corporate Debt Outstanding as of March 31, | | Interest Expense for the three months ended March 31, | | |
| | 2021 | | 2020 | | | | 2021 | | 2020 | | |
Insurance | | $ | 180,380 | | | $ | 208,240 | | | | | $ | 3,500 | | | $ | 3,272 | | | |
Corporate | | 118,750 | | | 125,000 | | | | | 2,563 | | | 1,994 | | | |
Total | | $ | 299,130 | | | $ | 333,240 | | | | | $ | 6,063 | | | $ | 5,266 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Debt outstanding as of September 30, | | Interest expense for the three months ended September 30, | | Interest expense for the nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | | $ | 145,000 |
| | $ | 145,850 |
| | $ | 1,721 |
| | $ | 1,516 |
| | $ | 5,082 |
| | $ | 3,961 |
|
Corporate and other | | 57,000 |
| | 59,000 |
| | 1,258 |
| | 1,209 |
| | 3,810 |
| | 3,329 |
|
Total | | $ | 202,000 |
| | $ | 204,850 |
| | $ | 2,979 |
| | $ | 2,725 |
| | $ | 8,892 |
| | $ | 7,290 |
|
Our intermediate holding company has aAs of March 31, 2021, our $118.8 million credit facility with Fortress to provide working capital. Loans under the Fortress credit agreement bear interest atcarries a rate of LIBOR (with a minimum LIBOR rate of 1.25%1.0%), plus a margin of 6.50%6.75% per annum. We are required to make quarterly principal payments of $0.5 million, subject to adjustment based on the Net Leverage Ratio (as defined in the Fortress credit agreement) at the end of each fiscal quarter. The outstanding debt under the Fortress credit agreement was $57.0 million as of September 30, 2017 compared to $58.5 million as of December 31, 2016. All remaining principal, and any unpaid interest, under the Fortress credit agreement is payable on maturity at September 18, 2018. We intend to extend or refinance the Fortress credit agreement but we may not be able to do so on terms satisfactory to us. If we are unable to extend or refinance, we expect to use available cash, asset sales and/or distributions from our operating subsidiaries to make the required payments.
On October 16, 2017, Fortegra completed an offering of $125 million Junior Subordinated Notes due 2057. Substantially all of the net proceeds from the Notes were used to repay Fortegra’s existing credit facility, which was terminated. We believe these funds will reposition Fortegra’s balance sheet, strengthen the Company’s positioning with industry rating agencies, and generate a source of long term capital.approximately $1.56 million. See Note—Note (11) Debt, net in the notes to condensed consolidated financial statements for additional informationdetails.
On August 4, 2020, Fortegra entered into an Amended and Restated Credit Agreement by and among Fortegra and its wholly-owned subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of our debtFortegra’s subsidiaries, as guarantors, and thatFifth Third Bank, National Association, as the administrative agent and issuing lender (the “Fortegra Credit Agreement”). The Fortegra Credit Agreement provides for a $200.0 million revolving credit facility, all of our subsidiaries.which is available for the issuance of letters of credit, with a sub-limit of $17.5 million for swing loans, and matures on August 4, 2023.
Consolidated Comparison of Cash Flows
Summary Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2017 and September 30, 2016
|
| | | | | | | |
($ in thousands) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Net cash (used in) provided by: | | | |
Operating activities | | | |
Operating activities - (excluding VIEs) | $ | 27,214 |
|
| $ | (27,156 | ) |
Operating activities - VIEs | (2,684 | ) | | (3,505 | ) |
Total cash provided by (used in) operating activities | 24,530 |
| | (30,661 | ) |
| | | |
Investing activities | | | |
Investing activities - (excluding VIEs) | (38,266 | ) |
| (157,745 | ) |
Investing activities - VIEs | 224,107 |
| | (96,834 | ) |
Total cash provided by (used in) investing activities | 185,841 |
| | (254,579 | ) |
| | | |
Financing activities | | | |
Financing activities - (excluding VIEs) | 61,763 |
|
| 61,108 |
|
Financing activities - VIEs | (223,393 | ) | | 220,727 |
|
Total cash provided by (used in) financing activities | (161,630 | ) | | 281,835 |
|
| | | |
Net increase (decrease) in cash | $ | 48,741 |
| | $ | (3,405 | ) |
Nine Months Ended September 30, 2017 | | | | | | | | | | | | | |
($ in thousands) | For the Three Months Ended March 31, |
Total cash provided by (used in): | 2021 | | 2020 | | |
Net cash (used in) provided by: | | | | | |
Operating activities | $ | 27,330 | | | $ | 25,212 | | | |
Investing activities | (42,364) | | | (47,306) | | | |
Financing activities | (630) | | | 29,661 | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (15,664) | | | $ | 7,567 | | | |
Operating Activities
Cash provided by operating activities (excluding VIEs) was $27.2$27.3 million for the ninethree months ended September 30, 2017. TheMarch 31, 2021. In 2021, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), proceeds from mortgage salesloans outpacing originations in our specialty finance segment and increasesgrowth in unearned premiums reinsurance payable and policy liabilities in our specialty insurance segment. The primary uses of cash from operating activities includingnet deferred revenues, partially offset by increases in reinsurance receivables, notesdeferred acquisition costs and account receivable andother assets in addition to decreases in other liabilities and accrued expenses in our specialty insurance segment.and reinsurance payables.
Cash used in operating activities - VIEs was $2.7 million for the nine months ended September 30, 2017.
Investing Activities
Cash used in investing activities (excluding VIEs) was $38.3 million for the nine months ended September 30, 2017. The primary uses of cash from investing activities were investments in senior living real estate properties in our senior living business. The primary sources of cash from investing activities were proceeds from sales and maturities of investments exceeding purchases of investments, specifically the sale of NPLs and corporate loans.
Cash provided by investingoperating activities - VIEs was $224.1$25.2 million for the ninethree months ended September 30, 2017. TheMarch 31, 2020. In 2020, the primary drivers of the cash from investing activities - VIEs were sales of investments and loan prepayments in Telos 7.
Financing Activities
Cash provided by financing activities (excluding VIEs) was $61.8 million for the nine months ended September 30, 2017. The primary sources of cash from financing activities were new borrowings in our senior living segment to fund our investments in real estate, new borrowings exceeding principal paydowns on debt facilities in our specialty finance segments, and origination of new borrowings in our specialty insurance segment.
Cash used in financing activities - VIEs was $223.4 million for the nine months ended September 30, 2017 driven primarily by principal payments on debt in Telos 7.
Nine Months Ended September 30, 2016
Operating Activities
Cash used in operating activities (excluding VIEs) was $27.2 million for the nine months ended September 30, 2016. The primary uses of cash from operating activities included proceeds from mortgage loans outpacing originations, offset by increases
in notes and accounts receivable and decreases in deferred revenue and reinsurance payables in our specialty insurance business. The primary sources of cash from operating activities included mortgage sales outpacing originations and increases in unearned premiums and policy liabilities infrom our specialty insurance business.operations.
Cash used in operating activities - VIEs was $3.5 million for the nine months ended September 30, 2016. The primary uses of cash from operating activities - VIEs were due to the increases in accrued interest receivable on loans.
Investing Activities
Cash used in investing activities (excluding VIEs) was $157.7$42.4 million for the ninethree months ended September 30, 2016. TheMarch 31, 2021. In 2021, the primary usesuse of cash from investing activities includedwas the purchase of investments outpacing proceeds from the sales of investments in NPLsour insurance investment portfolio, and other investments, investments in real estate properties in our senior living business and increase in loans in our specialty finance business.the issuance of notes receivable outpacing proceeds.
Cash used in investing activities - VIEs was $96.8$47.3 million for the nineyear ended three months ended September 30, 2016. TheMarch 31, 2020. In 2020, the primary driveruse of the cash used infrom investing activities - VIEs was the purchase of loansinvestments outpacing proceeds from the sales of investments in Telos 7 duringour insurance investment portfolio and the ramp up period as it converted from a warehouse to a CLO duringissuance of notes receivables outpacing proceeds. This was partially offset by proceeds received in connection with the second quarteracquisition of 2016.Smart AutoCare.
Financing Activities
Cash used in financing activities (excluding VIEs) was $61.1$0.6 million for the ninethree months ended September 30, 2016. TheMarch 31, 2021. In 2021, the primary driversuse of cash from financing activities was the repurchase of $2.5 million of the cash used included paydownCompany’s common stock and the payment of the Telos 7 warehouse debt and repurchases of common stock. The sources of cash were$1.3 million in dividends, which was partially offset by proceeds from borrowings in our senior living business to fund its investments in real estate, borrowingsexcess of principal repayments in our specialty finance business to fund loan growth, increase in debt in our specialty insurance business for working capital, and an increase in borrowings in our specialty insurance business to grow our corporate loan portfolio and fund additional investments in NPLs.mortgage operations.
Cash provided by financing activities - VIEs was $220.7$29.7 million for the ninethree months ended September 30, 2016 drivenMarch 31, 2020. In 2020, our new borrowings from various debt arrangements exceeded our principal paydowns, primarily due to increased borrowings on our secured term credit agreement and our secured corporate revolving credit agreement in our insurance operations, offset by decreased borrowings on our mortgage warehouse facilities. Net cash provided by increased borrowings under our debt facilities was offset by the senior notes issued uponrepurchase of $3.9 million of the conversionCompany’s common stock and the payment of Telos 7 from a warehouse to a CLO.$1.4 million in dividends.
Contractual Obligations
The table below summarizes Tiptree’s consolidated contractual obligations by period for payments that are due as of September 30, 2017:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Corporate debt, including interest (1) | $ | 28,137 | | | $ | 54,823 | | | $ | 36,426 | | | $ | 203,800 | | | $ | 323,186 | |
Asset based debt | 35,979 | | | 84,240 | | | 8,955 | | | — | | | 129,174 | |
Total debt (2) | $ | 64,116 | | | $ | 139,063 | | | $ | 45,381 | | | $ | 203,800 | | | $ | 452,360 | |
Operating lease obligations (3) | 9,106 | | | 14,546 | | | 11,311 | | | 14,682 | | | 49,645 | |
Total | $ | 73,222 | | | $ | 153,609 | | | $ | 56,692 | | | $ | 218,482 | | | $ | 502,005 | |
(1) Estimated interest obligation calculated for corporate debt as the outstanding borrowing balance is fixed. The Company has an option to redeem junior subordinated notes 10 years from the issue date.
(2)�� See Note (11) Debt, net, in the accompanying condensed consolidated financial statements for additional information.
(3) Minimum rental obligation for office leases. The total rent expense for the three months ended March 31, 2021 and 2020 was $2.2 million and $2.1 million, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
|
| | | | | | | | | | | | | | | | | | | |
($ in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Notes payable CLOs (1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 334,900 |
| | $ | 334,900 |
|
Credit agreement/Revolving line of credit | 101,173 |
| | 178,164 |
| | 247,247 |
| | — |
| | 526,584 |
|
Mortgage notes payable and related interest (2) | 18,073 |
| | 125,181 |
| | 118,774 |
| | 97,513 |
| | 359,541 |
|
Trust Preferred Securities | — |
| | — |
| | — |
| | 35,000 |
| | 35,000 |
|
Operating lease obligations (3) | 4,946 |
| | 14,070 |
| | 7,981 |
| | 11,972 |
| | 38,969 |
|
Total | $ | 124,192 |
| | $ | 317,415 |
| | $ | 374,002 |
| | $ | 479,385 |
| | $ | 1,294,994 |
|
| |
(1) | Non-recourse CLO notes payable principal is payable at stated maturity, 2027 for Telos 6. |
| |
(2) | See Note —(11) Debt, net, in the accompanying consolidated financial statements for additional information. |
| |
(3) | Minimum rental obligation for Tiptree, Care, MFCA, Siena, Reliance, Luxury and Fortegra office leases. The total rent expense for the Company for the nine months ended September 30, 2017 and 2016 was $5.2 million and $4.8 million, respectively. |
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. There have been no material changes to the critical accounting policies and estimates as discussed in our 2016 Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2020.
Recently Adopted and Issued Accounting Standards
For a discussion of recently adopted and issued accounting standards, see the section “Recent Accounting Standards” in Note—Note (2) Summary of Significant Accounting Policies of the notes to the accompanying condensed consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we enter into various off-balance sheet arrangements including entering into derivative financial instruments and hedging transactions, operating leases and sponsoring and owning interests in consolidated and non-consolidated variable interest entities.
Further disclosure on our off-balance sheet arrangements as of September 30, 2017March 31, 2021 is presented in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Notes to Condensed Consolidated Financial Statements (Unaudited)”Statements” of this filing as follows:
•Note —(9)(10) Derivative Financial Instruments and Hedging
•Note —(10) Assets and Liabilities of Consolidated CLOs
Note —(22)(21) Commitments and Contingencies
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 described our Quantitative and Qualitative Disclosures About Market Risk. There were no material changes to the assumptions or risks during the ninethree months ended September 30, 2017.March 31, 2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that material information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Tiptree’s Fortegra subsidiary is a defendantOur legal proceedings are discussed under the heading “Litigation” in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006,Note (21) — Commitments and Contingencies in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015, the trial court issued an Order denying Fortegra’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied Fortegra’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on such motion with respectNotes to the life insurance policies at issue. In June 2017, a new Special Master was appointed. No trial or hearings are currently scheduled.condensed consolidated financial statements in this report.
In management’s opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of Tiptree. It should be noted that large punitive damage awards,
bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot reasonably estimate a range of loss.
Tiptree and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position or results of operations.
Item 1A. Risk Factors
For information regarding factors that could affect our Company, results of operations and financial condition, see the risk factors discussed under Part I, Item 1A of the Company’sin our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. There have been no material changechanges in those risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity for the three months ended March 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | |
Period | Purchaser | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
January 1, 2021 to January 31, 2021: Open Market Purchases | Tiptree Inc. | 466,849 | | $ | 5.02 | | 466,849 | | |
February 1, 2021 to February 28, 2021: Open Market Purchases | Tiptree Inc. | 21,813 | | $ | 4.93 | | 21,813 | | |
March 1, 2021 to March 31, 2021 | Tiptree Inc. | — | | $ | — | | — | | |
| Total | 488,662 | | $ | 2,451 | | 488,662 | | $ | 14,101 | |
(1)On August 10, 2017,November 2, 2020, the Board of Directors of Tiptree issued 756,046 sharesauthorized Tiptree’s Executive Committee to repurchase up to $20 million of Class Aits outstanding common stock as additional earn-out consideration pursuantin the aggregate from time to the Securities Purchase Agreement, dated as of November 24, 2014, among Tiptree and certain of its subsidiaries and the former equity holders of Reliance First Capital, LLC.time.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.Effective May 3, 2021 (the “Effective Date”), Corvid Peak entered into an investment advisory agreement (the “IAA”) with Fortegra and certain of its subsidiaries. As previously disclosed, Corvid Peak is a related party of Tiptree because Michael Barnes, Tiptree’s Executive Chairman, has an economic interest in Corvid Peak that predates Tiptree’s acquisition of Corvid Peak. Under the IAA, Corvid Peak will provide Fortegra investment management services for fees ranging between 0.20% and 1.25% of net asset value depending on the asset class and the net asset value of certain asset classes. Entering into the IAA by Fortegra’s statutory insurance companies is subject to approval by the relevant state insurance regulatory authorities.
The IAA commences on the Effective Date and continues until the fifth year anniversary. Thereafter, the IAA renews every three years subject to renegotiation prior to such renewal (the fifth year anniversary and each three year anniversary shall be referred to as an “Anniversary Date”). The parties to the IAA may terminate the IAA upon 90 days’ prior written notice in advance of any Anniversary Date. However, Fortegra and each of its subsidiaries may terminate the IAA upon 30 days’ prior written notice for Cause, defined as gross negligence or willful misconduct on the part of Corvid Peak with respect to its performance of the IAA. Additionally, the IAA contains representations, warranties and covenants customary for agreements of this type.
The foregoing description of the IAA, does not purport to be complete, and is qualified in its entirety by reference to the full text of the IAA, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.2 and is incorporated herein by reference.
Item 6. Exhibits, Financial Statement Schedules
|
| | | | |
The following documents are filed as a part of this Form 10-Q: | |
| |
Financial Statements (Unaudited): | |
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2021 and December 31, 20162020 | |
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 | |
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 | |
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the periodperiods ended September 30, 2017March 31, 2021 and 20162020 | |
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2021 and 20162020 | |
| |
| |
Exhibits: | |
The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page, is incorporated herein by reference and is filed as part of this Form 10-Q. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
|
| | | | | | | | | | | | | |
| | | Tiptree Inc. |
| | | |
Date: | November 6, 2017May 5, 2021 | | By:/s/ Michael Barnes |
| | | Michael Barnes |
| | | Executive Chairman |
| | | |
Date: | November 6, 2017May 5, 2021 | | By:/s/ Jonathan Ilany |
| | | Jonathan Ilany |
| | | Chief Executive Officer |
| | | |
Date: | November 6, 2017May 5, 2021 | | By:/s/ Sandra Bell |
| | | Sandra Bell |
| | | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT INDEX
|
| | | | |
Exhibit No. | Description |
31.1 | |
10.1 | |
10.2 | |
31.1 | |
31.2 | |
31.3 | |
32.1 | |
32.2 | |
32.3 | |
| |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
104 | |
* | Attached as Exhibit 101 to this Quarterly Report onCover page from Tiptree’s Form 10-Q arefor the following materials,quarter ended March 31, 2021 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets for September 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) the Condensed Consolidated Statements of ChangesiXBRL (included in Stockholders’ Equity for the period ended September 30, 2017, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 and (vi) the Notes to the Condensed Consolidated Financial Statements. Exhibit 101). |
* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, (ii) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020, (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 and (vi) the Notes to the Condensed Consolidated Financial Statements.