UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(Mark One)☒
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly period ended September 30, 2017March 31, 2021
OR
o ☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from            to            
Commission File Number: 001-33549
Tiptree Inc.
(Exact name of Registrant as Specified in Its Charter)
Maryland38-3754322
(State or Other Jurisdiction of(IRS Employer
Incorporation of Organization)Identification No.)
780 Third Avenue, 21st Floor, New York, New York10017
(Address of Principal Executive Offices)(Zip Code)
(212) 446-1400Maryland38-3754322
(State or Other Jurisdiction of Incorporation of Organization        (IRS Employer Identification No.)

299 Park Avenue, 13th Floor, New York, New York10171
(Address of Principal Executive Offices)                        Zip Code

Registrant’s Telephone Number, Including Area Code)Code: (212) 446-1400
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Securities registered pursuant to Section 12(b) of the Act:
 Title of each classTrading Symbol(s)Name of each exchange on which registered
common stock, par value $0.001 per shareTIPTNASDAQCapital Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x     No  ¨
Yes  x     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”“smaller “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨Accelerated filer x
Non-accelerated filer ¨Smaller reporting company ¨☐
Emerging growth company ¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes¨☐     No x☒

As of NovemberMay 3, 2017,2021, there were 29,805,45332,759,215 shares, par value $0.001, of the registrant’s Class A common stock outstanding (excluding 5,197,551 shares of Class A common stock held by a subsidiary of the registrant) and 8,049,029 shares, par value $0.001, of the registrant’s Class B common stock outstanding.





Tiptree Inc.
Quarterly Report on Form 10-Q
September 30, 2017March 31, 2021

Table of Contents
ITEMPage Number
PART I. Financial Information
F- F-11
Item 1. Financial Statements (Unaudited)
F- F-33
Condensed ConsolidatedCondensed Consolidated Balance Sheets as of September 30, 2017of March 31, 2021 and December 31, 20162020
F- F-33
Condensed ConsolidatedCondensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2021 and 20162020
F- F-44
Condensed ConsolidatedCondensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017March 31, 2021 and 20162020
F- F-55
Condensed Consolidated StatementCondensed Consolidated Statements of Changes in Stockholders’ Equity for the periodperiods ended September 30, 2017March 31, 2021 and 20162020
F- F-66
Condensed ConsolidatedCondensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2021 and 20162020
F- F-87
Notes to Condensed Consolidated Condensed Consolidated Financial Statements
F- F-108
(1) Organization
F- F-108
(2) Summary of Significant Accounting Policies
F- F-108
(3) Acquisitions
F- F-159
(4)Assets and Liabilities Held for Sale
F- 10
(5) Operating Segment Data
F- F-1711
(5)(6) Investments
F- F-2012
(6)(7) Notes and Accounts Receivable, net
F- F-2519
(7)(8) Reinsurance ReceivableReceivables
F- F-2619
(8)(9) Goodwill and Intangible Assets, net
F- F-2921
(9)(10) Derivative Financial Instruments and Hedging
F- F-3022
(10) Assets and Liabilities of Consolidated CLOs
F-33
(11) Debt, net
F- F-3523
(12) Fair Value of Financial Instruments
F- F-3625
(13) Liability for Unpaid Claims and Claim Adjustment Expenses
F- F-4430
(14) Other AssetsRevenue from Contracts with Customers
F- F-4531
(15) Other Assets and Other Liabilities and Accrued Expenses
F- F-4532
(16) Other IncomeRevenue and Other Expenses
F- F-4633
(17) Stockholders’ Equity
F- F-4634
(18) Accumulated Other Comprehensive Income (Loss)
F- F-4835
(19) Stock Based Compensation
F- F-4836
(20) Income Taxes
F- 39
(21) Commitments and Contingencies
F- 39
(22) Earnings Per Share
F- 40
(23) Related Party Transactions
F- F-5141
(21) Income Taxes(24) Subsequent Events
F- F-5241
(22) Commitments and Contingencies
F-52
(23) Earnings Per Share
F-53
(24) Subsequent Events
F-54
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
1
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2522
Item 4. Controls and Procedures
2522
PART II. Other Information
2522
Item 1. Legal Proceedings
2522
Item 1A. Risk Factors
2622
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
2622
Item 3. Defaults Upon Senior Securities
2623
Item 4. Mine Safety Disclosures
2623
Item 5. Other Information
2623
Item 6. Exhibits, Financial Statement Schedules
2623
Signatures
2725




PART I. FINANCIAL INFORMATION

Forward-Looking Statements


Except for the historical information included and incorporated by reference in this Quarterly Report on Form 10-Q, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements.


Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162020, in this Quarterly Report on Form 10-Q and in our other public filings with the SEC.
 
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements.  Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements.


Market and Industry Data


Certain market data and industry data included in this Quarterly Report on Form 10-Q were obtained from reports of governmental agencies and industry publications and surveys. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data and as such, make no guarantees as to its accuracy, completeness or timeliness.


Note to Reader


In reading this Quarterly Report on Form 10-Q, references to:

“Administrative Services Agreement”A.M. Best” means the Administrative Services Agreement between OperatingA.M. Best Company, (as assignee of TFP) and BackOffice Services Group, Inc., dated as of June 12, 2007 (terminated as of December 31, 2016).
“AUM” means assets under management.
“Care” means Care Investment Trust LLC.
“CLOs” means collateralized loan obligations.
“consolidated CLOs”Corvid Peak” means for the 2017 period, Telos 6collectively: Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP Holdings, LLC. and Telos 7 and for the 2016 period, Telos 5, Telos 6 and Telos 7.
“Contribution Transactions” means the closing on July 1, 2013 of the transactions pursuant to the Contribution Agreement by and between the Company, Operating Company and TFP, dated as of December 31, 2012.Corvid Peak Holdings GP, LLC
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.
“Fortegra” or “The Fortegra Group” means The Fortegra Group, LLC, formerly known as Tiptree Insurance, LLC.
“Fortegra Financial” means Fortegra Financial Corporation.
“Fortegra Warranty” mean Fortegra Warranty Holdings, LLC, formerly known as Tiptree Warranty Holdings, LLC.
“GAAP” means U.S. generally accepted accounting principles.
“GSE” means government-sponsored enterprise.
“Invesque” means Invesque Inc.
“Luxury” means Luxury Mortgage Corp.
“Mariner”NAIC” means Mariner Investment Group LLC.
“MFCA” means Muni Funding Companythe National Association of America LLC.
“NPL” means nonperforming residential real estate mortgage loans.
“Operating Company” means Tiptree Operating Company, LLC.Insurance Commissioners.
“Reliance” means Reliance First Capital, LLC.
“REO” means real estate owned.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Siena”Sky Auto” means Siena Capital FinanceSky Services LLC.

F-1F - 1




“TAMCO”Smart AutoCare” means Tiptree Asset Managementthe following entities and their subsidiaries operating under the Smart AutoCare brand: SAC Holdings, Inc., Freedom Insurance Company, Ltd., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc. and Accelerated Service Enterprise, LLC.
“Telos”Tax Act” means Telos Asset Management LLC.
“Telos 1” means Telos CLO 2006-1, Ltd.
“Telos 2” means Telos CLO 2007-2, Ltd.
“Telos 3” means Telos CLO 2013-3, Ltd.
“Telos 4” means Telos CLO 2013-4, Ltd.
“Telos 5” means Telos CLO 2014-5, Ltd.
“Telos 6” means Telos CLO 2014-6, Ltd.
“Telos 7” means Telos CLO 2016-7, Ltd.
“TFP” means Tiptree Financial Partners, L.P.Public Law no. 115-97, commonly referred to as the Tax Cuts and Jobs Act.
“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Operating CompanyTiptree Inc. and its consolidated subsidiaries, together with the standalone net assets held by subsidiaries.
“Tiptree Inc. (formerlyHoldings” means Tiptree Holdings, LLC., formerly known as Tiptree Financial Inc.)“Caroline Holdings, LLC.”
“Tricadia”Transition Services Agreement” means Tricadia Holdings, L.P.the Amended and Restated Transition Services Agreement between Corvid Peak and Tiptree Inc., effective as of January 1, 2019.






F-2
F - 2

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)

As of
March 31,
2021		December 31, 2020
Assets:
Investments:
Available for sale securities, at fair value, net of allowance for credit losses$409,947 $377,133 
Loans, at fair value110,458 90,732 
Equity securities145,022 123,838 
Other investments218,471 219,701 
Total investments883,898 811,404 
Cash and cash equivalents123,879 136,920 
Restricted cash53,294 58,355 
Notes and accounts receivable, net348,314 370,452 
Reinsurance receivables713,730 728,009 
Deferred acquisition costs272,924 229,430 
Goodwill179,236 179,236 
Intangible assets, net134,315 138,215 
Other assets179,688 162,034 
Assets held for sale159,335 181,705 
Total assets$3,048,613 $2,995,760 
Liabilities and Stockholders’ Equity
Liabilities:
Debt, net$393,959 $366,246 
Unearned premiums892,009 860,690 
Policy liabilities and unpaid claims251,323 233,438 
Deferred revenue424,608 399,211 
Reinsurance payable201,331 224,660 
Other liabilities and accrued expenses335,523 362,865 
Liabilities held for sale152,461 175,112 
Total liabilities$2,651,214 $2,622,222 
Stockholders’ Equity:
Preferred stock: $0.001 par value, 100,000,000 shares authorized, NaN issued or outstanding$0 $0 
Common stock: $0.001 par value, 200,000,000 shares authorized, 32,538,486 and 32,682,462 shares issued and outstanding, respectively33 33 
Additional paid-in capital313,140 315,014 
Accumulated other comprehensive income (loss), net of tax2,592 5,674 
Retained earnings62,678 35,423 
Total Tiptree Inc. stockholders’ equity378,443 356,144 
Non-controlling interests18,956 17,394 
Total stockholders’ equity397,399 373,538 
Total liabilities and stockholders’ equity$3,048,613 $2,995,760 
Item 1. Financial Statements (Unaudited)

 As of
 September 30, 2017 December 31, 2016
Assets   
Investments:   
Available for sale securities, at fair value$164,093
 $146,171
Loans, at fair value323,122
 373,089
Loans at amortized cost, net150,596
 113,838
Equity securities, trading, at fair value28,106
 48,612
Real estate, net371,137
 309,423
Other investments27,191
 25,467
Total investments1,064,245
 1,016,600
Cash and cash equivalents111,751
 63,010
Restricted cash23,400
 24,472
Notes and accounts receivable, net178,726
 157,500
Reinsurance receivables333,023
 296,234
Deferred acquisition costs139,471
 126,608
Goodwill and intangible assets, net176,820
 178,245
Other assets48,544
 37,886
Assets of consolidated CLOs372,774
 989,495
Total assets$2,448,754
 $2,890,050
    
Liabilities and Stockholders’ Equity   
Liabilities   
Debt, net$865,629
 $793,009
Unearned premiums475,047
 414,960
Policy liabilities and unpaid claims110,928
 103,391
Deferred revenue53,930
 52,254
Reinsurance payable81,887
 70,588
Other liabilities and accrued expenses115,858
 133,735
Liabilities of consolidated CLOs354,337
 931,969
Total liabilities$2,057,616
 $2,499,906
Commitments and contingencies (see Note 22)
 

   
Stockholders’ Equity   
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding$—
 $—
Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 35,003,004 and 34,983,616 shares issued and outstanding, respectively35
 35
Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 8,049,029 and 8,049,029 shares issued and outstanding, respectively8
 8
Additional paid-in capital296,476
 297,391
Accumulated other comprehensive income (loss), net of tax1,223
 555
Retained earnings28,913
 37,974
Class A common stock held by subsidiaries, 5,209,523 and 6,596,000 shares, respectively(34,664) (42,524)
Class B common stock held by subsidiaries, 8,049,029 and 8,049,029 shares, respectively(8) (8)
Total Tiptree Inc. stockholders’ equity291,983
 293,431
Non-controlling interests (including $74,074 and $76,077 attributable to Tiptree Financial Partners, L.P., respectively)99,155
 96,713
Total stockholders’ equity391,138
 390,144
Total liabilities and stockholders’ equity$2,448,754
 $2,890,050











See accompanying notes to condensed consolidated financial statements.

F - 3
F-3

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data)



Three Months Ended
March 31,
20212020
Revenues:
Earned premiums, net$146,919 $121,321 
Service and administrative fees58,050 43,724 
Ceding commissions3,025 6,525 
Net investment income2,767 3,488 
Net realized and unrealized gains (losses)69,371 (62,441)
Other revenue14,556 17,054 
Total revenues294,688 129,671 
Expenses:
Policy and contract benefits67,174 60,876 
Commission expense88,645 70,401 
Employee compensation and benefits52,924 38,501 
Interest expense9,252 7,551 
Depreciation and amortization5,934 3,863 
Other expenses31,367 30,230 
Total expenses255,296 211,422 
Income (loss) before taxes39,392 (81,751)
Less: provision (benefit) for income taxes8,752 (21,181)
Net income (loss)30,640 (60,570)
Less: net income (loss) attributable to non-controlling interests2,059 (563)
Net income (loss) attributable to common stockholders$28,581 $(60,007)
Net income (loss) per common share:
Basic earnings per share$0.86 $(1.74)
Diluted earnings per share$0.81 $(1.74)
Weighted average number of common shares:
Basic32,420,982 34,566,330 
Diluted36,184,019 34,566,330 
Dividends declared per common share$0.04 $0.04 


Three Months Ended September 30, Nine Months Ended September 30,

2017 2016 2017 2016
Revenues:       
Earned premiums, net$96,073
 $47,609
 $272,781
 $138,516
Service and administrative fees24,018
 25,842
 70,861
 84,421
Ceding commissions2,513
 1,397
 6,801
 22,645
Net investment income3,840
 3,307
 12,032
 8,409
Net realized and unrealized gains (losses)7,526
 26,215
 35,183
 65,954
Rental and related revenue19,170
 15,371
 54,819
 43,389
Other income11,379
 12,419
 33,820
 31,725
Total revenues164,519
 132,160
 486,297
 395,059

       
Expenses:       
Policy and contract benefits31,570
 25,881
 94,364
 72,436
Commission expense63,066
 24,032
 176,405
 91,906
Employee compensation and benefits36,596
 38,767
 109,437
 102,175
Interest expense10,361
 7,839
 28,444
 20,770
Depreciation and amortization7,775
 6,437
 23,781
 21,899
Other expenses23,164
 21,686
 73,380
 68,351
Total expenses172,532
 124,642
 505,811
 377,537

       
Results of consolidated CLOs:       
Income attributable to consolidated CLOs7,216
 12,556
 24,024
 34,713
Expenses attributable to consolidated CLOs4,633
 8,524
 14,631
 24,664
Net income (loss) attributable to consolidated CLOs2,583
 4,032
 9,393
 10,049
Income (loss) before taxes(5,430) 11,550
 (10,121) 27,571
Less: provision (benefit) for income taxes(2,052) 3,712
 (2,761) 5,298
Net income (loss) before non-controlling interests(3,378) 7,838
 (7,360) 22,273
Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.(595) 1,362
 (1,432) 4,660
Less: net income (loss) attributable to non-controlling interests - Other331
 571
 529
 20
Net income (loss) attributable to Tiptree Inc. Class A common stockholders$(3,114) $5,905
 $(6,457) $17,593
        
Net income (loss) per Class A common share:       
Basic earnings per share$(0.11) $0.20
 $(0.22) $0.53


 
    
Diluted earnings per share$(0.11) $0.19
 $(0.22) $0.53

       
Weighted average number of Class A common shares:       
Basic29,455,462
 29,143,470
 28,908,195
 32,845,124
Diluted29,455,462
 37,230,650
 28,908,195
 32,912,516
        
Dividends declared per common share$0.030
 $0.025
 $0.090
 $0.075























See accompanying notes to condensed consolidated financial statements.

F - 4
F-4

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)





Three Months Ended March 31,
20212020
Net income (loss)$30,640 $(60,570)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during the period(3,870)359 
Related (provision) benefit for income taxes875 (58)
Reclassification of (gains) losses included in net income(128)(4)
Related (provision) benefit for income taxes30 1 
Unrealized gains (losses) on available for sale securities, net of tax(3,093)298 
Other comprehensive income (loss), net of tax(3,093)298 
Comprehensive income (loss)27,547 (60,272)
Less: comprehensive income (loss) attributable to non-controlling interests2,048 (555)
Comprehensive income (loss) attributable to common stockholders$25,499 $(59,717)

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
        
Net income (loss) before non-controlling interests$(3,378) $7,838
 $(7,360) $22,273
        
Other comprehensive income (loss), net of tax:       
Unrealized gains (losses) on available-for-sale securities:       
Unrealized holding gains (losses) arising during the period355
 (553) 1,800
 3,779
Related tax (expense) benefit(124) 198
 (635) (1,331)
Reclassification of (gains) losses included in net income(394) (960) (367) (1,100)
Related tax expense (benefit)138
 336
 129
 385
Unrealized gains (losses) on available-for-sale securities, net of tax(25) (979) 927
 1,733
        
Interest rate swaps (cash flow hedges):       
Unrealized gains (losses) on interest rate swaps(33) 156
 (411) (515)
Related tax (expense) benefit19
 (46) 115
 158
Reclassification of (gains) losses included in net income(25) 172
 212
 (56)
Related tax expense (benefit)8
 (54) (69) 30
Unrealized (losses) gains on interest rate swaps from cash flow hedges, net of tax(31) 228
 (153) (383)
        
Other comprehensive income (loss), net of tax(56) (751) 774
 1,350
Comprehensive income (loss)(3,434) 7,087
 (6,586) 23,623
Less: Comprehensive income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.(620) 1,214
 (1,278) 4,897
Less: Comprehensive income (loss) attributable to non-controlling interests - Other409
 604
 481
 (9)
Comprehensive income (loss) attributable to Tiptree Inc. Class A common stockholders$(3,223) $5,269
 $(5,789) $18,735

























































See accompanying notes to condensed consolidated financial statements.

F-5F - 5

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)

 Number of Shares Par Value Additional paid in capital Accumulated
other
comprehensive
income (loss)		 Retained
earnings		 Common Stock held by subsidiaries Total stockholders’ equity to Tiptree Inc. Non-controlling
interests - Tiptree Financial Partners, L.P.		 Non-controlling
interests - Other		 Total stockholders' equity
 Class A Class B Class A Class B    Class A Shares Class A Amount Class B Shares Class B Amount    
Balance at December 31, 201534,899,833
 8,049,029
 $35
 $8
 $297,063
 $(111) $15,845
 —
 $—
 —
 $—
 $312,840
 $69,278
 $15,576
 $397,694
Stock-based compensation to directors and employees189,896
 —
 —
 —
 1,810
 —
 —
 —
 —
 —
 —
 1,810
 —
 —
 1,810
Shares issued to settle
contingent consideration
72,868
 —
 —
 —
 377
   —
 —
 —
 —
 —
 377
 —
 —
 377
Other comprehensive income, net of tax—
 —
 —
 —
 —
 1,142
 —
 —
 —
 —
 —
 1,142
 237
 (29) 1,350
Non-controlling interest contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 6,163
 6,163
Non-controlling interest distributions—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (603) (1,456) (2,059)
Shares purchased under stock purchase plan(215,358) —
 —
 —
 (1,230) —
 —
 —
 —
 —
 —
 (1,230) —
 —
 (1,230)
Shares acquired by subsidiaries—
 —
 —
 —
 —
 —
 —
 (6,596,000) (42,524) (8,049,029) (8) (42,532) —
 —
 (42,532)
Net changes in non-controlling interest—
 —
 —
 —
 (746) —
 —
 —
 —
 —
 —
 (746) 1,058
 (335) (23)
Dividends declared—
 —
 —
 —
 —
 —
 (2,482) —
 —
 —
 —
 (2,482) —
 —
 (2,482)
Net income—
 —
 —
 —
 —
 —
 17,593
 —
 —
 —
 —
 17,593
 4,660
 20
 22,273
Balance at September 30, 201634,947,239
 8,049,029
 $35
 $8
 $297,274
 $1,031
 $30,956
 (6,596,000) $(42,524) (8,049,029) $(8) $286,772
 $74,630
 $19,939
 $381,341

See accompanying notes to condensed consolidated financial statements.


F-6

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)

Common stock
Number of sharesPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTotal
Tiptree Inc. stockholders’ equity		Non-controlling interestsTotal stockholders' equity
Balance at December 31, 201934,562,553 $35 $326,140 $1,698 $70,189 $398,062 $13,353 $411,415 
Adoption of accounting standard (1)
— — — 42 (42)— — — 
Amortization of share-based incentive compensation— — 1,200 — — 1,200 343 1,543 
Vesting of share-based incentive compensation322,709 — (332)— — (332)(1,866)(2,198)
Shares purchased under stock purchase plan(583,131)(1)(3,944)— — (3,945)— (3,945)
Non-controlling interest distributions (2)
— — — — — — (792)(792)
Dividends declared— — — — (1,415)(1,415)— (1,415)
Other comprehensive income (loss), net of tax— — — 290 — 290 8 298 
Net income (loss)— — — — (60,007)(60,007)(563)(60,570)
Balance at March 31, 202034,302,131 $34 $323,064 $2,030 $8,725 $333,853 $10,483 $344,336 
Balance at December 31, 202032,682,462 $33 $315,014 $5,674 $35,423 $356,144 $17,394 $373,538 
Amortization of share-based incentive compensation— — 627 — — 627 328 955 
Vesting of share-based incentive compensation344,686 — (51)— — (51)(914)(965)
Shares purchased under stock purchase plan(488,662)— (2,450)— — (2,450)— (2,450)
Non-controlling interest contributions— — — — — — 100 100 
Dividends declared— — — — (1,326)(1,326)— (1,326)
Other comprehensive income (loss), net of tax— — — (3,082)— (3,082)(11)(3,093)
Net income (loss)— — — — 28,581 28,581 2,059 30,640 
Balance at March 31, 202132,538,486 $33 $313,140 $2,592 $62,678 $378,443 $18,956 $397,399 
 Number of Shares Par Value Additional paid in capital Accumulated
other
comprehensive
income (loss)		 Retained
earnings		 Common Stock held by subsidiaries Total stockholders’ equity to Tiptree Inc. Non-controlling
interests - Tiptree Financial Partners, L.P.		 Non-controlling
interests - Other		 Total stockholders' equity
 Class A Class B Class A Class B    Class A Shares Class A Amount Class B Shares Class B Amount    
Balance at December 31, 201634,983,616
 8,049,029
 $35
 $8
 $297,391
 $555
 $37,974
 (6,596,000) $(42,524) (8,049,029) $(8)
$293,431

$76,077

$20,636

$390,144
Amortization of share-based incentive compensation—
 —
 —
 —
 1,541
 —
 —
 —
 —
 —
 —
 1,541
 —
 536
 2,077
Vesting of share-based incentive compensation19,388
 —
 —
 —
 (588) —
 —
 119,511
 775
 —
 —
 187
 —
 
 187
Shares issued to settle contingent consideration—
 —
 —
 —
 (76) —
 —
 756,046
 4,914
 —
 —
 4,838
 —
 —
 4,838
Issuance of common stock for cash upon exercise of stock options—
 —
 —
 —
 (1,371) —
 —
 1,510,920
 9,471
 —
 —
 8,100
 —
 —
 8,100
Other comprehensive income, net of tax—
 —
 —
 —
 —
 668
 —
 —
 —
 —
 —
 668
 154
 (48) 774
Non-controlling interest contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 
 2,464
 2,464
Non-controlling interest distributions—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (725) (1,676) (2,401)
Shares acquired by subsidiaries—
 —
 —
 —
 —
 —
 —
 (1,000,000) (7,300) —
 —
 (7,300) —
 —
 (7,300)
Net changes in non-controlling interest—
 —
 —
 —
 (421) —
 —
 —
 —
 —
 —
 (421) —
 2,640
 2,219
Dividends declared—
 —
 —
 —
 —
 —
 (2,604) —
 —
 —
 —
 (2,604) —
 —
 (2,604)
Net income—
 —
 —
 —
 —
 —
 (6,457) —
 —
 —
 —
 (6,457) (1,432) 529
 (7,360)
Balance at September 30, 201735,003,004
 8,049,029
 $35
 $8
 $296,476
 $1,223
 $28,913
 (5,209,523) $(34,664) (8,049,029) $(8) $291,983
 $74,074
 $25,081
 $391,138
(1)    Amounts reclassified due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies.

(2)    Includes subsidiary incentive plan exchanges. See Note (19) Stock Based Compensation.















See accompanying notes to condensed consolidated financial statements.

F - 6
F-7


TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)



Three Months Ended
March 31,
20212020
Operating Activities:
Net income (loss) attributable to common stockholders$28,581 $(60,007)
Net income (loss) attributable to non-controlling interests2,059 (563)
Net income (loss)30,640 (60,570)
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Net realized and unrealized (gains) losses(69,371)62,441 
Net (gain) loss on sale of businesses431 0 
Non-cash compensation expense1,065 1,616 
Amortization/accretion of premiums and discounts670 424 
Depreciation and amortization expense5,934 3,863 
Non-cash lease expense2,195 2,133 
Amortization of deferred financing costs394 169 
Loss on extinguishment of debt0 353 
Deferred provision (benefit) for income taxes7,788 (17,929)
Other80 60 
Changes in operating assets and liabilities:
Mortgage loans originated for sale(911,193)(539,970)
Proceeds from the sale of mortgage loans originated for sale956,609 609,125 
(Increase) decrease in notes and accounts receivable24,507 (17,467)
(Increase) decrease in reinsurance receivables14,279 30,217 
(Increase) decrease in deferred acquisition costs(43,494)(10,328)
(Increase) decrease in other assets(4,101)(5,201)
Increase (decrease) in unearned premiums31,319 (26,474)
Increase (decrease) in policy liabilities and unpaid claims17,885 (206)
Increase (decrease) in deferred revenue25,397 27,453 
Increase (decrease) in reinsurance payable(23,329)(23,431)
Increase (decrease) in other liabilities and accrued expenses(40,375)(11,066)
Net cash provided by (used in) operating activities27,330 25,212 
Investing Activities:
Purchases of investments(413,159)(168,125)
Proceeds from sales and maturities of investments372,015 114,881 
Proceeds from the sale of real estate0 389 
Purchases of property, plant and equipment(397)(1,455)
Proceeds from the sale of businesses125 125 
Proceeds from notes receivable14,762 7,739 
Issuance of notes receivable(15,710)(20,996)
Business and asset acquisitions, net of cash, restricted cash and deposits (1)
0 20,136 
Net cash provided by (used in) investing activities(42,364)(47,306)
Financing Activities:
Dividends paid(1,326)(1,415)
Non-controlling interest contributions100 0 
Non-controlling interest distributions0 (792)
Payment of debt issuance costs0 (1,441)
Proceeds from borrowings and mortgage notes payable955,306 750,861 
Principal paydowns of borrowings and mortgage notes payable(952,260)(713,607)
Repurchases of common stock(2,450)(3,945)
Net cash provided by (used in) financing activities(630)29,661 
Net increase (decrease) in cash, cash equivalents and restricted cash(15,664)7,567 
Cash, cash equivalents and restricted cash – beginning of period195,275 144,590 
Cash, cash equivalents and restricted cash – beginning of period - held for sale4,879 7,137 
Cash, cash equivalents and restricted cash – end of period184,490 159,294 
Less: Reclassification of cash to assets held for sale7,317 5,093 
Cash, cash equivalents and restricted cash – end of period$177,173 $154,201 
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Right of use asset obtained in exchange for lease liability$1,413 $513 
As of
Reconciliation of cash, cash equivalents and restricted cashMarch 31, 2021December 31, 2020
Cash and cash equivalents$123,879 $136,920 
Restricted cash53,294 58,355 
Total cash, cash equivalents and restricted cash shown in the statements of cash flows$177,173 $195,275 
(1)    Changes in balance sheet balances due to acquisitions have been netted down in the respective line items. See Note (3) Acquisitions for additional information.
 Nine Months Ended September 30,
 2017 2016
Operating Activities:   
Net income (loss) available to common stockholders$(6,457) $17,593
Net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.(1,432) 4,660
Net income (loss) attributable to non-controlling interests - Other529
 20
Net income (loss)(7,360) 22,273
Adjustments to reconcile net income to net cash provided by (used in) operating activities   
Net realized and unrealized (gains) losses(35,183) (65,954)
Net unrealized loss (gain) on interest rate swaps(67) 1,233
Change in fair value of contingent consideration3,192
 (262)
Non cash compensation expense4,275
 1,696
Amortization/accretion of premiums and discounts971
 1,094
Depreciation and amortization expense24,120
 21,899
Provision for doubtful accounts967
 1,321
Amortization of deferred financing costs2,178
 1,326
Deferred tax expense (benefit)(2,371) (327)
Changes in operating assets and liabilities:   
Mortgage loans originated for sale(1,151,150) (1,258,931)
Proceeds from the sale of mortgage loans originated for sale1,205,868
 1,259,091
(Increase) decrease in notes and accounts receivable(26,262) (16,964)
(Increase) decrease in reinsurance receivables(33,312) (28,237)
(Increase) decrease in deferred acquisition costs(12,863) (2,292)
(Increase) decrease in other assets(8,205) (2,223)
Increase (decrease) in unearned premiums59,481
 22,934
Increase (decrease) in policy liabilities and unpaid claims4,666
 21,250
Increase (decrease) in deferred revenue1,267
 (6,810)
Increase (decrease) in reinsurance payable11,299
 (11,772)
Increase (decrease) in other liabilities and accrued expenses(14,297) 12,499
Operating activities from consolidated CLOs(2,684) (3,505)
Net cash provided by (used in) operating activities24,530
 (30,661)
    
Investing Activities:   
Purchases of investments(147,764) (178,599)
Proceeds from sales and maturities of investments201,754
 159,773
(Increase) decrease in loans owned, at amortized cost, net(37,166) (44,640)
Purchases of real estate capital expenditures(463) (4,372)
Proceeds from the sale of real estate11,396
 2,526
Purchases of corporate fixed assets(1,616) (991)
Proceeds from the sale of subsidiaries (1)
4,846
 —
Proceeds from notes receivable40,273
 25,193
Issuance of notes receivable(35,109) (32,137)
(Increase) decrease in restricted cash1,072
 (3,315)
Business and asset acquisitions, net of cash and deposits(75,489) (81,183)
Investing activities from consolidated CLOs224,107
 (96,834)
Net cash provided by (used in) investing activities185,841
 (254,579)
    
Financing Activities:   
Dividends paid(2,604) (2,482)
Non-controlling interest contributions2,464
 3,050
Non-controlling interest distributions(1,657) (2,059)
Payment of debt issuance costs(1,738) (2,508)



F-8

TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(in thousands)


 Nine Months Ended September 30,
 2017 2016
Proceeds from borrowings and mortgage notes payable1,297,203
 1,477,446
Principal paydowns of borrowings and mortgage notes payable(1,232,705) (1,368,585)
Proceeds from the exercise of options for common stock8,100
 —
Repurchases of common stock(7,300) (43,754)
Financing activities from consolidated CLOs(223,393) 220,727
Net cash provided by (used in) financing activities(161,630) 281,835
Net increase (decrease) in cash and cash equivalents48,741
 (3,405)
Cash and cash equivalents – beginning of period63,010
 69,400
Cash and cash equivalents – end of period$111,751
 $65,995
    
Supplemental Schedule of Non-Cash Investing and Financing Activities:   
Acquired real estate properties through, or in lieu of, foreclosure of the related loan$9,793
 $10,288
Real estate acquired through asset acquisition$8,178
 $—
Intangible assets related to in-place leases acquired through asset acquisition$2,049
 $—
Assets of consolidated CLOs deconsolidated due to sale and redemption$407,323
 $—
Liabilities of consolidated CLOs deconsolidated due to sale and redemption$389,333
 $—
Debt assumed through asset acquisition$7,586
 $—
Settlement of contingent consideration payable with Class A common stock$4,838
 $—
(1) Represents the final payment received for the sale of Philadelphia Financial Group in 2015.





















See accompanying notes to condensed consolidated financial statements.

F-9
F - 7


TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)






(1) Organization


Tiptree Inc. (formally known as Tiptree Financial Inc., together(together with its consolidated subsidiaries, collectively, Tiptree, or the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree is a diversified holding company with four reporting segments: specialty insurance, asset management, senior living and specialty finance. Tiptree’s Class A common stock is tradedtrades on the NASDAQNasdaq Capital Market under the symbol “TIPT”. Tiptree’s primary assetTiptree is its ownership of Tiptree Financial Partners, L.P. (TFP) an intermediatea holding company throughthat combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into 2 reportable segments: Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree operates its businesses. Tiptree reports a non-controlling interest representing the economic interest in TFP held by other limited partners of TFP.Capital.


As of January 1, 2016, Tiptree directly owned approximately 81% of TFP. The remaining 19% is reported as non-controlling interest. All of Tiptree’s Class B common stock is owned by TFP and is accounted for as treasury stock. Tiptree’s Class B common stock has the same voting rights as the Class A common stock but no economic rights. The limited partners of TFP (other than Tiptree itself) have the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit equal to the number of shares of Class B common stock outstanding. For every share of Class A common stock exchanged in this manner, a share of Class B common stock is canceled. The percentage of TFP owned by Tiptree may increase in the future to the extent TFP’s limited partners exchange their limited partnership units of TFP for Class A common stock of Tiptree. Changes in Tiptree’s ownership of TFP, as a result of such exchanges, will be accounted for as equity transactions, which increase Tiptree’s ownership of TFP and reduce non-controlling interest in TFP without changing total stockholders’ equity of Tiptree.

(2) Summary of Significant Accounting Policies


Basis of Presentation and Principles of Consolidation


The accompanying unaudited condensed consolidated financial statements of Tiptree have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries. The condensed consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited condensed consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income and cash flows for each of the interim periods presented. The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2017.2021.

As a result of changes in presentation made in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications had no effect on the reported results of operations. The primary difference in the presentation of the condensed consolidated financial statements from the prior year is the aggregation of investments on the condensed consolidated balance sheets and the summation of the net investment income of our specialty insurance business in the condensed consolidated statements of operations. The condensed consolidated cash flow statement has also been conformed to this new presentation. In addition certain immaterial balances have been combined in the condensed consolidated balance sheet and condensed consolidated statement of operations.

Tiptree consolidates those entities in which it has an investment of 50% or more of voting rights or has control over significant operating, financial and investing decisions of the entity as well as variable interest entities (VIEs) in which Tiptree is determined to be the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Generally, Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.


F-10

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)



Non-controlling interests on the condensed consolidated balance sheets represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated.


UseReclassifications

As a result of Estimates

The preparation of the Company’s condensed consolidated financial statementschanges in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reportedpresentation made in the Company’s condensed consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limitedAnnual Report on Form 10-K for the fiscal year ended December 31, 2020, certain prior period amounts have been reclassified to conform to the determination of the following significant items:

Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives
Value of acquired assets and liabilities;
Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives;
Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims;
Valuation of contingent share issuances for compensation and purchase consideration, including estimates of number of shares and vesting schedules;
Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service, administration fees, and loan origination fees; and
Other matters that affectcurrent presentation. These reclassifications had no effect on the reported amounts and disclosure of contingencies in the condensed consolidated financial statements.

Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.

Business Combination Accounting

The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other expense in the condensed consolidated statements of operations. Acquisition and transaction costs are expensed as incurred.

In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of valuation studies applicable to the business combination.operations.


Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

•Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments

F-11

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at level 2 are valued based on one or more of the following:

a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in nonactive markets;
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;
d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

•Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability.

Fair Value Option

In addition to the financial instruments the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the condensed consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are reported separately in our condensed consolidated balance sheets from those instruments using another accounting method.

Recent Accounting Standards


Recently Adopted Accounting Pronouncements


In
StandardDescriptionAdoption DateImpact on Financial Statements
2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income TaxesThe standard eliminates the need for an organization to analyze whether the following apply in a given period: (1) exceptions to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods.January 1, 2021The standard makes changes to areas of tax accounting for transactions and situations which do not currently apply to the Company’s activity, so the adoption of the standard does not currently impact the Company’s financial statements.

Recently Issued Accounting Pronouncements, Not Yet Adopted

During the three months ended March 2016,31, 2021, there were no accounting standards issued applicable to the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): EffectCompany.

F - 8
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)


(3) Acquisitions

Acquisitions during 2020

Acquisition of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies thatSmart AutoCare

On January 3, 2020, a change insubsidiary of the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided thatCompany acquired (the Acquisition) all other hedge accounting criteria continue to be met. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments -Equity Method and Joint Ventures (Topic 323), which eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity methodinterests of Accelerated Service Enterprise LLC, SAC Holdings Inc., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc., Freedom Insurance Company, Ltd. (Freedom), SAC Admin, Inc., SAC Insurance Company, Inc., Smart AutoCare, Inc. and Smart AutoCare Administration Solutions, Inc. (together Smart AutoCare), pursuant to the Equity Interest Purchase Agreement (the Purchase Agreement) between Fortegra Warranty Holdings, LLC. (Buyer) and Peter Masi (Seller), dated as a result of December 16, 2019. Concurrent with the Acquisition, Freedom terminated reinsurance agreements with affiliates of Seller (the Commutation Transaction).

Tiptree paid Seller $111,804, net of working capital true-ups, in cash at closing, $8,250 of which will be held in an increaseescrow account for 18 months to satisfy indemnity claims. Simultaneously, pursuant to the Commutation Transaction, affiliates of Seller paid Freedom $102,000 in cash. Smart AutoCare’s results are included in the levelCompany’s Insurance segment for the three months ended March 31, 2021 and 2020.

Management’s allocation of ownership or degreethe purchase price to the net assets acquired resulted in the recording of influence. The amendments requirefinite-lived intangible assets valued at $93,700, with an estimated amortization period of 5 to 13.5 years. It is expected that the equity method investor addtax basis in intangible assets will be similar to the costGAAP values provided above. The residual amount of acquiring the additional interestpurchase price after the allocation to net assets acquired and identifiable intangibles of $60,346 has been allocated to goodwill. This goodwill is included in the investeeInsurance segment. It is expected that $21,127 of this goodwill will be tax deductible over a 15 year period.

The following table summarizes the final determination of the fair value amounts for the identifiable assets acquired, liabilities assumed, and goodwill, as described above, for the transactions completed during the three months ended March 31, 2020:
2020 Acquisition
Assets:
Investments:
Available for sale securities, at fair value$110 
Total investments110 
Cash and cash equivalents120,934 
Restricted cash764 
Notes and accounts receivable, net6,214 
Reinsurance receivables71,337 
Intangible assets, net93,700 
Other assets34,053 
Total assets$327,112 
Liabilities:
Policy liabilities and unpaid claims$55,151 
Deferred revenue182,568 
Reinsurance payable27,075 
Other liabilities and accrued expenses10,860 
Total liabilities275,654 
Net assets acquired51,458 
Goodwill60,346 
$111,804 
Acquisition costs$3,539 

Supplemental pro forma results of operations have not been presented for the Acquisition as it is not material in relation to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this Update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties that Are Under Common Control, which amends the consolidation guidance on how a reporting entity, that is the single decision maker of a VIE, evaluates whether it is the primary beneficiary of a VIE. This new guidance is effective for fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

reported results.
F-12
F - 9

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)





Recently Issued Accounting Pronouncements, Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which makes targeted improvements to the recognition, measurement, presentation and disclosure of certain financial instruments. ASU 2016-01 focuses primarily on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for certain financial instruments. Among its provisions for public business entities, ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires the separate presentation in other comprehensive income of the change in fair value of a liability due to instrument-specific credit risk for a liability for which the reporting entity has elected the fair value option, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) and clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for a limited number of provisions. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarify the implementation guidance on principal versus net considerations. The effective date and transition requirements for this standard are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The Update includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. The Update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect on its condensed consolidated financial statements.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements

F-13

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


at the March 3, 2016 EITF Meeting, which  rescinds SEC paragraphs pursuant to the SEC Staff Announcement, “Rescission of Certain SEC Staff Observer Comments upon Adoption of Topic 606,” and the SEC Staff Announcement, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or Equity,” announced at the March 3, 2016 Emerging Issues Task Force (EITF) meeting.  The Company believes that that the adoption of this standard will not have a material impact on the Company’s condensed consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides guidance on collectability, noncash consideration, and completed contracts at transition.  Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.  The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted, including the adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which addresses classification and presentation of changes in restricted cash on the statement of cash flows.ASU 2016-18 requires an entity’s reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents. The ASU does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions. ASU 2016-18 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 does not change the qualitative assessment; however, it removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Therefore, as the FASB notes in the ASU’s Basis for Conclusions, the goodwill of reporting units with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit indicate that goodwill is impaired. Entities will, however, be

F-14

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


required to disclose any reporting units with zero or negative carrying amounts and the respective amounts of goodwill allocated to those reporting units. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2017. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The guidance shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provided clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for the Company for interim and annual periods beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. The Company will consider the impact that this standard may have on future stock-based payment award modifications should they occur.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the guidance on hedge accounting. The amendment will make more financial and nonfinancial hedging strategies eligible for hedge accounting and amend the presentation and disclosure requirements. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 can be adopted immediately in any interim or annual period. The mandatory effective date for calendar year-end public companies is January 1, 2019. The Company is currently evaluating the effect on its condensed consolidated financial statements.
(3) Acquisitions

Acquisitions during the nine months ended September 30, 2017
Senior Living
Managed Properties
During the nine months ended September 30, 2017, subsidiaries in our senior living business and their partners entered into agreements to acquire and operate two senior living communities for total consideration of $25,999, of which $7,000 was financed through mortgage debt issued in connection with one of the acquisitions, $4,096 was financed by contributions from partners of our subsidiaries and the remainder was paid with cash on hand. Affiliates of the partners provide management services to the communities under management contracts.

The Company provided an advance to the partners of our subsidiary at closing of one of these transactions for $1,036, which was part of their cash contribution for the property. Subsequent to the closing of this transaction, the property was financed with mortgage debt of $10,000. Our partner repaid the advance to the Company with proceeds from this financing, which was split based on the ownership of the property.

The primary reason for the Company’s acquisitions of the senior living communities are to expand its real estate operations. For the period from acquisition until September 30, 2017, revenue and the net loss for the two properties acquired were $4,398 and $1,941, respectively.


F-15

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)



The following table summarizes the consideration paid and the amounts of the final determination, as described above, for the transactions completed during the nine months ended September 30, 2017:
 2017 Acquisitions
 Senior living
Consideration: 
Cash$25,999
Fair value of total consideration$25,999
  
Acquisition costs$288
  
Recognized amounts of identifiable assets acquired and liabilities assumed: 
Assets: 
Cash and cash equivalents$717
Real estate, net21,800
Intangible assets, net3,850
Other assets76
  
Liabilities: 
Deferred revenue(409)
Other liabilities and accrued expenses(35)
Total identifiable net assets assumed$25,999


The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and the range of their estimated amortization period:
Intangible AssetsWeighted Average Amortization Period
(in Years)		Value as of acquisition date
Customer relationships7.2$86,000 
Software licensing5.0600 
Trade names13.57,100 
Total acquired finite-lived intangible assets7.7$93,700 

Acquisition of Sky Auto

On December 31, 2020, a subsidiary in our insurance business acquired all of the equity interests in Sky Auto for total net cash consideration of approximately $25,200. Sky Auto markets vehicle service contracts to consumers within the United States.

Identifiable assets acquired were primarily made up of goodwill and intangible assets. Management’s allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of approximately $20,000 and $5,340, respectively.

(4) Assets and Liabilities Held for Sale
Intangible AssetsWeighted Average Amortization Period (in Years) Senior living
In-place lease1.38 $3,850


Assets and Liabilities Held for Sale
Supplemental pro forma results
The Company has entered into a definitive agreement to sell Luxury, and it is classified as held for sale at March 31, 2021 and December 31, 2020. The agreement did not meet the requirements to be classified as a discontinued operation. The following table presents detail of operations have not been presentedLuxury’s assets and liabilities held for sale in the condensed consolidated balance sheets for the above 2017 business acquisitionsfollowing periods:
As of
March 31,
2021		December 31, 2020
Assets:
Investments:
Loans, at fair value$138,421 $164,802 
Other investments4,773 4,345 
Total investments143,194 169,147 
Cash and cash equivalents7,310 4,870 
Restricted cash7 9 
Notes and accounts receivable, net259 1,760 
Other assets8,565 5,919 
Assets held for sale$159,335 $181,705 
Liabilities:
Debt, net$137,946 $162,072 
Other liabilities and accrued expenses (1)
14,515 13,040 
Liabilities held for sale$152,461 $175,112 
(1)    Includes deferred tax liabilities of $1,314 and $939 as they are not material in relation toof March 31, 2021 and December 31, 2020, respectively.
For the Company’s reported results.

Acquisitions during the ninethree months ended September 30, 2016
Senior Living
Managed Properties
DuringMarch 31, 2021 and 2020, the nine months ended September 30, 2016, subsidiaries in our senior living businessCompany recorded an impairment of $431 and their partners entered into agreements$0, respectively, related to acquireassets and operate three senior living communitiesliabilities held for total considerationsale. As of $84,605 (which includes deposits of $125 paid in the fourth quarter of 2015), of which $59,817March 31, 2021 and December 31, 2020, accumulated impairment related to assets and liabilities held for sale was financed through mortgage debt issued in connection with the acquisitions, $4,778 was financed by contributions from partners of our subsidiary,$4,859 and the remainder was paid with cash on hand. Affiliates of the partners provide management services to the communities under management contracts.

The primary reason for the Company’s acquisition of the senior living communities is to expand its real estate operations. For the period from acquisition until September 30, 2016, revenue and the net loss for the three managed properties acquired were $7,247 and $1,899,$4,428, respectively.



F-16
F - 10

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)




(5) Segment Data

Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. Tiptree’s principal operating subsidiary, The following table summarizesFortegra Group, LLC and its subsidiaries (Fortegra), is a leading provider of specialty insurance underwriting, warranty and service contract products and related service solutions. Based on the consideration paid and the amounts of the final determination, as described above, for transactions completed during the nine months ended September 30, 2016:
 2016 Acquisitions
 Senior living
Consideration: 
Cash$81,492
Non-cash non-controlling interests contributions3,113
Fair value of total consideration$84,605
  
Acquisition costs$612
  
Recognized amounts of identifiable assets acquired and liabilities assumed: 
Assets: 
Cash and cash equivalents$184
Real estate, net77,787
Intangible assets, net6,838
Other assets248
  
Liabilities: 
Deferred revenue(290)
Other liabilities and accrued expenses(162)
Total identifiable net assets assumed$84,605

The following table shows the values recorded by the Company,ASC 280 quantitative analysis performed as of the acquisition date, for finite-lived intangibleDecember 31, 2020, our reportable segments are Insurance and Mortgage. We refer to our non-insurance operations, assets and their estimated amortization period:
Intangible AssetsWeighted Average Amortization Period (in Years) Senior living
In-place lease1.61 $6,838

Supplemental pro forma resultsother investments, which is comprised of operations have not been presented for the above 2016 business acquisitions as they are not material in relation to the Company’s reported results.

(4) Operating Segment Data

The Company has fourour Mortgage reportable segment and our non-reportable operating segments which are: (i) specialty insurance (formally knownand other business activities, as insuranceTiptree Capital. Corporate activities include holding company interest expense, employee compensation and insurance services), (ii) asset management, (iii) senior living (formally known as real estate),benefits, and (iv) specialty finance. The Company’s operating segments are organized in a manner that reflects how the chief operating decision maker (CODM) views these strategic business units.other expenses.


EachOur reportable segment’ssegments’ income (loss)or loss is reported before income taxes discontinued operations and non-controlling interests.

Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired.

In the fourth quarter of 2016, the Company made certain segment realignments in order to conform to the way the CODM internally evaluates segment performance. These realignments primarily consisted of the transfer of principal investments from corporate and other to the specialty insurance and asset management operating segments. As a result, corporate and other is no longer deemed to be an operating segment of the Company. For the three months ended September 30, 2016, $6,808March 31, 2021, Mortgage has been broken out of pretax income (loss) previously reported in corporate and other was allocated $2,634 and $4,174Tiptree Capital as a reportable segment since it meets the quantitative threshold for disclosure. Prior year segments have been conformed to the specialty insurance and asset management operating segments, respectively. For the three months ended September 30, 2016, inclusive of what was allocated to the asset management operating segment there was $3,312 of net income (loss) attributable to consolidated CLOs. For thecurrent year presentation. Intercompany transactions are eliminated.

F-17

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


nine months ended September 30, 2016, $20,160 of pretax income (loss) previously reported in corporate and other was allocated $10,527 and $9,633 to the specialty insurance and asset management operating segments, respectively. For the nine months ended September 30, 2016, inclusive of what was allocated to the asset management operating segment there was $7,583 of net income (loss) attributable to consolidated CLOs. The Company has reclassified prior period amounts to provide visibility and comparability. This reclassification had no impact on the allocation of goodwill to reporting units. None of these changes impact the Company’s previously reported consolidated net income or earnings per share.


Descriptions of each of theour Insurance reportable segmentssegment and Tiptree Capital, including our Mortgage reportable segment, are as follows:


Specialty Insurance operations are conducted through Fortegra, which includes Fortegra Financial Corporation (Fortegra), an insurance holding company.and Fortegra Warranty. Fortegra underwrites and providesadministers specialty insurance programs and products, primarily in the United States, and is a leading provider of credit insurance and asset protection products.products and administration services. Fortegra’s programs are provided across a diverse range of products and services include products such as mobileincluding credit protection extendedinsurance, warranty and service debt protectioncontract products, premium finance, and credit insurance and select niche personal and commercial lines of insurance. The specialty insurance investment portfolio also includes results related to corporate loans held at fair value and non-performing residential mortgage loans due to the aforementioned segment realignment.
Asset Management operations are primarily conducted through Telos Asset Management LLC’s (Telos) management of CLOs. Telos is a subsidiary of
Tiptree Asset Management Company, LLC (TAMCO), an SEC-registered investment advisor owned by the Company. Results include net income (loss) from consolidated CLOs.Capital:
Senior Living
Mortgage operations are conducted through Care Investment Trust LLC (Care) which has a geographically diverse portfolio of seniors housing properties including senior apartments, assisted living, independent living, memory care and skilled nursing facilities in the U.S.
Specialty Finance operations are conducted through Siena Capital Finance LLC (Siena) and the Company’s mortgage businesses, which consist of Luxury and Reliance. The Company’s mortgage origination business originatedoriginates loans for sale to institutional investors, including GSEs and FHA/VA. Siena’s business consistsVA and services loans on behalf of structuring asset-based loan facilities across diversified industries.Fannie Mae, Freddie Mac, and GNMA.

Other includes our asset management, mortgage operations of Luxury, shipping operations, and other investments (including our Invesque shares).

The tables below present the components of revenue, expense, pre-tax income (loss), before taxes, and segment assets for each of the operatingour reportable segments as well as Tiptree Capital - Other for the following periods:
            
 Three Months Ended September 30, 2017
 Specialty insurance Asset management Senior living Specialty finance Corporate and other Total
Total revenue$118,714
 $1,448
 $19,583
 $24,976
 $(202) $164,519
            
Total expense121,059
 1,058
 21,118
 22,381
 6,916
 172,532
Net income attributable to consolidated CLOs—
 2,583
 —
 —
 —
 2,583
Income (loss) before taxes$(2,345) $2,973
 $(1,535) $2,595
 $(7,118) $(5,430)
Less: provision (benefit) for income taxes          (2,052)
Net income (loss) before non-controlling interests          $(3,378)
Less: net income (loss) attributable to non-controlling interests          (264)
Net income (loss) attributable to Tiptree Inc. Class A common stockholders          $(3,114)

F-18

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


            
 Three Months Ended September 30, 2016
 
Specialty insurance(1)
 
Asset management(1)
 Senior living Specialty finance 
Corporate and other(1)
 Total
Total revenue$82,630
 $4,746
 $15,695
 $29,013
 $76
 $132,160
            
Total expense71,971
 2,303
 16,168
 24,832
 9,368
 124,642
Net income attributable to consolidated CLOs—
 4,032
 —
 —
 —
 4,032
Income (loss) before taxes$10,659
 $6,475
 $(473) $4,181
 $(9,292) $11,550
Less: provision (benefit) for income taxes          3,712
Net income (loss) before non-controlling interests          $7,838
Less: net income (loss) attributable to non-controlling interests          1,933
Net income (loss) attributable to Tiptree Inc. Class A common stockholders          $5,905
(1) Reclassified to conform to current period presentation

 Nine Months Ended September 30, 2017
 Specialty insurance Asset management Senior living Specialty finance Corporate and other Total
Total revenue$351,731
 $8,239
 $55,927
 $70,325
 $75
 $486,297
            
Total expense350,007
 4,549
 61,286
 67,696
 22,273
 505,811
Net income (loss) attributable to consolidated CLOs—
 9,393
 —
 —
 —
 9,393
Income (loss) before taxes$1,724
 $13,083
 $(5,359) $2,629
 $(22,198) $(10,121)
Less: provision (benefit) for income taxes          (2,761)
Net income (loss) before non-controlling interests          $(7,360)
Less: net income (loss) attributable to non-controlling interests          (903)
Net income (loss) attributable to Tiptree Inc. Class A common stockholders          $(6,457)
 Nine Months Ended September 30, 2016
 
Specialty insurance(1)
 
Asset management(1)
 Senior living Specialty finance 
Corporate and other(1)
 Total
Total revenue$268,743
 $10,754
 $44,204
 $67,790
 $3,568
 $395,059
            
Total expense233,116
 6,131
 49,691
 62,280
 26,319
 377,537
Net income (loss) attributable to consolidated CLOs—
 10,049
 —
 —
 —
 10,049
Income (loss) before taxes$35,627
 $14,672
 $(5,487) $5,510
 $(22,751) $27,571
Less: provision (benefit) for income taxes          5,298
Net income (loss) before non-controlling interests          $22,273
Less: net income (loss) attributable to non-controlling interests          4,680
Net income (loss) attributable to Tiptree Inc. Class A common stockholders          $17,593
(1) Reclassified to conform to current period presentation

Three Months Ended March 31, 2021
Tiptree Capital
InsuranceMortgageOtherTotal
Total revenues$222,563 $34,494 $37,631 $294,688 
Total expenses(201,035)(21,417)(22,637)(245,089)
Corporate expenses0 0 0 (10,207)
Income (loss) before taxes$21,528 $13,077 $14,994 $39,392 
Less: provision (benefit) for income taxes8,752 
Net income (loss)$30,640 
Less: net income (loss) attributable to non-controlling interests2,059 
Net income (loss) attributable to common stockholders$28,581 


F-19
F - 11

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, 2020
Tiptree Capital
InsuranceMortgageOtherTotal
Total revenues$143,340 $16,220 $(29,889)$129,671 
Total expenses(170,457)(17,310)(15,352)(203,119)
Corporate expenses0 0 0 (8,303)
Income (loss) before taxes$(27,117)$(1,090)$(45,241)$(81,751)
Less: provision (benefit) for income taxes(21,181)
Net income (loss)$(60,570)
Less: net income (loss) attributable to non-controlling interests(563)
Net income (loss) attributable to common stockholders$(60,007)
The Company conducts its operations primarily in the U.S. with 4.9% and 8.3% of total revenues generated overseas for the three months ended March 31, 2021 and 2020, respectively.


The following table presents the reportable segments and Tiptree Capital - Other assets for the following periods:
As of March 31, 2021As of December 31, 2020
Tiptree CapitalTiptree Capital
InsuranceMortgageOtherCorporateTotalInsuranceMortgageOtherCorporateTotal
Total assets$2,471,077 $241,926 $294,008 $41,602 $3,048,613 $2,452,798 $217,138 $302,068 $23,756 $2,995,760 

The following table presents the segment assets for the following periods:
 Segment Assets as of September 30, 2017
 Specialty insurance Asset management Senior living Specialty finance Corporate and other Total
Segment assets$1,319,165
 $21,175
 $390,818
 $303,203
 $41,619
 $2,075,980
Assets of consolidated CLOs—
 372,774
 —
 —
 —
 372,774
Total assets          $2,448,754
            
 Segment Assets as of December 31, 2016
 Specialty insurance Asset management Senior living Specialty finance Corporate and other Total
Segment assets$1,268,152
 $17,427
 $323,169
 $271,795
 $20,012
 $1,900,555
Assets of consolidated CLOs—
 989,495
 —
 —
 —
 989,495
Total assets          $2,890,050
(1) Reclassified to conform to current period presentation

(5)(6) Investments


Available for Sale Securities,The following table presents the Company's investments related to insurance operations (Insurance) and investments from other Tiptree investing activities (Tiptree Capital), measured at fair value

All as of the Company’s investments in available for sale securities as of September 30, 2017 and December 31, 2016 are held by subsidiaries in the specialty insurance business. The following tables present the Company's investments in available for sale securities:periods:
As of March 31, 2021
Tiptree Capital
InsuranceMortgageOtherTotal
Available for sale securities, at fair value, net of allowance for credit losses$409,947 $0 $0 $409,947 
Loans, at fair value10,832 99,626 0 110,458 
Equity securities105,548 0 39,474 145,022 
Other investments122,417 12,021 84,033 218,471 
Total investments$648,744 $111,647 $123,507 $883,898 

As of December 31, 2020
Tiptree Capital
InsuranceMortgageOtherTotal
Available for sale securities, at fair value, net of allowance for credit losses$377,133 $0 $0 $377,133 
Loans, at fair value7,795 82,937 0 90,732 
Equity securities98,130 0 25,708 123,838 
Other investments125,833 9,439 84,429 219,701 
Total investments$608,891 $92,376 $110,137 $811,404 
F - 12
 As of September 30, 2017
 Amortized cost Gross
unrealized gains		 Gross
unrealized losses		 Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies$36,474
 $96
 $(216) $36,354
Obligations of state and political subdivisions47,542
 415
 (324) 47,633
Corporate securities53,589
 447
 (167) 53,869
Asset backed securities24,011
 105
 (16) 24,100
Certificates of deposit896
 —
 —
 896
Equity securities658
 13
 (9) 662
Obligations of foreign governments566
 13
 —
 579
Total$163,736
 $1,089
 $(732) $164,093
        
 As of December 31, 2016
 Amortized cost Gross
unrealized gains		 Gross
unrealized losses		 Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies$27,149
 $27
 $(377) $26,799
Obligations of state and political subdivisions57,425
 107
 (598) 56,934
Corporate securities58,769
 204
 (402) 58,571
Asset backed securities1,459
 1
 —
 1,460
Certificates of deposit895
 —
 —
 895
Equity securities818
 3
 (37) 784
Obligations of foreign governments733
 3
 (8) 728
Total$147,248
 $345
 $(1,422) $146,171


F-20

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)





Available for Sale Securities, at fair value, net of allowance for credit losses

All of the Company’s investments in Available for Sale Securities, at fair value, net of allowance for credit losses (AFS securities) as of March 31, 2021 and December 31, 2020 are held by subsidiaries in the insurance business. The following tables summarize the gross unrealized losses on available for sale securities in an unrealized loss position:
 As of September 30, 2017
 Less Than or Equal to One Year More Than One Year
 Fair value Gross
unrealized losses		 # of Securities Fair value Gross unrealized losses # of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies$25,152
 $(187) 119
 $924
 $(29) 5
Obligations of state and political subdivisions9,936
 (145) 55
 7,142
 (179) 34
Corporate securities16,269
 (61) 164
 4,479
 (106) 86
Asset-backed securities1,294
 (16) 2
 —
 —
 —
Equity securities411
 (7) 3
 19
 (2) 2
Obligations of foreign governments—
 —
 —
 —
 —
 —
Total$53,062
 $(416) 343
 $12,564
 $(316) 127
            
 As of December 31, 2016
 Less Than or Equal to One Year More Than One Year
 Fair value Gross
unrealized losses		 # of Securities Fair value Gross unrealized losses # of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies$20,979
 $(376) 115
 $16
 $(1) 5
Obligations of state and political subdivisions41,639
 (597) 170
 1,334
 (1) 3
Corporate securities29,856
 (400) 279
 253
 (2) 3
Asset-backed securities706
 —
 1
 —
 —
 —
Equity securities736
 (35) 5
 19
 (2) 2
Obligations of foreign governments338
 (8) 4
 —
 —
 —
Total$94,254
 $(1,416) 574
 $1,622
 $(6) 13
The Company does not intend to sell the investments that were in an unrealized loss position as of September 30, 2017, and management believes that it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities or cost for equity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of September 30, 2017 and December 31, 2016, based onpresent the Company's review, none of the fixed maturity or equity securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery.investments in AFS securities:


As of March 31, 2021
Amortized cost
Allowance for Credit Losses(1)
Gross
unrealized gains		Gross
unrealized losses		Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies$206,825 $0 $3,964 $(1,054)$209,735 
Obligations of state and political subdivisions45,924 0 1,483 (113)47,294 
Corporate securities107,785 (101)1,424 (575)108,533 
Asset backed securities40,233 0 206 (1,917)38,522 
Certificates of deposit1,356 0 0 0 1,356 
Obligations of foreign governments4,546 (5)20 (54)4,507 
Total$406,669 $(106)$7,097 $(3,713)$409,947 
As of December 31, 2020
Amortized cost
Allowance for Credit Losses(1)
Gross
unrealized gains		Gross
unrealized losses		Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies$191,116 $0 $5,245 $(58)$196,303 
Obligations of state and political subdivisions42,583 0 1,768 (1)44,350 
Corporate securities92,761 0 2,181 (1)94,941 
Asset backed securities37,975 0 316 (2,099)36,192 
Certificates of deposit1,355 0 0 0 1,355 
Obligations of foreign governments3,961 0 31 0 3,992 
Total$369,751 $0 $9,541 $(2,159)$377,133 
(1) - Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in net realized and unrealized gains (losses) as a credit loss on AFS securities. Amount excludes unrealized losses relating to non-credit factors.

The amortized cost and fair values of investments in debtAFS securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Excluded from this table are equity securities since they have no contractual maturity.
As of
March 31, 2021December 31, 2020
Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$36,505 $36,902 $30,306 $30,602 
Due after one year through five years167,610 169,987 149,378 153,406 
Due after five years through ten years38,340 38,292 26,621 27,479 
Due after ten years123,981 126,244 125,471 129,454 
Asset backed securities40,233 38,522 37,975 36,192 
Total$406,669 $409,947 $369,751 $377,133 

F - 13
 As of
 September 30, 2017 December 31, 2016
 Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less$19,075
 $19,074
 $22,846
 $22,833
Due after one year through five years68,918
 69,207
 66,063
 65,841
Due after five years through ten years45,447
 45,375
 49,036
 48,381
Due after ten years5,627
 5,675
 7,026
 6,872
Asset backed securities24,011
 24,100
 1,459
 1,460
Total$163,078
 $163,431
 $146,430
 $145,387

F-21

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)




The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities have been in a continuous unrealized loss position for less than twelve months, and twelve months or greater and do not have an allowance for credit losses:

As of March 31, 2021
Less Than or Equal to One YearMore Than One Year
Fair valueGross
unrealized losses		# of SecuritiesFair valueGross unrealized losses# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies$74,713 $(1,054)172 $1 $0 2 
Obligations of state and political subdivisions9,082 (113)42 0 0 0 
Corporate securities44,717 (575)178 0 0 0 
Asset backed securities4,517 (20)20 3,531 (1,897)4 
Obligations of foreign governments1,868 (54)6 0 0 0 
Total$134,897 $(1,816)418 $3,532 $(1,897)6 
As of December 31, 2020
Less Than or Equal to One YearMore Than One Year
Fair valueGross
unrealized losses		# of SecuritiesFair valueGross unrealized losses# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies$15,323 $(58)41 $2 $0 2 
Obligations of state and political subdivisions379 (1)5 0 0 0 
Corporate securities901 (1)3 0 0 0 
Asset backed securities0 0 0 18,927 (2,099)9 
Total$16,603 $(60)49 $18,929 $(2,099)11 
Management believes that it is more likely than not that the Company will be able to hold the fixed maturity AFS securities that were in an unrealized loss position as of March 31, 2021 until full recovery of their amortized cost basis.

The table below presents a roll-forward of the activity in the allowance for credit losses on AFS securities by type as of March 31, 2021:
Obligations of state and political subdivisionsCorporate securitiesAsset backed securitiesObligations of foreign governmentsTotal
Balance as of December 31, 2019$0 $0 $0 $0 $0 
Increase in the allowance for the initial adoption of ASU 2016-13(1)(50)(2)0 (53)
Gains from recoveries of amounts previously written off1 31 2 0 34 
Balance as of March 31, 2020$0 $(19)$0 $0 $(19)
Balance as of December 31, 2020$0 $0 $0 $0 $0 
(Increase) in allowance for credit losses0 (101)0 (5)(106)
Balance as of March 31, 2021$0 $(101)$0 $(5)$(106)

The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment management company, in determining its lifetime expected credit losses on AFS securities. This includes determining the present value of expected future cash flows discounted at the book yield of the security.

The table below presents the amount of credit losses (gains from recoveries) on AFS securities recorded by the Company for the following period:
F - 14
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)


Three Months Ended
March 31,
20212020
Credit losses (gains from recoveries) on AFS securities$106 $(34)

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company cannot remove invested assets from theseor replace investments in regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable. The following table presents the Company's restricted investments included in the Company's available for saleAFS securities:
As of
March 31,
2021		December 31, 2020
Fair value of restricted investments in trust pursuant to reinsurance agreements$44,268 $44,349 
Fair value of restricted investments for special deposits required by state insurance departments9,341 9,447 
Total fair value of restricted investments$53,609 $53,796 
 As of
 September 30, 2017 December 31, 2016
Fair value of restricted investments for special deposits required by state insurance departments$9,939
 $10,111
Fair value of restricted investments in trust pursuant to reinsurance agreements7,287
 7,573
Total fair value of restricted investments$17,226
 $17,684


The following table presents additional information on the Company’s available for saleAFS securities:
Three Months Ended
March 31,
20212020
Purchases of AFS securities$68,702 $23,580 
Proceeds from maturities, calls and prepayments of AFS securities$17,740 $19,660 
Gross proceeds from sales of AFS securities$13,645 $5,560 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Purchases of available for sale securities$45,250
 $12,799
 $79,907
 $22,477
        
Proceeds from maturities, calls and prepayments of available for sale securities$7,686
 $4,483
 $23,909
 $26,086
        
Gains (losses) realized on maturities, calls and prepayments of available for sale securities$—
 $(14) $(5) $83
        
Gross proceeds from sales of available for sale securities$21,167
 $35,069
 $39,493
 $45,928
        
Gains (losses) realized on sales of available for sale securities$395
 $974
 $372
 $1,016


Investment in Loans

The following tables presenttable presents the Company’s investments in loans, measuredgross realized gains and gross realized losses from sales and redemptions of AFS securities:
Three Months Ended
March 31,
20212020
Gross realized gains$128 $67 
Gross realized (losses)0 (63)
Total net realized gains (losses) from investment sales and redemptions$128 $4 

Loans, at fair value:
value
 As of September 30, 2017 As of December 31, 2016
 Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB
Loans, at fair value           
Corporate loans$162,512
 $162,582
 $(70) $175,558
 $176,808
 $(1,250)
Mortgage loans held for sale114,461
 110,803
 3,658
 121,439
 118,162
 3,277
Non-performing loans44,980
 62,237
 (17,257) 74,923
 113,892
 (38,969)
Other loans receivable1,169
 1,169
 —
 1,169
 1,169
 —
Total loans, at fair value$323,122
 $336,791
 $(13,669) $373,089
 $410,031
 $(36,942)


The following table presents the Company’s investments in loans measured at fair value and the Company’s investments in loans measured at fair value pledged as collateral:
As of March 31, 2021As of December 31, 2020
Fair valueUnpaid principal balance (UPB)Fair value exceeds / (below) UPBPledged as CollateralFair valueUnpaid principal balance (UPB)Fair value exceeds / (below) UPBPledged as Collateral
Insurance:
Corporate loans (1)
$10,832 $14,941 $(4,109)$0 $7,795 $12,281 $(4,486)$0 
Mortgage:
Mortgage loans held for sale (2)
99,626 97,043 2,583 97,499 82,937 78,590 4,347 81,630 
Total loans, at fair value$110,458 $111,984 $(1,526)$97,499 $90,732 $90,871 $(139)$81,630 
(1)    The cost basis of Corporate loans was approximately $13,463 and $11,282 at March 31, 2021 and December 31, 2020, respectively.
(2)    As of March 31, 2021 and December 31, 2020, there were 2 mortgage loans held for sale that were 90 days or more past due, respectively, with a fair value of $334 and $534, respectively.


F - 15
 As of
 September 30, 2017 December 31, 2016
Corporate loans$161,000
 $175,365
Mortgage loans held for sale111,927
 117,734
Non-performing loans39,537
 60,409
Total fair value of loans pledged as collateral$312,464
 $353,508

F-22

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)




Equity Securities


AsEquity securities consist mainly of September 30, 2017, therepublicly traded common and preferred stocks. Included within the equity securities balance are no mortgage loans held17.0 million shares of Invesque as of March 31, 2021 and December 31, 2020, for sale 90 days or more past due.which the Company has elected to apply the fair value option. The unpaid principal balancefollowing table presents information on the cost and fair value of mortgage loans held for sale that are 90 days or more past due were $142the Company’s equity securities related to insurance operations and $66, respectively,other Tiptree investing activity as of December 31, 2016.the following periods:

As of March 31, 2021
InsuranceTiptree Capital - OtherTotal
CostFair ValueCostFair ValueCostFair Value
Invesque$23,339 $8,245 $111,491 $39,474 $134,830 $47,719 
Fixed income exchange traded fund62,438 64,293 0 0 62,438 64,293 
Other equity securities36,337 33,010 0 0 36,337 33,010 
Total equity securities$122,114 $105,548 $111,491 $39,474 $233,605 $145,022 
The following table presents the Company’s investments in loans, measured at amortized cost:
As of December 31, 2020
InsuranceTiptree Capital - OtherTotal
CostFair ValueCostFair ValueCostFair Value
Invesque$23,339 $5,370 $111,491 $25,708 $134,830 $31,078 
Fixed income exchange traded fund62,438 63,875 0 0 62,438 63,875 
Other equity securities38,069 28,885 0 0 38,069 28,885 
Total equity securities$123,846 $98,130 $111,491 $25,708 $235,337 $123,838 

0
Other Investments
 As of
 September 30, 2017 December 31, 2016
Loans at amortized cost, net   
Asset backed loans and other loans, net$152,168
 $115,033
Less: Allowance for loan losses1,572
 1,195
Total loans at amortized cost, net$150,596
 $113,838
    
Net deferred loan origination fees included in asset backed loans$5,701
 $5,244

The following table presents additional information on the Company’s asset backed loans:
 As of
 September 30, 2017 December 31, 2016
Pledged as collateral$157,169
 $119,558
    
Loans receivable, net, attributable to a subsidiary in our specialty finance business$149,896
 $113,138

Our subsidiary structures asset-based loan facilities in the $1,000 to $25,000 range for small to mid-sized companies. Collateral for asset-backed loan receivables, as of September 30, 2017 and December 31, 2016, consisted primarily of inventory, equipment and accounts receivable. Management reviews collateral for these loans on at least a monthly basis or more frequently if a draw is requested and management has determined that no impairment existed as of September 30, 2017. As of September 30, 2017, there were no delinquencies in the portfolio and all loans were classified as performing.

Real Estate, net


The following table contains information regarding the Company’s investment in real estateother investments as of the following periods:
As of March 31, 2021
Tiptree Capital
InsuranceMortgageOtherTotal
Corporate bonds, at fair value (1)
$101,296 $0 $0 $101,296 
Vessels, net (2)
0 0 82,657 82,657 
Debentures20,377 0 0 20,377 
Other744 12,021 1,376 14,141 
Total other investments$122,417 $12,021 $84,033 $218,471 

As of December 31, 2020
Tiptree Capital
InsuranceMortgageOtherTotal
Corporate bonds, at fair value (1)
$105,777 $0 $0 $105,777 
Vessels, net (2)
0 0 83,028 83,028 
Debentures17,703 0 0 17,703 
Other2,353 9,439 1,401 13,193 
Total other investments$125,833 $9,439 $84,429 $219,701 

(1)    The cost basis of corporate bonds was $95,644 and $97,284 as of March 31, 2021 and December 31, 2020, respectively.
(2)     Net of accumulated depreciation of $9,515 and $8,372 as of March 31, 2021 and December 31, 2020, respectively.


F - 16
 As of September 30, 2017
 Land Buildings and equipment Accumulated depreciation Total
Managed properties$19,447
 $208,751
 $(16,283) $211,915
Triple net lease properties19,741
 135,857
 (9,455) 146,143
Foreclosed residential real estate property—
 13,079
 —
 13,079
Total$39,188
 $357,687
 $(25,738) $371,137
        
 As of December 31, 2016
 Land Buildings and equipment Accumulated depreciation Total
Managed properties$16,347
 $189,463
 $(11,212) $194,598
Triple net lease properties13,778
 94,291
 (6,610) 101,459
Foreclosed residential real estate property—
 13,366
 —
 13,366
Total$30,125
 $297,120
 $(17,822) $309,423
For the nine months ended September 30, 2017, the Company acquired ten senior living facilities accounted for as asset acquisitions, with $47,654 of real estate acquired, and $8,297 of identifiable intangible assets related to in-place leases which will be amortized over a period ranging from approximately 7 to 12 years. These ten properties are in addition to the two acquisitions disclosed in Note—(3) Acquisitions, which were accounted for as business combinations.

F-23

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 the depreciation expense related to the Company’s real estate investments for the following periods:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Depreciation expense on real estate investments$2,873
 $1,974
 $7,916
 $5,581

Future Minimum Rental Revenue

The following table presents the future minimum rental revenue under the noncancelable terms of all operating leases related to our triple net lease properties, as of:
 September 30, 2017
Remainder of 2017$3,280
201813,248
201913,519
202013,797
202115,161
Thereafter60,999
Total$120,004

The following table presents rental revenues from residential leases at the managed properties for the following periods:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Rental revenues from residential leases$14,274
 $12,685
 $42,005
 $35,231

Net Investment Income - Insurance


Net investment income represents income primarily from the following sources:

Interestinvestment income and dividendsexpense from investments related to available for sale securities, at fair value;
Interestinsurance operations as disclosed within net investment income related to loans, at fair value;
Dividend income from equity securities, trading, at fair value;
Rental and related revenue from real estate, net; and
Earnings from other investments.

on the condensed consolidated statements of operations. The following table presents the components of net investment income related to our specialty insurance business recordedby source of income:
Three Months Ended
March 31,
20212020
Interest:
AFS securities$1,724 $2,281 
Loans, at fair value205 173 
Other investments1,282 855 
Dividends from equity securities89 591 
Other20 0 
Subtotal3,320 3,900 
Less: investment expenses553 412 
Net investment income$2,767 $3,488 

Other Investment Income - Tiptree Capital

Other investment income represents other revenue from other Tiptree non-insurance activities as disclosed within other revenue on the condensed consolidated statements of operations:operations, see Note (16) Other Revenue and Other Expenses. The following tables present the components of other investment income by type:
Three Months Ended
March 31,
20212020
Interest:
Loans, at fair value (1)
$1,672 $1,731 
Dividends from equity securities0 2,533 
Loan fee income5,362 3,554 
Vessel related revenue5,699 7,246 
Other investment income$12,733 $15,064 
 Three Months Ended September 30, Nine Months Ended September 30,
Net investment income2017 2016 2017 2016
Available for sale securities, at fair value$823
 $653
 $2,423
 $2,323
Loans, at fair value2,698
 1,971
 8,330
 4,981
Equity securities, trading, at fair value459
 969
 1,912
 1,933
Real estate, net156
 —
 482
 —
Other investments73
 73
 277
 224
Total investment income4,209
 3,666
 13,424
 9,461
Less: investment expenses369
 359
 1,392
 1,052
Net investment income$3,840
 $3,307
 $12,032
 $8,409
(1)    Primarily relates to Loans, at fair value classified as Held for Sale. See Note (4) Assets and Liabilities Held for Sale.




F-24Net Realized and Unrealized Gains (Losses)



The following table presents the components of net realized and unrealized gains (losses) recorded on the condensed consolidated statements of operations:
 Three Months Ended September 30, Nine Months Ended September 30,
Net realized and unrealized gains (losses)2017 2016 2017 2016
Net realized gains (losses)$18,817
 $19,948
 $48,150
 $48,423
Net unrealized gains (losses)(11,291) 6,267
 (12,967) 17,531
Net realized and unrealized gains (losses)$7,526
 $26,215
 $35,183
 $65,954

The following table presents the net gain on the sale of mortgage loans and the cumulative netoperations. Net unrealized gains (losses) on equityAFS securities trading, at fair value recordedare included within other comprehensive income (loss) (OCI), net of tax, and, as such, are not included in this table. Net realized and unrealized gains (losses) on the condensed consolidated statements of operations:non-investment related financial assets and liabilities are included below:
F - 17
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net realized gain on sale of mortgage loans (1)
$16,476
 $20,045
 $47,237
 $48,412
        
Cumulative net unrealized gains (losses) on equity securities, trading, at fair value held at the reporting date$(11,125) $1,365
 $(21,183) $6,386
(1) Related to the Company’s specialty finance business.

(6) Notes and Accounts Receivable, net

The following table summarizes the total notes and accounts receivable, net:
 As of
 September 30, 2017 December 31, 2016
Premium financing program (1)
$15,403
 $20,615
Notes from affiliates of partner (2)
3,862
 3,862
Other45
 298
Notes receivable, net$19,310
 $24,775
Accounts and premiums receivable, net60,763
 45,041
Retrospective commissions receivable65,156
 59,175
Other receivables33,497
 28,509
Total$178,726
 $157,500
(1) Related to the Company’s specialty insurance business.
(2) Related to the Company’s senior living business, which owns a 75% interest in a managed property. The remaining 25% interest is owned by our joint venture partner.

Notes Receivable, net

The Company has established an allowance for uncollectible amounts against its notes receivable of $1,528 and $1,444 as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, there were $1,848 and $2,188 in balances classified as 90 days plus past due, respectively.

Accounts and premiums receivable, net, Retrospective commissions receivable and Other receivables

Accounts and premiums receivable, net, retrospective commissions receivable and other receivables are primarily trade receivables from the specialty insurance business that are carried at their approximate fair value. The Company has established a valuation allowance against its accounts and premiums receivable of $319 and $225 as of September 30, 2017 and December 31, 2016, respectively.

F-25


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,
20212020
Net realized gains (losses)
Insurance:
Reclass of unrealized gains (losses) on AFS securities from OCI$128 $4 
Gains from recoveries (credit losses) on AFS securities(106)34 
Net realized gains (losses) on loans0 (1,518)
Net realized gains (losses) on equity securities(1,853)(16,564)
Net realized gain on corporate bonds1,816 4 
Other2,577 734 
Tiptree Capital
Mortgage:
Net realized gains (losses) on loans24,733 17,520 
Other965(1,377)
Other:
Net realized gains (losses) on loans (1)
13,887 6,837 
Other669 (350)
Total net realized gains (losses)42,816 5,324 
Net unrealized gains (losses)
Insurance:
Net change in unrealized gains (losses) on loans856 (2,160)
Net unrealized gains (losses) on equity securities held at period end11,087 (25,770)
Reclass of unrealized (gains) losses from prior periods for equity securities sold(1,211)16,252 
Other(3,622)(4,619)
Tiptree Capital
Mortgage:
Net change in unrealized gains (losses) on loans(1,642)(401)
Other6,023 (3,027)
Other:
Net change in unrealized gains (losses) on loans (1)
(1,900)(252)
Net unrealized gains (losses) on equity securities held at period end13,767 (48,551)
Other3,197 763 
Total net unrealized gains (losses)26,555 (67,765)
Total net realized and unrealized gains (losses)$69,371 $(62,441)
(1)    Primarily relates to Loans, at fair value classified as Held for Sale. See Note (4) Assets and Liabilities Held for Sale.

F - 18
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)


(7) Notes and Accounts Receivable, net

The following table presents the total notes and accounts receivable, net:
As of
March 31,
2021		December 31, 2020
Notes receivable, net - premium financing program$62,807 $62,075 
Accounts and premiums receivable, net94,846 95,269 
Retrospective commissions receivable135,494 131,760 
Trust receivables27,910 54,393 
Other receivables27,257 26,955 
Total notes and accounts receivable, net$348,314 $370,452 

The following table presents the total valuation allowance and bad debt expense for the following periods:
Valuation allowanceBad Debt Expense
As of
March 31, 2021		As of December 31, 2020Three Months Ended
March 31,
20212020
Notes receivable, net - premium financing program (1)
$117 $101 $80 $49 
Accounts and premiums receivable, net$227 $169 $4 $8 
(1)    As of March 31, 2021 and December 31, 2020, there were $237 and $215 in balances classified as 90 days plus past due, respectively.

(8) Reinsurance Receivables


The following table presents the effect of reinsurance on premiums written and earned by our specialty insurance business for the following periods:

Direct amountCeded to other companiesAssumed from other companiesNet amountPercentage of amount - assumed to net
Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net
For the Three Months ended September 30, 2017         
For the Three Months Ended March 31, 2021For the Three Months Ended March 31, 2021
Premiums written:         Premiums written:
Life insurance $18,375
 $9,587
 $525
 $9,313
 5.6%Life insurance$18,573 $11,027 $410 $7,956 5.2 %
Accident and health insurance 34,034
 23,077
 862
 11,819
 7.3%Accident and health insurance32,163 22,667 4,861 14,357 33.9 %
Property and liability insurance149,414
 56,380
 4,844
 97,878
 4.9%Property and liability insurance270,157 136,353 42,888 176,692 24.3 %
Total premiums written 201,823
 89,044
 6,231
 119,010
 5.2%Total premiums written$320,893 $170,047 $48,159 $199,005 24.2 %
         
Premiums earned:         Premiums earned:
Life insurance 15,654
 7,764
 481
 8,371
 5.7%Life insurance$17,493 $9,766 $340 $8,067 4.2 %
Accident and health insurance 28,347
 19,511
 814
 9,650
 8.4%Accident and health insurance30,179 20,476 3,791 13,494 28.1 %
Property and liability insurance126,847
 52,201
 3,406
 78,052
 4.4%Property and liability insurance241,829 160,395 43,924 125,358 35.0 %
Total premiums earned$170,848
 $79,476
 $4,701
 $96,073
 4.9%Total premiums earned$289,501 $190,637 $48,055 $146,919 32.7 %
         
For the Three Months ended September 30, 2016         
For the Three Months Ended March 31, 2020For the Three Months Ended March 31, 2020
Premiums written:         Premiums written:
Life insurance $18,246
 $9,668
 $674
 $9,252
 7.3%Life insurance$16,574 $8,744 $362 $8,192 4.4 %
Accident and health insurance 31,553
 21,635
 865
 10,783
 8.0%Accident and health insurance29,850 19,056 3,521 14,315 24.6 %
Property and liability insurance126,230
 94,095
 3,842
 35,977
 10.7%Property and liability insurance197,725 116,550 28,800 109,975 26.2 %
Total premiums written 176,029
 125,398
 5,381
 56,012
 9.6%Total premiums written$244,149 $144,350 $32,683 $132,482 24.7 %
         
Premiums earned:         Premiums earned:
Life insurance 15,861
 7,712
 642
 8,791
 7.3%Life insurance$17,608 $9,361 $381 $8,628 4.4 %
Accident and health insurance 28,391
 20,093
 830
 9,128
 9.1%Accident and health insurance32,170 21,518 3,542 14,194 25.0 %
Property and liability insurance126,902
 98,883
 1,671
 29,690
 5.6%Property and liability insurance172,855 100,949 26,593 98,499 27.0 %
Total premiums earned$171,154
 $126,688
 $3,143
 $47,609
 6.6%Total premiums earned$222,633 $131,828 $30,516 $121,321 25.2 %
         
For the Nine Months ended September 30, 2017         
Premiums written:         
Life insurance $46,275
 $23,264
 $1,458
 $24,469
 6.0%
Accident and health insurance 87,242
 57,911
 2,355
 31,686
 7.4%
Property and liability insurance406,976
 176,477
 15,670
 246,169
 6.4%
Total premiums written 540,493
 257,652
 19,483
 302,324
 6.4%
         
Premiums earned:         
Life insurance 45,995
 22,685
 1,473
 24,783
 5.9%
Accident and health insurance 82,242
 56,736
 2,373
 27,879
 8.5%
Property and liability insurance357,448
 148,402
 11,073
 220,119
 5.0%
Total premiums earned$485,685
 $227,823
 $14,919
 $272,781
 5.5%
         
For the Nine Months ended September 30, 2016         
Premiums written:         
Life insurance $49,018
 $25,267
 $1,971
 $25,722
 7.7%
Accident and health insurance 87,446
 59,657
 2,507
 30,296
 8.3%
Property and liability insurance389,157
 302,945
 10,146
 96,358
 10.5%
Total premiums written 525,621
 387,869
 14,624
 152,376
 9.6%
         
Premiums earned:         
Life insurance 46,112
 22,139
 2,003
 25,976
 7.7%
Accident and health insurance 84,994
 60,134
 2,465
 27,325
 9.0%
Property and liability insurance377,589
 296,523
 4,149
 85,215
 4.9%
Total premiums earned$508,695
 $378,796
 $8,617
 $138,516
 6.2%
F-26
F - 19

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 the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses ("LAE")(LAE) incurred:
Direct amountCeded to other companiesAssumed from other companiesNet amountPercentage of amount - assumed to net
For the Three Months Ended March 31, 2021
Losses and LAE Incurred
Life insurance$15,596 $9,332 $153 $6,417 2.4 %
Accident and health insurance4,818 3,814 660 1,664 39.7 %
Property and liability insurance75,917 51,996 18,249 42,170 43.3 %
Total losses and LAE incurred96,331 65,142 19,062 50,251 37.9 %
Member benefit claims (1)
16,923 
Total policy and contract benefits$67,174 
For the Three Months Ended March 31, 2020
Losses and LAE Incurred
Life insurance$10,091 $5,674 $121 $4,538 2.7 %
Accident and health insurance3,699 3,042 2,213 2,870 77.1 %
Property and liability insurance67,270 41,234 12,532 38,568 32.5 %
Total losses and LAE incurred81,060 49,950 14,866 45,976 32.3 %
Member benefit claims (1)
14,900 
Total policy and contract benefits$60,876 
 Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net
For the Three Months ended September 30, 2017         
Losses Incurred         
Life insurance                  $8,003
 $4,573
 $178
 $3,608
 4.9%
Accident and health insurance   4,456
 3,252
 190
 1,394
 13.6%
Property and liability insurance48,783
 26,571
 544
 22,756
 2.4%
Total losses incurred61,242
 34,396
 912
 27,758
 3.3%
          
 
Member benefit claims (1)
 3,812
  
 Total policy and contract benefits $31,570
  
          
For the Three Months ended September 30, 2016         
Losses Incurred         
Life insurance                  $8,550
 $4,647
 $378
 $4,281
 8.8%
Accident and health insurance   5,697
 4,863
 205
 1,039
 19.7%
Property and liability insurance61,431
 47,469
 632
 14,594
 4.3%
Total losses incurred75,678
 56,979
 1,215
 19,914
 6.1%
          
 
Member benefit claims (1)
 5,967
  
 Total policy and contract benefits $25,881
  
          
For the Nine Months ended September 30, 2017         
Losses Incurred         
Life insurance                  $24,527
 $13,558
 $748
 $11,717
 6.4%
Accident and health insurance   13,200
 10,815
 662
 3,047
 21.7%
Property and liability insurance144,535
 78,454
 1,708
 67,789
 2.5%
Total losses incurred182,262
 102,827
 3,118
 82,553
 3.8%
          
 
Member benefit claims (1)
 11,811
  
 Total policy and contract benefits $94,364
  
          
For the Nine Months ended September 30, 2016         
Losses Incurred         
Life insurance                  $24,962
 $12,957
 $1,061
 $13,066
 8.1%
Accident and health insurance   14,598
 12,203
 700
 3,095
 22.6%
Property and liability insurance166,586
 128,542
 897
 38,941
 2.3%
Total losses incurred206,146
 153,702
 2,658
 55,102
 4.8%
          
 
Member benefit claims (1)
 17,334
  
 Total policy and contract benefits $72,436
  
(1)    - Member benefit claims are not covered by reinsurance.


F-27

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)



The following table presents the components of the reinsurance receivables:
As of
March 31,
2021		December 31, 2020
Prepaid reinsurance premiums:
Life insurance (1)
$71,082 $70,066 
Accident and health insurance (1)
68,452 66,261 
Property and liability insurance394,357 423,868 
Total533,891 560,195 
Ceded claim reserves:
Life insurance3,977 4,133 
Accident and health insurance11,105 11,118 
Property and liability insurance110,016 98,092 
Total ceded claim reserves recoverable125,098 113,343 
Other reinsurance settlements recoverable54,741 54,471 
Reinsurance receivables$713,730 $728,009 
 As of
 September 30, 2017 December 31, 2016
Prepaid reinsurance premiums:   
Life (1)
$64,223
 $64,621
Accident and health (1)
55,175
 53,999
Property (2)
122,883
 94,091
Total242,281
 212,711
    
Ceded claim reserves:   
Life3,015
 2,929
Accident and health9,819
 10,435
Property57,138
 49,917
Total ceded claim reserves recoverable69,972
 63,281
Other reinsurance settlements recoverable20,770
 20,242
Reinsurance receivables$333,023
 $296,234
(1)    Including policyholder account balances ceded.

(1)Including policyholder account balances ceded.
(2)The December 31, 2016 amount includes a non-cash transaction, as part of a reinsurance contract cancellation that resulted in a reduction of $92,854 in reinsurance receivable, offset by an increase of $88,857 in assets and a decrease of $3,997 in liabilities.

The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from unrelatednon-affiliated reinsurers:
As of
March 31, 2021
Total of the three largest receivable balances from non-affiliated reinsurers$119,426 
 As of
 September 30, 2017
Total of the three largest receivable balances from unrelated reinsurers$78,783


At September 30, 2017,As of March 31, 2021, the three unrelatednon-affiliated reinsurers from whom our specialty insurance business has the largest receivable balances were: London Life Reinsurance Corporation (A. M. Best Rating: A rated); MFI Insurance Company, LTD (A. M. Best Rating: Not rated), Frandisco Property and LondonCasualty Company (A. M. Best Rating: Not rated) and Canada Life International Reinsurance (Barbados) Corporation (A. M. Best Rating: Not rated). The.The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit. At September 30, 2017,As of March 31, 2021, the Company does not believe there is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization.


F-28
F - 20

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021
(in thousands, except share data)




reinsurance program given the collateralization.
(8)

(9) Goodwill and Intangible Assets, net


The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by segment:operating segment and/or reporting unit, as appropriate:
As of March 31, 2021As of December 31, 2020
Finite-Lived Intangible Assets:InsuranceOtherTotalInsuranceOtherTotal
Customer relationships$143,300 $0 $143,300 $143,300 $0 $143,300 
Accumulated amortization(35,700)0 (35,700)(32,263)0 (32,263)
Trade names14,750 800 15,550 14,750 800 15,550 
Accumulated amortization(4,712)(461)(5,173)(4,382)(440)(4,822)
Software licensing9,300 640 9,940 9,300 640 9,940 
Accumulated amortization(8,684)(527)(9,211)(8,650)(503)(9,153)
Insurance policies and contracts acquired36,500 0 36,500 36,500 0 36,500 
Accumulated amortization(36,261)0 (36,261)(36,238)0 (36,238)
Other640 0 640 640 0 640 
Accumulated amortization(31)0 (31)0 0 0 
Total finite-lived intangible assets119,102 452 119,554 122,957 497 123,454 
Indefinite-Lived Intangible Assets: (1)
Insurance licensing agreements13,761 0 13,761 13,761 0 13,761 
Other0 1,000 1,000 0 1,000 1,000 
Total indefinite-lived intangible assets13,761 1,000 14,761 13,761 1,000 14,761 
Total intangible assets, net$132,863 $1,452 $134,315 $136,718 $1,497 $138,215 
Goodwill177,528 1,708 179,236 177,528 1,708 179,236 
Total goodwill and intangible assets, net$310,391 $3,160 $313,551 $314,246 $3,205 $317,451 
 As of September 30, 2017 As of December 31, 2016
 Specialty insurance Senior living Specialty finance Total Specialty insurance Senior living Specialty finance Total
Customer relationships$50,500
 $—
 $—
 $50,500
 $50,500
 $—
 $—
 $50,500
Accumulated amortization(10,215) —
 —
 (10,215) (4,614) —
 —
 (4,614)
Trade names6,500
 —
 800
 7,300
 6,500
 —
 800
 7,300
Accumulated amortization(2,018) —
 (180) (2,198) (1,484) —
 (120) (1,604)
Software licensing8,500
 —
 640
 9,140
 8,500
 —
 640
 9,140
Accumulated amortization(4,817) —
 (206) (5,023) (3,542) —
 (137) (3,679)
Insurance policies and contracts acquired36,500
 —
 —
 36,500
 36,500
 —
 —
 36,500
Accumulated amortization(35,234) —
 —
 (35,234) (34,184) —
 —
 (34,184)
Insurance licensing agreements(1)
13,749
 —
 —
 13,749
 13,000
 —
 —
 13,000
Leases in place1,317
 44,380
 —
 45,697
 1,317
 32,233
 —
 33,550
Accumulated amortization(101) (26,062) —
 (26,163) (18) (20,413) —
 (20,431)
Intangible assets, net64,681
 18,318
 1,054
 84,053
 72,475
 11,820
 1,183
 85,478
Goodwill89,854
 —
 2,913
 92,767
 89,854
 —
 2,913
 92,767
Total goodwill and intangible assets, net$154,535
 $18,318
 $3,967
 $176,820
 $162,329
 $11,820
 $4,096
 $178,245
(1)    Impairment tests are performed at least annually on indefinite-lived intangible assets.
(1)
Represents intangible assets with an indefinite useful life. Impairment tests are performed at least annually on these assets.


Goodwill


The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to discontinued operations or impairment related charges:
InsuranceOtherTotal
Balance at December 31, 2020$177,528 $1,708 $179,236 
Balance at March 31, 2021$177,528 $1,708 $179,236 
Accumulated impairments$0 $699 $699 
 Specialty insurance Specialty finance Total
Balance at December 31, 2016$89,854
 $2,913
 $92,767
Balance at September 30, 2017$89,854
 $2,913
 $92,767



The Company conducts annual impairment tests of its goodwill as of October 1. 1. For the three and nine months ended September 30, 2017March 31, 2021 and 2016, respectively, no impairment was2020, 0 impairments were recorded on the Company’s goodwill or intangibles.goodwill.


F - 21
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)


Intangible Assets, net


The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation adjustments made for acquisitions, as well as any reduction attributable to discontinued operations or impairment-related charges:
InsuranceOtherTotal
Balance at December 31, 2020$136,718 $1,497 $138,215 
Less: amortization expense(3,855)(45)(3,900)
Balance at March 31, 2021$132,863 $1,452 $134,315 
 Specialty insurance Senior living Specialty finance Total
Balance at December 31, 2016$72,475
 $11,820
 $1,183
 $85,478
Intangible assets acquired in 2017749
 12,147
 —
 12,896
Less: amortization expense(8,543) (5,649) (129) (14,321)
Balance at September 30, 2017$64,681
 $18,318
 $1,054
 $84,053




F-29


TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


During the nine months ended September 30, 2017 a subsidiary in our specialty insurance business acquired 100% of the outstanding stock of an insurance company, licensed in several states but having no operations and no net insurance exposures. The purpose of this transaction was to acquire additional licenses to expand the Company’s direct writing capabilities to New York and Wisconsin. The transaction was accounted for as an asset acquisition, resulting in $749 recorded as an indefinite life intangible asset for the cost attributed to the insurance licenses.


The following table presents the amortization expense on finite-lived intangible assets for the following periods:
Three Months Ended
March 31, 2020
20212020
Amortization expense on intangible assets$3,900 $2,245 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Amortization expense on intangible assets$4,359
 $3,702
 $14,321
 $14,246


For the three months ended March 31, 2021 and 2020, 0 impairments were recorded on the Company’s intangible assets.

The following table presents the amortization expense on finite-lived intangible assets for the next five years and thereafter by segment:operating segment and/or reporting unit, as appropriate:
As of March 31, 2021
InsuranceOtherTotal
Remainder of 2021$11,548 $125 $11,673 
202215,852 127 15,979 
202315,031 80 15,111 
202413,344 80 13,424 
202511,230 40 11,270 
2026 and thereafter52,097 0 52,097 
Total$119,102 $452 $119,554 


 As of September 30, 2017
 Specialty insurance (VOBA) Specialty insurance (other) Senior living Specialty finance Total
Remainder of 2017$200
 $2,482
 $1,730
 $42
 $4,454
2018465
 9,187
 3,086
 171
 12,909
2019217
 7,619
 958
 171
 8,965
2020123
 5,137
 958
 171
 6,389
202182
 4,361
 958
 171
 5,572
2022 and thereafter179
 20,880
 10,628
 328
 32,015
Total$1,266
 $49,666
 $18,318
 $1,054
 $70,304

(9)(10) Derivative Financial Instruments and Hedging


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.


Derivatives, at fair value
Credit Derivatives
Credit derivatives are generally defined as over‑the‑counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity.
Credit Default Swap Indices (CDX) are credit derivatives that reference multiple names through underlying baskets or portfolios of single name credit default swaps. The Company enters into these contracts as both a buyer of protection and seller of protection to manage the credit risk exposure of its investment portfolio. At inception of the investment into theCDX position, the Company was required to deposit cash collateral for these positions equal to an initial 2.25% of the notional amount of the sold protection side subject to increase based on additional maintenance margin as a result of decreases in value. As of September 30, 2017, the required collateral balance was $6,668 posted by the Company to cover its liabilities as a seller of protection. As of September 30, 2017, there is a cash collateral balance of $1,632 held by the Company as collateral for the payments due to the Company as buyer of protection, which is netted against the overall investment position.


F-30


TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


Interest Rate Lock Commitments


The Company enters into interest rate lock commitments (IRLCs) with customers in connection with its mortgage banking activities to fund residential mortgage loans with certain terms at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value typically resulting in recognition of a gain when the Company enters into IRLCs. In estimating the fair value of an IRLC, the Company assigns a probability that the loan commitment will be exercised and the loan will be funded (“pull through”). The fair value of the commitments is derived from the fair value of related mortgage loans, net of estimated costs to complete. Outstanding IRLCs expose the Company to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To manage this risk, the Company utilizes forward delivery contracts and TBAto be announced (TBA) mortgage backed securities to economically hedge the risk of potential changes in the value of the loans that would
F - 22
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2021
(in thousands, except share data)


result from the commitments.


Forward Delivery Contracts and TBA Mortgage Backed Securities
The Company enters into forward delivery contracts with loan aggregators and other investors as one of the tools to manage the interest rate risk associated with IRLCs and loans held for sale.

TBA Mortgage Backed Securities

The In addition, the Company enters into to be announced (TBA)TBA mortgage backed securities which facilitate hedging and funding by allowing the Company to prearrange prices for mortgages that are in the process of originating. The Company utilizes these hedging instruments for Agency (Fannie Mae and Freddie Mac) and FHA/VA (Ginnie Mae) eligible IRLCs and typically commit them to investors at prices higher than otherwise available.IRLCs.

Interest Rate Swaps
The Company is exposed to interest rate risk when there is an unfavorable change in the value of investments as a result of adverse movements in the market interest rates. The Company enters into interest rate swaps (IRS) to protect against such adverse movements in interest rates. The Company is required to post collateral for the benefit of the counterparty. This is included in other assets in the condensed consolidated balance sheets.
The Company uses interest rate swaps to hedge the variability of floating rate borrowings. Cash flow hedge accounting was applied to the floating rate borrowings in its specialty insurance business, and during the second quarter of 2016, the Company elected to apply cash flow hedge accounting to such transactions in its senior living business. 
The following table summarizespresents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk:
As of March 31, 2021As of December 31, 2020
Notional
values		Asset
derivatives		Liability
derivatives		Notional
values		Asset
derivatives		Liability
derivatives
Interest rate lock commitments$304,757 $8,284 $0 $219,929 $9,207 $0 
Forward delivery contracts51,981 109 0 35,979 0 22 
TBA mortgage backed securities395,000 3,628 403 291,000 232 1,508 
Other1,467 667 692 3,058 2,090 560 
Total$753,205 $12,688 $1,095 $549,966 $11,529 $2,090 
(11) Debt, net
 As of September 30, 2017 As of December 31, 2016
 Notional
values		 Asset
derivatives		 Liability
derivatives		 Notional
values		 Asset
derivatives		 Liability
derivatives
Credit risk:           
Credit derivatives sold protection$295,973
 $18,409
 $—
 $297,612
 $28,731
 $—
Credit derivatives bought protection294,767
 —
 3,742
 298,173
 —
 14,501
Sub-total590,740
 18,409
 3,742
 595,785
 28,731
 14,501
            
Foreign currency risk:           
Foreign currency forward contracts—
 —
 —
 965
 —
 3
            
Interest rate risk:           
Interest rate lock commitments276,776
 6,537
 —
 203,815
 4,872
 —
Forward delivery contracts61,094
 49
 —
 66,731
 —
 84
TBA mortgage backed securities253,750
 284
 283
 249,750
 1,678
 269
Interest rate swaps133,143
 1,284
 426
 134,343
 1,388
 1,042
Sub-total724,763

8,154

709
 654,639
 7,938

1,395
Total$1,315,503

$26,563

$4,451
 $1,251,389
 $36,669

$15,899

F-31

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


The Company nets the credit derivative assets and liabilities as these credit derivatives are subject to legally enforceable netting arrangements with the same party. The following table presents derivative instruments that are subject to offset by a master netting agreement:
 As of
 September 30, 2017 December 31, 2016
Derivatives subject to netting arrangements:   
Credit default swap indices sold protection$18,409
 $28,731
Credit default swap indices bought protection(3,742) (14,501)
Gross assets recognized14,667
 14,230
Cash collateral(1,632) (1,632)
Net assets recognized (included in other investments)$13,035
 $12,598

Derivatives Designated as Cash Flow Hedging Instruments

A subsidiary in our specialty insurance business had an IRS with a counterparty, pursuant to which the subsidiary swapped the floating rate portion of its outstanding preferred trust securities to a fixed rate. This IRS was designated as a cash flow hedge and expired in June 2017.

Subsidiaries in our senior living business have IRSs with the same counterparty as the respective lenders, pursuant to which our subsidiary swapped the floating rate portion of its outstanding debt to a fixed rate. These IRSs are designated as cash flow hedges and expire between November 30, 2017 and August 1, 2023.


The following table presents the fair value and the related outstanding notional amounts of the Company's cash flow hedging derivative instruments and indicates where the Company records each amount in its condensed consolidated balance sheets:
   As of
 Balance Sheet Location September 30, 2017 December 31, 2016
Derivatives designated as cash flow hedging instruments:     
Notional value  $133,143
 $134,343
Fair value of interest rate swapsOther investments $1,284
 $1,388
Fair value of interest rate swapsOther liabilities and accrued expenses $426
 $1,042
Unrealized gain (loss), net of tax, on the fair value of interest rate swapsAOCI $1,606
 $1,759
      
Range of variable rates on interest rate swaps  1.23% to 1.24% 0.67% to 0.96%
   
  
Range of fixed rates on interest rate swaps  1.31% to 4.99% 1.31% to 4.99%

The following table presents the pretax impact of the cash flow hedging derivative instruments on the condensed consolidated financial statements for the following periods:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Gains (losses) recognized in AOCI on the derivative-effective portion$(33) $156
 $(411) $(515)
        
(Gains) losses reclassified from AOCI into income-effective portion$(25) $172
 $212
 $(56)
        
Gains (losses) recognized in income on the derivative-ineffective portion$—
 $48
 $(2) $(3)


F-32

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


The following table presents the estimated amount to be reclassified to earnings from AOCI during the next 12 months. These net (gains) losses are reclassified into earnings through interest expense.
 As of
 September 30, 2017
Estimated (gains) losses to be reclassified to earnings from AOCI during the next 12 months$(199)

(10) Assets and Liabilities of Consolidated CLOs

The CLOs are considered variable interest entities (VIE) and the Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.

On January 18, 2017, the Company sold its ownership in the subordinated notes of a CLO. As a result of the sale, the Company determined that it no longer had the controlling interest in such entity. The Company, therefore, deconsolidated its ownership in the subordinated notes of the CLO and is no longer reporting the assets and liabilities of the CLO in its condensed consolidated balance sheet as of September 30, 2017, or the revenue and expenses of the CLO in its condensed consolidated statement of operations for the three and nine months ended September 30, 2017.
On August 10, 2017, the Company’s ownership in the subordinated notes of a CLO was redeemed for cash as part of the complete liquidation of the CLO. The operations of the CLO were consolidated in the Company’s condensed consolidated financial statements through the redemption date.
The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s condensed consolidated balance sheets as of the dates indicated:
 As of
 September 30, 2017 December 31, 2016
Assets:   
Cash and cash equivalents$20,586
 $45,589
Loans, at fair value (1)
343,382
 928,240
Other assets8,806
 15,666
Total assets of consolidated CLOs$372,774
 $989,495
Liabilities:   
Debt$326,716
 $912,034
Other liabilities and accrued expenses27,621
 19,935
Total liabilities of consolidated CLOs$354,337
 $931,969
    
Net$18,437
 $57,526

(1)The unpaid principal balance for these loans is $352,958 and $952,225 and the difference between their fair value and UPB is $9,576 and $23,985 at September 30, 2017 and December 31, 2016, respectively.

The Company’s beneficial interests and maximum exposure to loss related to the consolidated CLOs are limited to (i) ownership in the subordinated notes and related participations in management fees of the CLOs and (ii) accrued management fees. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative results in the net amount of the CLOs shown above to be equivalent to the beneficial interests retained by the Company as illustrated in the below table:
Beneficial interests:As of
 September 30, 2017 December 31, 2016
Subordinated notes and related participations in management fees$18,128
 $56,820
Accrued management fees309
 706
Total beneficial interests$18,437
 $57,526


F-33

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


The following table represents revenue and expenses of the consolidated CLOs included in the Company’s condensed consolidated statements of operations for the periods indicated:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Income:       
Net realized and unrealized gains (losses)$1,889
 $(1,422) $3,457
 $(2,913)
Interest income5,327
 13,978
 20,567
 37,626
Total revenue7,216
 12,556
 24,024
 34,713
Expenses:       
Interest expense4,580
 8,267
 13,629
 22,667
Other expense53
 257
 1,002
 1,997
Total expense4,633
 8,524
 14,631
 24,664
        
Net income (loss) attributable to consolidated CLOs$2,583
 $4,032
 $9,393
 $10,049

As summarized in the table below, the application of the measurement alternative results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the CLOs which are eliminated upon consolidation:
Economic interests:Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Distributions received and realized and unrealized gains (losses) on the subordinated notes held by the Company, net$2,272
 $3,289
 $8,355
 $7,880
Management fee income311
 743
 1,038
 2,169
Total economic interests$2,583
 $4,032
 $9,393
 $10,049


F-34

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)


(11) Debt, net

The following table summarizes the balance of the Company’s debt obligations, net of discounts and deferred financing costs, excluding notes payable of consolidated CLOs (See Note—(10) Assets and Liabilities of Consolidated CLOs):costs.
Stated interest rate or range of ratesMaximum borrowing capacity as ofAs of
Debt TypeStated maturity dateMarch 31, 2021March 31,
2021		December 31, 2020
Corporate debt
Secured revolving credit agreements (1)
August 2023Base/Swing:$200,000 $20,380 $0 
Prime +1.25%
LIBOR:
LIBOR +2.25%
Secured term credit agreementsFebruary 2025LIBOR +6.75%118,750 118,750 120,313 
Preferred trust securitiesJune 2037LIBOR +4.10%35,000 35,000 35,000 
Junior subordinated notesOctober 20578.50%125,000 125,000 125,000 
Total corporate debt299,130 280,313 
Asset based debt (2)
Asset based revolving financingOctober 2023LIBOR +2.75%75,000 26,830 27,510 
Residential mortgage warehouse borrowings (3)
August 2021 -LIBOR +2.00%110,000 65,578 55,994 
April 2022to LIBOR +3.00%
Vessel backed term loanNovember 2024LIBOR +4.75%15,250 15,250 15,800 
Total asset based debt107,658 99,304 
Total debt, face value406,788 379,617 
Unamortized discount, net(1,888)(2,035)
Unamortized deferred financing costs(10,941)(11,336)
Total debt, net$393,959 $366,246 
      Maximum borrowing capacity as of As of
Debt Type Stated maturity date Stated interest rate or range of rates September 30, 2017 September 30, 2017 December 31, 2016
Secured corporate credit agreements September 2018 - December 2019 LIBOR + 2.50% to 6.50% $251,250
 $167,000
 $164,000
Asset based revolving financing (1) (2)
 September 2018 - July 2022 LIBOR + 2.25% to 5.75% 365,000
 261,163
 250,557
Residential mortgage warehouse borrowings (3)
 March 2018 - August 2018 LIBOR + 2.50% to 2.75% 171,000
 95,729
 101,402
Real estate commercial mortgage borrowings:          
Fixed rate August 2019 - July 2048 4.00% to 5.12% 99,283
 97,433
 82,133
Variable rate (LIBOR based) October 2019 - January 2023 LIBOR + 2.05% to 6.95% 206,074
 203,779
 158,618
Subordinated debt April 2020 12.50% 20,000
 12,500
 8,500
Preferred trust securities June 2037 LIBOR + 4.10% 35,000
 35,000
 35,000
Preferred notes payable January 2021 12.00%   1,386
 1,232
Total debt, face value       873,990
 801,442
Unamortized discount, net       (471) (382)
Unamortized deferred financing costs       (7,890) (8,051)
Total debt, net       $865,629
 $793,009
(1)    The secured revolving credit agreements provide a two rate structure, at the Company’s discretion.

(1) (2)    Asset based revolving financingdebt is generally recourse only to specific assets and related cash flows.
(2) The weighted average coupon rate for asset based revolving financing was 3.89% and 3.53% at September 30, 2017 and December 31, 2016, respectively.
(3)    The weighted average coupon rate for residential mortgage warehouse borrowings was 4.10%2.77% and 3.51%2.75% at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. Includes debt having a maximum borrowing capacity of $171,000 with a stated interest rate of LIBOR + 2.50% to LIBOR +2.75% and a floor of 3.00%.



The following table below presents the amount of interest expense the Company incurred on its debt for the following periods:
F - 23
 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
2018182,173
2019267,685
2020121,514
202121,899
Thereafter272,030
Total$873,990


F-35

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,
20212020
Interest expense - corporate debt$6,063 $5,266 
Interest expense - asset based debt3,082 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 
202240,969 
202355,660 
202415,450 
202595,313 
2026 and thereafter160,000 
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.


F - 24
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

F-36

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.

F - 25
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.



F-37


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 deposit896
 —
 —
 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:
F-38
F - 26


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 subdivisions0 47,294 0 47,294 
Obligations of foreign governments0 4,508 0 4,508 
Certificates of deposit1,356 0 0 1,356 
Asset backed securities0 37,643 878 38,521 
Corporate securities0 108,533 0 108,533 
Total available for sale securities, at fair value1,356 407,713 878 409,947 
Loans, at fair value:
Corporate loans0 3,147 7,685 10,832 
Mortgage loans held for sale0 99,626 0 99,626 
Total loans, at fair value0 102,773 7,685 110,458 
Equity securities:
Invesque47,719 0 0 47,719 
Fixed income exchange traded fund64,293 0 0 64,293 
Other equity securities32,975 0 35 33,010 
Total equity securities144,987 0 35 145,022 
Other investments, at fair value:
Corporate bonds0 101,296 0 101,296 
Derivative assets667 3,737 8,284 12,688 
CLOs0 0 616 616 
Total other investments, at fair value667 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 purchased27,052 12,573 0 39,625 
Contingent consideration payable0 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 subdivisions0 44,350 0 44,350 
Obligations of foreign governments0 3,992 0 3,992 
Certificates of deposit1,355 0 0 1,355 
Asset backed securities0 35,334 858 36,192 
Corporate securities0 94,941 0 94,941 
Total available for sale securities, at fair value1,355 374,920 858 377,133 
F - 27
 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 securities1,511
 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 value28,106
 —
 —
 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 assets29,617

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

F-39


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 loans0 0 7,795 7,795 
Mortgage loans held for sale0 82,937 0 82,937 
Total loans, at fair value0 82,937 7,795 90,732 
Equity securities:
Invesque31,078 0 0 31,078 
Fixed income exchange traded fund63,875 0 0 63,875 
Other equity securities28,850 0 35 28,885 
Total equity securities123,803 0 35 123,838 
Other investments, at fair value:
Corporate bonds0 105,777 0 105,777 
Derivative assets2,090 232 9,207 11,529 
CLOs0 0 802 802 
Total other investments, at fair value2,090 106,009 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 purchased16,479 30,158 0 46,637 
Contingent consideration payable0 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 deposit895
 —
 —
 895
Asset backed securities—
 1,460
 —
 1,460
Corporate bonds—
 58,571
 —
 58,571
 Total available for sale securities, at fair value1,631

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 value48,612
 —
 —
 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 assets50,243

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.
F-40


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,
20212020
Balance at January 1,$33,455 $32,470 
 Net realized and unrealized gains or losses included in:
Earnings7,015 (4,332)
OCI20 (649)
Origination of IRLCs26,347 27,880 
Purchases568 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 IRLC54,468
 —
 38,554
 —
Purchases41,458
 76,122
 101,161
 157,144
Sales (1)
(74,010) (193,205) (56,824) (72,612)
Issuances590
 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 sale1,342
 (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:
F - 28
 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 adjustment3,192
 —
 —
 —
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.


F-41


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%
NPLs44,980
 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 ofAs of
March 31, 2021December 31, 2020March 31,
2021		December 31,
2020
Valuation technique
Unobservable input(s) (1)
AssetsFair ValueRangeWARangeWA
IRLCs$8,284 $9,207 Internal modelPull through rate50%to95%62%50%to95%68%
Mortgage servicing rights20,894 14,758 External modelDiscount rate10%to13%11%10%to13%11%
Cost to service$75to$90$82$75to$90$82
Prepayment speed7%to56%16%8%to60%22%
Total$29,178 $23,965 
Liabilities
Contingent consideration payable - Smart AutoCare$200 $200 Cash Flow ModelForecast Cash EBITDA$20,000to$30,000N/A$20,000to$30,000N/A
Actuarial AnalysisAssumed 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 - Luxury52
 52
 Cash Flow model Projected cash available for distribution $1,059 - $1,316 $1,059 - $1,316
Preferred notes payable1,386
 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.


F-42


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, 2021As of December 31, 2020
Level within
fair value
hierarchy		Fair valueCarrying valueLevel within
fair value
hierarchy		Fair valueCarrying value
Assets:
Debentures (1)
2$20,377 $20,377 2$17,703 $17,703 
Notes receivable, net262,807 62,807 262,075 62,075 
Total assets$83,184 $83,184 $79,778 $79,778 
Liabilities:
Debt, net3$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, net2 $19,310
 $19,310
 2 $28,293
 $28,732
Total assets  $19,310
 $19,310
   $28,293
 $28,732
            
Liabilities:           
Debt, net3 $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.

F - 29
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.



F-43


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,
20212020
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 expenses197,355 132,710 
     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 duration83,945 43,881 
Incurred (short duration) related to:
     Current year50,013 43,604 
     Prior years(36)2,289 
Total incurred49,977 45,893 
Paid (short duration) related to:
     Current year36,498 36,437 
     Prior years1,914 3,003 
Total paid38,412 39,440 
Net balance as of March 31, short duration95,510 50,334 
     Plus: reinsurance recoverable on unpaid losses - short duration124,375 88,428 
     Plus: other lines, gross786 248 
Gross liabilities for unpaid losses and loss adjustment expenses220,671 139,010 
     Plus: liabilities of policy-holder account balances, gross5,120 10,594 
     Plus: non-insurance warranty benefit claim liabilities25,532 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 expenses85,883
 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 duration22,563
 19,006
    
Incurred (short duration) related to:   
     Current year78,174
 55,461
     Prior years2,958
 (1,987)
Total incurred81,132
 53,474
    
Paid (short duration) related to:   
     Current year57,875
 34,822
     Prior years20,600
 13,992
Total paid78,475
 48,814
    
Net balance as of September 30, short duration25,220
 23,666
     Plus : reinsurance recoverable on unpaid losses - short duration69,813
 60,236
     Plus : other lines, gross193
 164
Gross liabilities for unpaid losses and loss adjustment expenses95,226
 84,066
     Plus : liabilities of policy-holder accounts balances, gross15,652
 17,766
     Plus : non-insurance warranty benefit claim liabilities50
 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,
20212020
Short duration incurred$49,977 $45,893 
Other lines incurred1 0 
Unallocated loss adjustment expenses273 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 incurred81
 44
 78
 74
Unallocated loss adjustment expense441
 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.
F-44
F - 30

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,
20212020
Service and Administrative Fees:
Motor club revenue$9,184 $9,735 
Warranty coverage revenue33,068 21,218 
Vessel related revenue5,699 7,246 
Other5,364 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.

F - 31
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, 2021March 31, 2021
Beginning balanceAdditionsAmortizationsEnding balance
Deferred acquisition costs
Service and Administrative Fees:
Motor club revenue$13,081 $7,649 $7,079 $13,651 
Warranty coverage revenue48,734 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 revenue348,391 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, 2021December 31, 2020
Right of use asset - Operating leases (1)
$26,896 $27,291 
Furniture, fixtures and equipment, net15,445 15,798 
Income tax receivable19,766 19,513 
Mortgage servicing rights20,894 14,758 
Prepaid expenses8,825 8,159 
Loans eligible for repurchase75,952 70,593 
Other11,910 5,922 
Total other assets$179,688 $162,034 
(1)    See Note (21) Commitments and Contingencies for additional information.

F - 32
 As of
 September 30, 2017 December 31, 2016
Due from brokers$1,505
 $2,027
Furniture, fixtures and equipment, net5,669
 5,936
Prepaid expenses9,441
 5,020
Accrued interest receivable3,154
 2,052
Management fee receivable4,375
 4,308
Other fee receivable5,159
 5,022
Income tax receivable4,140
 4,842
Other15,101
 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,
20212020
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, 2021December 31, 2020
Accounts payable and accrued expenses$71,556 $106,142 
Operating lease liability (1)
32,700 32,914 
Deferred tax liabilities, net30,692 24,183 
Securities sold, not yet purchased39,625 46,637 
Due to brokers52,151 45,047 
Loans eligible for repurchase liability75,952 70,593 
Commissions payable11,371 18,678 
Other21,476 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, net30,789
 32,296
Due to brokers7,733
 8,457
Commissions payable11,007
 7,466
Accrued interest payable2,127
 1,729
Derivative liabilities, at fair value709
 1,398
Other liabilities16,949
 14,552
Total other liabilities and accrued expenses$115,858
 $133,735
(1)    See Note (21) Commitments and Contingencies for additional information.



F-45

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,
20212020
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 income3,201
 3,915
 9,451
 9,296
Management fee income1,541
 3,839
 6,578
 7,497
Other1,383
 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:
F - 33
 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 costs25
 248
 302
 631
General and administrative4,015
 3,178
 11,552
 10,788
Premium taxes2,810
 1,637
 8,840
 5,480
Mortgage origination expenses2,406
 2,308
 6,728
 5,944
Property operating expenses2,635
 1,854
 7,798
 5,439
Rent and related2,992
 3,091
 8,998
 9,189
Other3,775
 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.


F-46

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,
20212020
Professional fees$5,440 $7,209 
General and administrative8,003 5,338 
Premium taxes4,936 3,798 
Mortgage origination expenses4,195 3,576 
Rent and related4,136 3,481 
Operating expenses from vessels2,781 4,104 
Loss on extinguishment of debt0 353 
Other1,876 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 purchasedAverage price per share
Share repurchase plan488,662 $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,
20212020
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 Quarter0.030
 0.025
Third Quarter0.030
 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
F - 34
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


F-47

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 AOCIAmount 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 reclassifications301 (8)293 
Amounts reclassified from AOCI(3)0 (3)
OCI298 (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.

F - 35
 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 reclassifications2,448
 (357) 2,091
 (237) 29
 1,883
Amounts reclassified from AOCI(715) (26) (741) —
 —
 (741)
Period change1,733
 (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 reclassifications1,165
 (296) 869
 (154) 48
 763
Amounts reclassified from AOCI(238) 143
 (95) —
 —
 (95)
Period change927
 (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 AOCI20212020
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 AOCI2017 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.


F-48

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, 2016961,650
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 Plan6,100,000
Shares granted(71,016)
Available for issuance as of September 30, 20176,028,984
(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, 20203,788,417 
RSU, stock and option awards granted(25,381)
Available for issuance as of March 31, 20213,763,036 
(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 issuableWeighted average grant date fair value
Unvested units as of December 31, 2020953,145 $6.52 
Granted25,381 5.03 
Vested(379,514)6.32 
Unvested units as of March 31, 2021599,012 $6.59 

F - 36
  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,
Granted20212020Vested20212020
Directors25,381 9,232 Directors25,381 9,232 
Employees (1)
0 469,257 Employees354,133 364,984 
Total Granted25,381 478,489 Total Vested379,514 374,216 
Taxes(34,828)(51,507)
Net Vested344,686 322,709 
(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.

F-49

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 
Granted1,079 
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
F - 37
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:
periods:
Valuation Input(1)
NineThree Months Ended September 30, 2017March 31, 2020
AssumptionAssumptionAverage
Historical volatility47.20%27.60%N/A
Risk-free rate2.44%1.51%N/A
Dividend yield1.80%2.20%N/A
Expected term (years)6.57.0

(1) Not applicable for the three months ended March 31, 2021 as there were no new grants during the period.

F-50

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 outstandingWeighted average exercise price (in dollars per stock option)Weighted average grant date value (in dollars per stock option)Options exercisable
Balance, December 31, 20201,715,619 $6.49 $2.29 0 
Balance, March 31, 20211,715,619 $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, 2016251,237
 $5.69
 $2.62
 —
Granted570,627
 6.65
 2.91
 —
Balance, September 30, 2017821,864
 $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,
20212020
Employee compensation and benefits$955 $1,543 
Director compensation110 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 optionsRestricted stock awards and RSUs
Unrecognized compensation cost related to non-vested awards$434 $4,721 
Weighted - average recognition period (in years)2.071.73

F - 38
 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.


F-51

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,
20212020
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 liabilityMinimum 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 
20227,806 
20237,041 
20246,168 
20255,437 
2026 and thereafter16,043 
Total minimum payments49,136 
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,
20212020
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.


F - 39
 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,

F-52

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.



F-53
F - 40

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,
20212020
Net income (loss)$30,640 $(60,570)
Less:
Net income (loss) attributable to non-controlling interests2,059 (563)
Net income allocated to participating securities602 0 
Net income (loss) attributable to Tiptree Inc. common shares - basic27,979 (60,007)
Effect of Dilutive Securities:
Securities of subsidiaries(574)0 
Adjustments to income relating to exchangeable interests, net of tax1,961 0 
Net income (loss) attributable to Tiptree Inc. common shares - diluted$29,366 $(60,007)
Weighted average number of shares of common stock outstanding - basic32,420,982 34,566,330 
Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations3,763,037 0 
Weighted average number of shares of common stock outstanding - diluted36,184,019 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 - basic29,455,462
 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 - diluted29,455,462
 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.




F-54
F - 41




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
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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.


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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
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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:20212020
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 equity31.8 %(64.1)%
Non-GAAP: (1)
Adjusted net income$13,155 $6,907 
Adjusted return on average equity13.7 %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.
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($ 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 share0.03
 0.025
 0.09
 0.075
        
Non-GAAP: (1)
       
Adjusted EBITDA$4,776

$20,128
 $23,333
 $52,882
Book Value per share, as exchanged9.67
 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

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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,
20212020
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


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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
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($ in thousands)Three Months Ended September 30, Nine Months Ended September 30,

2017 2016 2017 2016
Specialty insurance$(2,345) $10,659
 $1,724
 $35,627
Asset management2,973
 6,475
 13,083
 14,672
Senior living(1,535) (473) (5,359) (5,487)
Specialty finance2,595
 4,181
 2,629
 5,510
Corporate and other(7,118) (9,292) (22,198) (22,751)
Pre-tax income$(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,
20212020
Insurance$21,528 $(27,117)
Mortgage13,077 (1,090)
Tiptree Capital - other14,994 (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,
20212020
Insurance$12,776 $8,734 
Mortgage7,465 196 
Tiptree Capital - other567 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 management2,973
 6,475
 13,083
 14,672
Senior living2,859
 2,869
 8,293
 7,194
Specialty finance2,382
 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.

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Results of insurance. We also offer administrationOperations
($ in thousands)Three Months Ended March 31,
20212020Change% Change
Revenues:
Earned premiums, net$146,919 $121,321 $25,598 21.1 %
Service and administrative fees58,050 43,724 14,326 32.8 %
Ceding commissions3,025 6,525 (3,500)(53.6)%
Net investment income2,767 3,488 (721)(20.7)%
Net realized and unrealized gains (losses)9,672 (33,601)43,273 NM%
Other revenue2,130 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 claims16,923 14,900 2,023 13.6 %
Commission expense88,645 70,401 18,244 25.9 %
Employee compensation and benefits19,089 17,042 2,047 12.0 %
Interest expense4,304 3,648 656 18.0 %
Depreciation and amortization4,191 2,270 1,921 84.6 %
Other expenses17,632 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 equity23.9 %(28.3)%
Underwriting ratio74.2 %75.7 %
Expense ratio17.3 %17.9 %
Combined ratio91.5 %93.6 %
Non-GAAP Financial Measures (2):
Adjusted net income$12,776 $8,734 $4,042 46.3 %
Adjusted return on average equity17.9 %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

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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 fees24,018
 25,842
 70,861
 84,421
Ceding commissions2,513
 1,397
 6,801
 22,645
Net investment income3,840
 3,307
 12,032
 8,409
Net realized and unrealized gains (losses)(8,554) 3,745
 (13,618) 12,767
Other income824
 730
 2,874
 1,985
Total revenues$118,714
 $82,630
 $351,731
 $268,743
Expenses:       
Policy and contract benefits31,570
 25,881
 94,364
 72,436
Commission expense63,066
 24,032
 176,405
 91,906
Employee compensation and benefits10,073
 9,180
 30,800
 28,065
Interest expense3,499
 2,322
 10,534
 6,018
Depreciation and amortization expenses3,134
 3,032
 9,625
 10,414
Other expenses9,717
 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

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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
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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.

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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 ratio92.6%
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
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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,
20212020
U.S. Insurance$338,159 $245,969 
U.S. Warranty Solutions150,786 133,337 
Europe Warranty Solutions16,056 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
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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.
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Three Months Ended March 31,
($ in thousands)
Underwriting and Fee Revenues (1)
Underwriting and Fee Margin (1)
2021202020212020
U.S. Insurance$147,565 $129,368 $28,841 $24,622 
U.S. Warranty Solutions52,467 39,522 21,987 15,594 
Europe Warranty Solutions10,092 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.
7
11





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,
20212020
Revenues:
Net realized and unrealized gains (losses)$30,077 $12,714 
Other revenue4,417 3,506 
Total revenues$34,494 $16,220 
Expenses:
Employee compensation and benefits$15,342 $11,500 
Interest expense298 423 
Depreciation and amortization225 235 
Other expenses5,552 5,152 
Total expenses$21,417 $17,310 
Income (loss) before taxes$13,077 $(1,090)
Key Performance Metrics:
Return on average equity60.9 %(6.8)%
Non-GAAP Financial Measures (1):
Adjusted net income$7,465 $196 
Adjusted return on average equity45.6 %2.3 %
(1)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Revenues

Net Realized and Unrealized Gains (Losses)
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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

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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 revenueIncome (loss) before taxes
2021202020212020
Senior living (Invesque)$13,766 $(46,018)$13,766 $(46,018)
Maritime transportation5,699 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.


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Adjusted net income - Non-GAAP(1)
($ in thousands)Three Months Ended
March 31,
20212020
Senior living (Invesque) (1)
$— $2,000 
Maritime transportation521 1,317 
Other46 (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,
20212020
Employee compensation and benefits$2,067 $2,146 
Employee incentive compensation expense3,553 1,367 
Interest expense2,564 1,993 
Depreciation and amortization198 200 
Other expenses1,825 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.

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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)InsuranceMortgageOtherCorporateTotal
Total assets$2,471,077 $241,926 $294,008 $41,602 $3,048,613 
Corporate debt$180,380 $— $— $118,750 $299,130 
Asset based debt26,830 65,578 15,250 — 107,658 
Tiptree Inc. stockholders’ equity$264,958 $64,602 $118,822 $(69,939)$378,443 
Non-controlling interests - Other9,102 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
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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,
20212020
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,
20212020
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 amortization4,191 2,270 
Plus: Interest expense4,304 3,648 
Plus: Employee compensation and benefits19,089 17,042 
Plus: Other expenses17,632 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.
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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)InsuranceMortgageOtherCorporate ExpensesTotal
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 expense372 165 8 520 1,065 
Plus: Non-recurring expenses270 — — — 270 
Plus: Non-cash fair value adjustments— — (657)— (657)
Less: Tax on adjustments825 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)$385,470 
Adjusted return on average equity17.9 %45.6 %2.0 %NM%13.7 %
Three Months Ended March 31, 2020
Tiptree Capital
($ in thousands)InsuranceMortgageOtherCorporate ExpensesTotal
Income (loss) before taxes$(27,117)$(1,090)$(45,241)$(8,303)$(81,751)
Less: Income tax (benefit) expense7,663 515 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 expense351 — 151 1,169 1,671 
Plus: Non-recurring expenses2,195 — — 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’ equity274,922 33,656 147,480 (78,182)377,876 
Adjusted return on average equity12.7 %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

20172016
20172016
20172016
20172016
20172016
Gross written premiums$149,115
$132,111

$25,530
$16,618

$34,512
$32,674

$11
$8

$209,168
$181,411
Net written premiums96,375
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 fees10,434
10,865
 9,409
11,788
 2,721
2,504
 1,690
1,819
 24,254
26,976
Ceding commissions2,523
1,465
 —
1
 —
—
 —
—
 2,523
1,466
Other income135
71
 —
(22) —
5
 689
676
 824
730
Less product specific expenses:              
Policy and contract benefits14,420
7,918
 11,694
10,099
 5,456
7,900
 —
(36) 31,570
25,881
Commission expense59,949
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.

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Nine Months Ended September 30,
($ in thousands)Credit Protection
Warranty
Programs
Services and Other
Insurance Total

20172016
20172016
20172016
20172016
20172016
Gross written premiums371,123
364,842

83,075
44,078

106,348
131,306

23
21

560,569
540,247
Net written premiums238,658
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 fees31,204
33,975

27,330
41,093

8,108
8,577

4,961
5,752

71,603
89,397
Ceding commissions6,847
23,018

—
2

—
—

—
1

6,847
23,021
Other income338
199

—
64

—
5

2,536
1,717

2,874
1,985
Less product specific expenses:













Policy and contract benefits44,226
21,727

32,406
30,529

17,548
20,172

184
8

94,364
72,436
Commission expense165,990
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

9



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
18
($ 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

10




($ in thousands)Three Months Ended
March 31,
20212020
Net income (loss) attributable to common stockholders$28,581 $(60,007)
Add: net (loss) income attributable to non-controlling interests2,059 (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 taxes8,752 (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 income1,541
 3,839
 6,578
 7,497
Other income256
 212
 822
 3,031
Total revenue$1,448
 $4,746
 $8,239
 $10,754

       
Expenses:       
Employee compensation and benefits889
 2,267
 3,953
 4,861
Interest expense5
 —
 7
 746
Other expenses164
 36
 589
 524
Total expenses$1,058
 $2,303
 $4,549
 $6,131
Net income attributable to consolidated CLOs2,583
 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.

11



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
Distributions2,168

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,

12



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 revenue19,170
 15,371
 54,819
 43,389
Other income413
 273
 1,108
 815
Total revenue$19,583
 $15,695
 $55,927
 $44,204
        
Expenses:       
Employee compensation and benefits7,723
 6,270
 22,499
 17,661
Interest expense3,609
 2,271
 9,309
 6,220
Depreciation and amortization expenses4,369
 3,094
 13,350
 10,634
Other expenses5,417
 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.


13



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 Properties4,071
 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.



14



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.


15



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) $3,462
Other income69
 34
 142
 106
Total revenue$(202) $76
 $75
 $3,568

    
 
Expenses:    
 
Employee compensation and benefits3,280
 4,185
 9,751
 9,787
Interest expense1,299
 1,314
 3,851
 3,434
Depreciation and amortization expenses63
 63
 186
 186
Other expenses2,274
 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.


16



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 rate35.0 % 35.0 % 35.0 % 35.0 %
Impact of state tax and permanent items3.8
 (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 valuation4.5
 —
 (10.5) —
Impact of other discrete(4.8) 0.7
 (4.1) 0.4
ETR37.8 % 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

17



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 expense10,361

7,839

28,444

20,770
Consolidated income taxes(2,052)
3,712

(2,761)
5,298
Consolidated depreciation and amortization expense7,775

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 insuranceAsset managementSenior livingSpecialty financeCorporate and otherTotal

20172016
20172016
20172016
20172016
20172016
20172016
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 expense3,499
2,322

5
—

3,609
2,271

1,949
1,932

1,299
1,314

10,361
7,839
Depreciation and amortization expenses3,134
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 adjustments113
—

—
—

—
—

(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


18



 Nine Months Ended September 30,
($ in thousands)Specialty insurance
Asset management
Senior living
Specialty finance
Corporate and other
Total

20172016
20172016
20172016
20172016
20172016
20172016
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 expense10,534
6,018

7
746

9,309
6,220

4,743
4,352

3,851
3,434

28,444
20,770
Depreciation and amortization expenses9,625
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 adjustments339
—

—
—

—
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,
20212020
Total stockholders’ equity$397,399 $344,336 
Less: Non-controlling interests18,956 10,483 
Total stockholders’ equity, net of non-controlling interests$378,443 $333,853 
Total common shares outstanding32,538 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 - other25,081
 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 outstanding8,049
 8,049
Total shares outstanding37,842
 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 warrants

Specialty 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:

19



 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 fees24,018

25,842

236

1,134

24,254

26,976
Ceding commissions2,513

1,397

10

69

2,523

1,466
Other income824

730

—

—

824

730
Less underwriting expenses:










Policy and contract benefits31,570

25,881

—

—

31,570

25,881
Commission expense63,066

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 benefits10,073

9,180

—

—

10,073

9,180
Other expenses9,717

7,524

31

40

9,748

7,564
Combined Ratio92.6%
87.9%
—%
—%
92.8%
89.4%
Plus investment revenues:










Net investment income3,840

3,307

—

—

3,840

3,307
Net realized and unrealized gains(8,554)
3,745

—

—

(8,554)
3,745
Less other expenses:










Interest expense3,499

2,322

—

—

3,499

2,322
Depreciation and amortization expenses3,134

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 fees70,861
 84,421

742

4,976

71,603

89,397
Ceding commissions6,801
 22,645

46

376

6,847

23,021
Other income2,874
 1,985

—

—

2,874

1,985
Less underwriting expenses:  








Policy and contract benefits94,364
 72,436

—

—

94,364

72,436
Commission expense176,405
 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 benefits30,800
 28,065

—

—

30,800

28,065
Other expenses28,279
 24,277

120

304

28,399

24,581
Combined Ratio93.2% 86.3%
—

—

93.6%
88.5%
Plus investment revenues:
 








Net investment income12,032
 8,409

—

—

12,032

8,409
Net realized and unrealized gains(13,618) 12,767

—

—

(13,618)
12,767
Less other expenses:
 








Interest expense10,534
 6,018

—

—

10,534

6,018
Depreciation and amortization expenses9,625
 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 equivalents62,790

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.


20



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 income256

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 income822

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.


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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.

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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,
2021202020212020
Insurance$180,380 $208,240 $3,500 $3,272 
Corporate118,750 125,000 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.



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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 activities24,530
 (30,661)
    
Investing activities   
Investing activities - (excluding VIEs)(38,266)
(157,745)
Investing activities - VIEs224,107
 (96,834)
Total cash provided by (used in) investing activities185,841
 (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):20212020
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.


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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
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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 year1-3 years3-5 yearsMore than 5 years
Total 
Corporate debt, including interest (1)
$28,137 $54,823 $36,426 $203,800 $323,186 
Asset based debt35,979 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 credit101,173
 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.



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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.


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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,

25



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:
22

PeriodPurchaser
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 PurchasesTiptree Inc.466,849 $5.02 466,849 
February 1, 2021 to February 28, 2021: Open Market PurchasesTiptree Inc.21,813 $4.93 21,813 
March 1, 2021 to March 31, 2021Tiptree Inc.— $— — 
Total488,662 $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
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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
F- F-33
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2021 and 20162020
F- F-44
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017March 31, 2021 and 20162020
F- F-55
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the periodperiods ended September 30, 2017March 31, 2021 and 20162020
F- F-66
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2021 and 20162020
F- F-87
F- F-108
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.

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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, 2021By:/s/ Michael Barnes
Michael Barnes
Executive Chairman
Date:November 6, 2017May 5, 2021By:/s/ Jonathan Ilany
Jonathan Ilany
Chief Executive Officer
Date:November 6, 2017May 5, 2021By:/s/ Sandra Bell
Sandra Bell
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)





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EXHIBIT INDEX
Exhibit No.Description
31.1
10.1
10.2
31.1
31.2
31.3
32.1
32.2
32.3
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
101.DEFXBRL 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.









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