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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to          

Commission file number 001-37536

 

Conifer Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Michigan

 

27-1298795

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

550 West Merrill Street, Suite 200

 

 

Birmingham, Michigan

 

48009

(Address of principal executive offices)

 

(Zip code)

 

(248) 559-0840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

CNFR

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

Accelerated filer 

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

The number of outstanding shares of the registrant’s common stock, no par value, as of August 11, 2021, was 9,689,421.

 

 

 

 


 

 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Form 10-Q

INDEX

 

 

Page No.

Part I — Financial Information

 

Item 1 — Financial Statements

3

Consolidated Balance Sheets (Unaudited)

3

Consolidated Statements of Operations (Unaudited)

4

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

6

Consolidated Statements of Cash Flows (Unaudited)

7

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

36

Item 4 — Controls and Procedures

37

Part II — Other Information

 

Item 1 — Legal Proceedings

38

Item 1A — Risk Factors

38

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 6 — Exhibits

39

Signatures

40

 

 

 

2


 

 

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(dollars in thousands)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

Debt securities, at fair value (amortized cost of $148,699 and $149,954, respectively)

 

$

149,188

 

 

$

151,999

 

Equity securities, at fair value (cost of $20,080 and $16,912, respectively)

 

 

19,994

 

 

 

17,891

 

Short-term investments, at fair value

 

 

11,435

 

 

 

13,317

 

Total investments

 

 

180,617

 

 

 

183,207

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,668

 

 

 

8,193

 

Premiums and agents' balances receivable, net

 

 

22,887

 

 

 

20,162

 

Receivable from Affiliate

 

 

9,002

 

 

 

8

 

Reinsurance recoverables on unpaid losses

 

 

22,824

 

 

 

24,218

 

Reinsurance recoverables on paid losses

 

 

3,269

 

 

 

2,138

 

Prepaid reinsurance premiums

 

 

4,964

 

 

 

1,316

 

Deferred policy acquisition costs

 

 

13,121

 

 

 

12,243

 

Other assets

 

 

8,383

 

 

 

10,112

 

Total assets

 

$

269,735

 

 

$

261,597

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Unpaid losses and loss adjustment expenses

 

$

117,852

 

 

$

111,270

 

Unearned premiums

 

 

63,103

 

 

 

56,224

 

Debt

 

 

37,153

 

 

 

40,997

 

Accounts payable and accrued expenses

 

 

7,743

 

 

 

8,693

 

Total liabilities

 

 

225,851

 

 

 

217,184

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value (100,000,000 shares authorized; 9,689,421 and 9,681,728 issued and outstanding, respectively)

 

 

92,612

 

 

 

92,486

 

Accumulated deficit

 

 

(48,069

)

 

 

(48,985

)

Accumulated other comprehensive income (loss)

 

 

(659

)

 

 

912

 

Total shareholders' equity

 

 

43,884

 

 

 

44,413

 

Total liabilities and shareholders' equity

 

$

269,735

 

 

$

261,597

 

 

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

3


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue and Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross earned premiums

 

$

30,228

 

 

 

25,959

 

 

$

58,475

 

 

$

52,012

 

Ceded earned premiums

 

 

(5,390

)

 

 

(4,201

)

 

 

(10,802

)

 

 

(8,237

)

Net earned premiums

 

 

24,838

 

 

 

21,758

 

 

 

47,673

 

 

 

43,775

 

Net investment income

 

 

503

 

 

 

863

 

 

 

1,035

 

 

 

1,817

 

Net realized investment gains

 

 

1,060

 

 

 

245

 

 

 

3,984

 

 

 

1,173

 

Change in fair value of equity securities

 

 

(525

)

 

 

1,576

 

 

 

(1,065

)

 

 

(1,510

)

Other gains

 

 

8,910

 

 

 

145

 

 

 

8,910

 

 

 

260

 

Other income

 

 

666

 

 

 

713

 

 

 

1,222

 

 

 

1,371

 

Total revenue and other income

 

 

35,452

 

 

 

25,300

 

 

 

61,759

 

 

 

46,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses, net

 

 

17,926

 

 

 

11,945

 

 

 

37,288

 

 

 

26,214

 

Policy acquisition costs

 

 

6,896

 

 

 

6,395

 

 

 

13,646

 

 

 

12,698

 

Operating expenses

 

 

4,342

 

 

 

4,859

 

 

 

8,691

 

 

 

9,904

 

Interest expense

 

 

732

 

 

 

731

 

 

 

1,453

 

 

 

1,462

 

Total expenses

 

 

29,896

 

 

 

23,930

 

 

 

61,078

 

 

 

50,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before equity earnings in Affiliate and income taxes

 

 

5,556

 

 

 

1,370

 

 

 

681

 

 

 

(3,392

)

Equity earnings in Affiliate, net of tax

 

 

180

 

 

 

179

 

 

 

428

 

 

 

229

 

Income tax expense

 

 

184

 

 

 

44

 

 

 

193

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,552

 

 

$

1,505

 

 

$

916

 

 

$

(3,220

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share, basic and diluted

 

$

0.57

 

 

$

0.16

 

 

$

0.09

 

 

$

(0.34

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

9,686,631

 

 

 

9,595,668

 

 

 

9,684,193

 

 

 

9,594,221

 

 

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

4


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

5,552

 

 

$

1,505

 

 

$

916

 

 

$

(3,220

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses) during the period

 

 

394

 

 

 

5,017

 

 

 

(1,530

)

 

 

3,702

 

Income tax (benefit) expense

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses), net of tax

 

 

394

 

 

 

5,017

 

 

 

(1,530

)

 

 

3,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: reclassification adjustments to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized investment gains (losses) included in net income (loss)

 

 

(902

)

 

 

2

 

 

 

41

 

 

 

386

 

Income tax (benefit) expense

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(902

)

 

 

2

 

 

 

41

 

 

 

386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

1,296

 

 

 

5,015

 

 

 

(1,571

)

 

 

3,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

6,848

 

 

$

6,520

 

 

$

(655

)

 

$

96

 

 

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

5


 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

(dollars in thousands)

 

 

 

No Par, Common Stock

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances at March 31, 2021

 

 

9,681,728

 

 

$

92,552

 

 

$

(53,621

)

 

$

(1,955

)

 

$

36,976

 

Net income (loss)

 

 

 

 

 

 

 

 

5,552

 

 

 

 

 

 

5,552

 

Repurchase of common stock

 

 

(2,307

)

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Stock-based compensation expense

 

 

10,000

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

1,296

 

 

 

1,296

 

Balances at June 30, 2021

 

 

9,689,421

 

 

$

92,612

 

 

$

(48,069

)

 

$

(659

)

 

$

43,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2020

 

 

9,592,161

 

 

$

92,053

 

 

$

(54,305

)

 

$

(1,210

)

 

$

36,538

 

Net income (loss)

 

 

 

 

 

 

 

 

1,505

 

 

 

 

 

 

1,505

 

Repurchase of common stock

 

 

(4,006

)

 

 

(14

)

 

 

 

 

 

 

 

 

(14

)

Restricted stock unit expense

 

 

10,000

 

 

 

236

 

 

 

 

 

 

 

 

 

236

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

5,015

 

 

 

5,015

 

Balances at June 30, 2020

 

 

9,598,155

 

 

$

92,275

 

 

$

(52,800

)

 

$

3,805

 

 

$

43,280

 

 

 

 

No Par, Common Stock

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances at December 31, 2020

 

 

9,681,728

 

 

$

92,486

 

 

$

(48,985

)

 

$

912

 

 

$

44,413

 

Net income (loss)

 

 

 

 

 

 

 

 

916

 

 

 

 

 

 

916

 

Repurchase of common stock

 

 

(2,307

)

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Stock-based compensation expense

 

 

10,000

 

 

 

133

 

 

 

 

 

 

 

 

 

133

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(1,571

)

 

 

(1,571

)

Balances at June 30, 2021

 

 

9,689,421

 

 

 

92,612

 

 

 

(48,069

)

 

 

(659

)

 

 

43,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2019

 

 

9,592,861

 

 

$

91,816

 

 

$

(49,580

)

 

$

489

 

 

$

42,725

 

Net income (loss)

 

 

 

 

 

 

 

 

(3,220

)

 

 

 

 

 

(3,220

)

Repurchase of common stock

 

 

(4,706

)

 

 

(16

)

 

 

 

 

 

 

 

 

(16

)

Restricted stock unit expense, net

 

 

10,000

 

 

 

475

 

 

 

 

 

 

 

 

 

475

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

3,316

 

 

 

3,316

 

Balances at June 30, 2020

 

 

9,598,155

 

 

 

92,275

 

 

 

(52,800

)

 

 

3,805

 

 

 

43,280

 

 

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

 

6


 

 

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

 

916

 

 

$

(3,220

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Gain on sale of agency business

 

 

(8,910

)

 

 

 

Depreciation and amortization

 

 

217

 

 

 

255

 

Amortization of bond premium and discount, net

 

 

255

 

 

 

301

 

Net realized investment (gains) losses

 

 

(3,984

)

 

 

(1,173

)

Change in fair value of equity securities

 

 

1,065

 

 

 

1,510

 

Stock-based compensation expenses

 

 

133

 

 

 

475

 

Equity earnings in Affiliate, net of tax

 

 

(428

)

 

 

(229

)

Other

 

 

17

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Premiums and agents' balances and other receivables

 

 

(2,719

)

 

 

(2,075

)

Reinsurance recoverables

 

 

263

 

 

 

1,379

 

Prepaid reinsurance premiums

 

 

(3,648

)

 

 

(2,944

)

Deferred policy acquisition costs

 

 

(878

)

 

 

213

 

Other assets

 

 

344

 

 

 

(202

)

Increase (decrease) in: