Trean Insurance Group Reports Second Quarter 2021 Results
Trean Insurance Group (TIG) reported impressive second-quarter results for 2021, achieving a 43% year-over-year growth in gross written premiums to $156.6 million. The company also saw a remarkable 124% increase in net earned premiums, reaching $47.9 million. Net income stood at $2.1 million, with diluted earnings per share at $0.04. Adjusted net income was $4.3 million and adjusted earnings per share were $0.08. The growth in premiums is attributed to the expansion of existing program partnerships and disciplined underwriting. Trean aims for $1 billion in gross written premiums by 2026.
- Gross written premiums grew 42.8% to $156.6 million.
- Net earned premiums doubled to $47.9 million, up 124.3% year-over-year.
- Adjusted net income was $4.3 million, with adjusted diluted EPS of $0.08.
- Expense ratio improved to 31.8%, a 700 basis point reduction.
- The company expects gross written premiums for 2021 between $605 million and $615 million.
- Loss ratio increased to 62.0%, up from 57.0% year-over-year.
- Return on equity dropped to 2.0%, down from 3.8% in the prior year.
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-
- Net Income of
- Adjusted Net Income of
WAYZATA, Minn., Aug. 11, 2021 (GLOBE NEWSWIRE) -- Trean Insurance Group, Inc. (Nasdaq: TIG) (“Trean” or the “Company”), a leading provider of products and services to the specialty insurance market, today reported results for the second quarter ended June 30, 2021.
“We have firmly established ourselves as a ‘growth company’,” stated Andrew M. O’Brien, Chief Executive Officer of Trean. “We have developed a unique business model within the multi-billion dollar specialty insurance market, bolstered by a strong management team, which has provided us with a clear runway to expand organically, as well as a strong pipeline of attractive new opportunities to add to our first-class roster of programs. Importantly, we are rapidly growing while still responsibly managing our risk profile. By remaining disciplined with respect to our underwriting, our premiums will ultimately flow to our bottom line, creating long-term sustainable and profitable bottom line expansion. We are positioned strongly to continue outperforming, and believe we are well on pace to achieve our long-term goal of
“For the second quarter and first half of 2021, we performed superbly from a growth standpoint, including a high double-digit year-over-year increase in gross written premium, as we continue to strengthen the foundation to create additional long-term value for our shareholders,” added Mr. O’Brien. “We also delivered another quarter of significant net earned and unearned premium growth – accumulating future potential earnings that should contribute to and drive substantial increases in our longer-term net income. In addition, we further expanded our non-workers’ compensation business and diversified our overall business to reduce our concentration risk, while maintaining disciplined underwriting standards.”
Second Quarter 2021 Highlights
- Gross written premiums increased
42.8% to$156.6 million , compared to$109.6 million in the second quarter of 2020 - Net earned premiums more than doubled to
$47.9 million , compared to$21.4 million in the second quarter of 2020 - Loss ratio of
62.0% , compared to57.0% in the second quarter of 2020 - Expense ratio of
31.8% , a 700 basis point improvement compared to38.8% in the second quarter of 2020 - Combined ratio of
93.8% , a 200 basis point improvement versus95.8% in the prior-year period - Net income was
$2.1 million and diluted earnings per share was$0.04 - Adjusted net income(1) was
$4.3 million , and adjusted diluted earnings per share was$0.08 - Underwriting income(1) was
$3.0 million , compared to$0.9 million in the second quarter of 2020 - Return on equity of
2.0% ; Adjusted return on equity(1) of4.2% ; Adjusted return on tangible equity was8.6% (1)
(1) Adjusted net income, adjusted diluted earnings per share, adjusted return on equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See discussion of “Key Metrics” below.
Underwriting Results
Gross written premiums increased
Increase in gross unearned premiums was
Net earned premiums of
Underwriting income was
General and administrative expenses were
Net income was
Investment Results
Net investment income was
Other
Other revenue was
During the second quarter of 2021, the Company determined that its funds held agreements with reinsurers contain embedded derivatives relating to a total return swap on the underlying investments. As a result, the Company will now report gains and losses on the embedded derivatives, along with related investment earnings, in operations. While the correction was not material to the previously reported condensed consolidated and condensed combined financial statements, the prior period amounts have been restated for comparability.
Stockholders’ Equity and Returns
Total stockholders’ equity was
Full Year 2021 Gross Written Premium Outlook
The Company is initiating its outlook for gross written premiums for the full year 2021 to be between
Webcast and Conference Call
A webcast and conference call to discuss the Company’s results will be held today beginning at 5:00 p.m. (Eastern Time). The audio webcast is accessible through the investor relations section of the Company’s website at https://investors.trean.com.
The dial-in number for the conference call is (877) 300-8521 (toll-free) or (412) 317-6026 (international), conference ID# 10159264. Any person interested in listening to the call should dial in or access the website at least 10 minutes before the call.
A replay of the call will be available at https://investors.trean.com for one year following the call.
Key Metrics
The Company discusses certain key financial and operating metrics, described below, which provide useful information about its business and the operational factors underlying its financial performance.
Underwriting income is a non-GAAP financial measure defined as income before taxes excluding net investment income, investment revaluation gains, net realized capital gains or losses, IPO-related expenses, intangible asset amortization, noncash stock compensation, losses on embedded derivatives, interest expense, other revenue and other income and expenses. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of underwriting income to income before taxes in accordance with GAAP.
Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of various certain items, including the consummation of the reorganization transactions in connection with our IPO, noncash intangible asset amortization and stock compensation, unrealized losses on embedded derivatives, other expenses and gains or losses that the Company does not believe reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of the Company’s results across periods. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted net income to net income in accordance with GAAP.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to net earned premiums.
Expense ratio, expressed as a percentage, is the ratio of general and administrative expenses to net earned premiums.
Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under
Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
Adjusted return on equity is a non-GAAP financial measured defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted return on equity to return on equity in accordance with GAAP.
Tangible stockholders’ equity is defined as stockholders’ equity less goodwill and other intangible assets.
Return on tangible equity is a non-GAAP financial measure defined as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period.
Adjusted return on tangible equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted return on tangible equity to return on equity in accordance with GAAP.
Forward-Looking Statements
This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are not historical or current facts. These statements may discuss the Company’s net income, cash flow, financial condition, impairments, expenditures, growth, strategies, plans, achievements, capital structure, organizational structure, market opportunities and general market and industry conditions. Such forward-looking statements can be identified by words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “believe,” “seek,” “outlook,” “future,” “will,” “would,” “should,” “could,” “may,” “can have,” “likely” and similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events. These statements are only predictions and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements if the underlying assumptions prove to be incorrect or as a result of risks, uncertainties, and other factors, including the impact of the COVID-19 pandemic on the business and operations of the Company, our program partners and other business relations. Other factors that may cause such differences include the risks described in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. These forward-looking statements speak only as of the date on which they are made. Except as required by applicable securities laws, the Company disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, changes in assumptions or otherwise. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this press release or in other filings and public statements of the Company.
About Trean Insurance Group, Inc.
Trean Insurance Group, Inc. (Nasdaq: TIG) provides products and services to the specialty insurance market. Trean underwrites specialty casualty insurance products both through its program partners and its own managing general agencies. Trean also provides its program partners with a variety of services including issuing carrier services, claims administration and reinsurance brokerage. Trean is licensed to write business across 49 states and the District of Columbia. For more information, please visit www.trean.com.
Contacts
Investor Relations
investor.relations@trean.com
(952) 974-2260
Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Combined Statements of Operations
(in thousands, except for percentages, share and per share amounts)
(unaudited)
| Three Months Ended June 30, | Percentage | Six Months Ended June 30, | Percentage | ||||||||||||||||||||||||
| 2021 | 2020 | Change | Change (1) | 2021 | 2020 | Change | Change (1) | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||
| Gross written premiums | $ | 156,551 | $ | 109,612 | 46,939 | 42.8 | % | $ | 303,281 | $ | 217,471 | 85,810 | 39.5 | % | |||||||||||||
| Increase in gross unearned premiums | (17,927 | ) | (9,265 | ) | (8,662 | ) | 93.5 | % | (36,358 | ) | (16,638 | ) | (19,720 | ) | 118.5 | % | |||||||||||
| Gross earned premiums | 138,624 | 100,347 | 38,277 | 38.1 | % | 266,923 | 200,833 | 66,090 | 32.9 | % | |||||||||||||||||
| Ceded earned premiums | (90,681 | ) | (78,968 | ) | (11,713 | ) | 14.8 | % | (177,846 | ) | (156,995 | ) | (20,851 | ) | 13.3 | % | |||||||||||
| Net earned premiums | 47,943 | 21,379 | 26,564 | 124.3 | % | 89,077 | 43,838 | 45,239 | 103.2 | % | |||||||||||||||||
| Net investment income | 2,103 | 2,525 | (422 | ) | (16.7 | )% | 4,375 | 6,770 | (2,395 | ) | (35.4 | )% | |||||||||||||||
| Net realized capital gains | 10 | (4 | ) | 14 | NM | 23 | 3,230 | (3,207 | ) | (99.3 | )% | ||||||||||||||||
| Other revenue | 1,229 | 1,530 | (301 | ) | (19.7 | )% | 5,884 | 5,922 | (38 | ) | (0.6 | )% | |||||||||||||||
| Total revenue | 51,285 | 25,430 | 25,855 | 101.7 | % | 99,359 | 59,760 | 39,599 | 66.3 | % | |||||||||||||||||
| Expenses | |||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 29,725 | 12,183 | 17,542 | 144.0 | % | 54,606 | 25,117 | 29,489 | 117.4 | % | |||||||||||||||||
| General and administrative expenses | 15,267 | 8,293 | 6,974 | 84.1 | % | 27,158 | 16,442 | 10,716 | 65.2 | % | |||||||||||||||||
| Other expenses | 845 | - | 845 | NM | 845 | - | 845 | NM | |||||||||||||||||||
| Intangible asset amortization | 1,413 | 23 | 1,390 | NM | 2,827 | 34 | 2,793 | NM | |||||||||||||||||||
| Noncash stock compensation | 419 | - | 419 | NM | 630 | - | 630 | NM | |||||||||||||||||||
| Interest expense | 425 | 501 | (76 | ) | (15.2 | )% | 852 | 962 | (110 | ) | (11.4 | )% | |||||||||||||||
| Total expenses | 48,094 | 21,000 | 27,094 | 129.0 | % | 86,918 | 42,555 | 44,363 | 104.2 | % | |||||||||||||||||
| Losses on embedded derivatives | (686 | ) | (3,991 | ) | 3,305 | (82.8 | )% | 1,990 | (5,180 | ) | 7,170 | (138.4 | )% | ||||||||||||||
| Other income | 35 | 40 | (5 | ) | (12.5 | )% | 156 | 54 | 102 | 188.9 | % | ||||||||||||||||
| Income before taxes | 2,540 | 479 | 2,061 | NM | 14,587 | 12,079 | 2,508 | 20.8 | % | ||||||||||||||||||
| Income tax expense | 414 | 351 | 63 | 17.9 | % | 3,019 | 3,218 | (199 | ) | (6.2 | )% | ||||||||||||||||
| Equity earnings in affiliates, net of tax | - | 1,230 | (1,230 | ) | (100.0 | )% | - | 1,932 | (1,932 | ) | (100.0 | )% | |||||||||||||||
| Net income | $ | 2,126 | $ | 1,358 | 768 | 56.6 | % | $ | 11,568 | $ | 10,793 | 775 | 7.2 | % | |||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||
| Basic | $ | 0.04 | $ | 0.04 | $ | 0.23 | $ | 0.29 | |||||||||||||||||||
| Diluted | $ | 0.04 | $ | 0.04 | $ | 0.23 | $ | 0.29 | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||
| Basic | 51,152,979 | 37,386,394 | 51,150,881 | 37,386,394 | |||||||||||||||||||||||
| Diluted | 51,166,587 | 37,386,394 | 51,173,204 | 37,386,394 | |||||||||||||||||||||||
| (1) The Company defines increases or decreases greater than | |||||||||||||||||||||||||||
Key Metrics
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Key metrics: | |||||||||||||||
| Underwriting income (1) | $ | 2,951 | $ | 903 | $ | 7,313 | $ | 2,279 | |||||||
| Adjusted net income (1) | $ | 4,316 | $ | 4,789 | $ | 12,425 | $ | 11,122 | |||||||
| Loss ratio | |||||||||||||||
| Expense ratio | |||||||||||||||
| Combined ratio | |||||||||||||||
| Return on equity | |||||||||||||||
| Adjusted return on equity (1) | |||||||||||||||
| Return on tangible equity (1) | |||||||||||||||
| Adjusted return on tangible equity (1) | |||||||||||||||
| (1) Adjusted net income, adjusted return on equity, return on tangible equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation to the applicable GAAP measure. | |||||||||||||||
Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
| June 30, 2021 | December 31, 2020 | |||||
| Assets | (unaudited) | |||||
| Fixed maturities, available for sale | $ | 424,943 | $ | 405,604 | ||
| Preferred stock, at fair value | 235 | 240 | ||||
| Common stock, at fair value | 2,741 | 3,534 | ||||
| Equity method investments | - | 232 | ||||
| Total investments | 427,919 | 409,610 | ||||
| Cash and cash equivalents | 101,361 | 153,149 | ||||
| Restricted cash | 12,469 | 4,085 | ||||
| Accrued investment income | 2,329 | 2,458 | ||||
| Premiums and other receivables | 131,930 | 109,217 | ||||
| Income taxes receivable | 5,113 | 1,322 | ||||
| Reinsurance recoverable | 361,943 | 343,213 | ||||
| Prepaid reinsurance premiums | 121,004 | 107,971 | ||||
| Deferred policy acquisition cost, net | 6,424 | 1,332 | ||||
| Property and equipment, net | 7,780 | 8,254 | ||||
| Right of use asset | 5,378 | 6,338 | ||||
| Goodwill | 140,640 | 140,640 | ||||
| Intangible assets, net | 72,489 | 75,316 | ||||
| Other assets | 8,410 | 6,878 | ||||
| Total assets | $ | 1,405,189 | $ | 1,369,783 | ||
| Liabilities | ||||||
| Unpaid loss and loss adjustment expenses | $ | 502,560 | $ | 457,817 | ||
| Unearned premiums | 194,388 | 157,987 | ||||
| Funds held under reinsurance agreements | 161,013 | 174,704 | ||||
| Reinsurance premiums payable | 51,681 | 57,069 | ||||
| Accounts payable and accrued expenses | 31,017 | 61,240 | ||||
| Lease liability | 5,855 | 6,893 | ||||
| Deferred tax liability | 10,229 | 12,329 | ||||
| Debt | 31,103 | 31,637 | ||||
| Total liabilities | 987,846 | 959,676 | ||||
| Commitments and contingencies | ||||||
| Stockholders' Equity | ||||||
| Common stock | 511 | 511 | ||||
| Additional paid-in capital | 287,734 | 287,110 | ||||
| Retained earnings | 120,628 | 109,060 | ||||
| Accumulated other comprehensive income | 8,470 | 13,426 | ||||
| Total stockholders' equity | 417,343 | 410,107 | ||||
| Total liabilities and stockholders' equity | $ | 1,405,189 | $ | 1,369,783 | ||
Supplemental Table of Net G&A Components
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| G&A Expenses | ||||||||||||||||
| Direct Commissions | $ | 27,602 | $ | 21,463 | $ | 50,710 | $ | 43,938 | ||||||||
| Ceding Commission Income | (29,684 | ) | (26,052 | ) | (57,892 | ) | (52,761 | ) | ||||||||
| Net Commissions | (2,082 | ) | (4,589 | ) | (7,182 | ) | (8,823 | ) | ||||||||
| Insurance-Related Expense* | 5,149 | 3,624 | 9,425 | 7,561 | ||||||||||||
| G&A Operating Expenses | 12,200 | 9,258 | 24,915 | 17,704 | ||||||||||||
| Total G&A Expense | $ | 15,267 | $ | 8,293 | $ | 27,158 | $ | 16,442 | ||||||||
| G&A Operating Expense - % of GWP | 7.8 | % | 8.4 | % | 8.2 | % | 8.1 | % | ||||||||
| Retention Percentage | 34.6 | % | 21.3 | % | 33.4 | % | 21.8 | % | ||||||||
| Direct Commission rate | 19.9 | % | 20.7 | % | 19.0 | % | 21.4 | % | ||||||||
| Ceding Commission rate | 32.7 | % | 31.8 | % | 32.6 | % | 33.1 | % | ||||||||
| * Primarily premium taxes and other state assessments and fees. | ||||||||||||||||
Reconciliation of Non-GAAP Financial Measures
Underwriting income
The Company defines underwriting income as income before taxes excluding net investment income, investment revaluation gains, net realized capital gains or losses, IPO-related expenses, intangible asset amortization, noncash stock compensation, losses on embedded derivatives, interest expense, other revenue and other income and expenses. Underwriting income represents the pre-tax profitability of the Company’s underwriting operations and allows management to evaluate the Company’s underwriting performance without regard to investment income, IPO-related expenses, intangible asset amortization, noncash stock compensation, interest expense, other revenue and other income and expenses. The Company uses this metric because the Company believes it gives management and other users of the Company’s financial information useful insight into the Company’s underwriting business performance by adjusting for these expenses and sources of income. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.
| Three Months Ended June 30, | Percentage | Six Months Ended June 30, | Percentage | ||||||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | Change (1) | 2021 | 2020 | Change (1) | |||||||||||||||
| Net income | $ | 2,126 | $ | 1,358 | 56.6 | % | $ | 11,568 | $ | 10,793 | 7.2 | % | |||||||||
| Income tax expense | 414 | 351 | 17.9 | % | 3,019 | 3,218 | (6.2 | )% | |||||||||||||
| Equity earnings in affiliates, net of tax | - | (1,230 | ) | (100.0 | )% | - | (1,932 | ) | (100.0 | )% | |||||||||||
| Income before taxes | 2,540 | 479 | NM | 14,587 | 12,079 | 20.8 | % | ||||||||||||||
| Other revenue | (1,229 | ) | (1,530 | ) | (19.7 | )% | (5,884 | ) | (5,922 | ) | (0.6 | )% | |||||||||
| Losses on embedded derivatives | 686 | 3,991 | (82.8 | )% | (1,990 | ) | 5,180 | (138.4 | )% | ||||||||||||
| Net investment income | (2,103 | ) | (2,525 | ) | (16.7 | )% | (4,375 | ) | (6,770 | ) | (35.4 | )% | |||||||||
| Net realized capital gains (losses) | (10 | ) | 4 | NM | (23 | ) | (3,230 | ) | (99.3 | )% | |||||||||||
| Other expenses | 845 | - | NM | 845 | - | NM | |||||||||||||||
| Interest expense | 425 | 501 | (15.2 | )% | 852 | 962 | (11.4 | )% | |||||||||||||
| Intangible asset amortization | 1,413 | 23 | NM | 2,827 | 34 | NM | |||||||||||||||
| Noncash stock compensation | 419 | - | NM | 630 | - | NM | |||||||||||||||
| Other income | (35 | ) | (40 | ) | (12.5 | )% | (156 | ) | (54 | ) | 188.9 | % | |||||||||
| Underwriting income | $ | 2,951 | $ | 903 | NM | $ | 7,313 | $ | 2,279 | NM | |||||||||||
| (1) The Company defines increases or decreases greater than | |||||||||||||||||||||
Adjusted net income
The Company defines adjusted net income as net income excluding the impact of certain items, including the consummation of the reorganization transactions in connection with the IPO, noncash intangible asset amortization and stock compensation, unrealized losses on embedded derivatives, other expenses and gains or losses that the Company believes do not reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability the Company’s results across periods. The Company calculates the tax impact only on adjustments that would be included in calculating the Company’s income tax expense using the effective tax rate at the end of each period. The Company uses adjusted net income as an internal performance measure in the management of its operations because the Company believes it gives its management and other users of its financial information useful insight into the Company’s results of operations and underlying business performance by eliminating the effects of these items. Adjusted net income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define adjusted net income differently.
| Three Months Ended June 30, | Percentage | |||||||||
| (in thousands, except percentages) | 2021 | 2020 | Change (1) | |||||||
| Net income | $ | 2,126 | $ | 1,358 | 56.6 | % | ||||
| Intangible asset amortization | 1,413 | 23 | NM | |||||||
| Noncash stock compensation | 419 | - | NM | |||||||
| Unrealized losses on embedded derivatives | 167 | 2,990 | (94.4 | )% | ||||||
| Other expenses | 845 | - | NM | |||||||
| Expenses associated with Altaris management fee, including cash bonuses paid to unitholders | - | 442 | (100.0 | )% | ||||||
| Expenses associated with IPO and other one-time legal and consulting expenses | - | 788 | (100.0 | )% | ||||||
| Expenses related to debt issuance costs | - | 135 | (100.0 | )% | ||||||
| Total adjustments | 2,844 | 4,378 | (35.0 | )% | ||||||
| Tax impact of adjustments | (654 | ) | (947 | ) | (30.9 | )% | ||||
| Adjusted net income | $ | 4,316 | $ | 4,789 | (9.9 | )% | ||||
| (1) The Company defines increases or decreases greater than | ||||||||||
| Six Months Ended June 30, | Percentage | |||||||||
| (in thousands, except percentages) | 2021 | 2020 | Change (1) | |||||||
| Net income | $ | 11,568 | $ | 10,793 | 7.2 | % | ||||
| Intangible asset amortization | 2,827 | 34 | NM | |||||||
| Noncash stock compensation | 630 | - | NM | |||||||
| Unrealized losses on embedded derivatives | (3,189 | ) | 3,206 | (199.5 | )% | |||||
| Other expenses | 845 | - | NM | |||||||
| Expenses associated with Altaris management fee, including cash bonuses paid to unitholders | - | 883 | (100.0 | )% | ||||||
| Expenses associated with IPO and other one-time legal and consulting expenses | - | 1,200 | (100.0 | )% | ||||||
| Expenses related to debt issuance costs | - | 135 | (100.0 | )% | ||||||
| FMV adjustment of remaining investment in subsidiary | - | (2,000 | ) | (100.0 | )% | |||||
| Net gain on purchase & disposal of subsidiaries | - | (3,115 | ) | (100.0 | )% | |||||
| Total adjustments | 1,113 | 343 | NM | |||||||
| Tax impact of adjustments | (256 | ) | (14 | ) | NM | |||||
| Adjusted net income | $ | 12,425 | $ | 11,122 | 11.7 | % | ||||
| (1) The Company defines increases or decreases greater than | ||||||||||
Adjusted return on equity
The Company defines adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. The Company uses adjusted return on equity as an internal performance measure in the management of its operations because the Company believes it gives management and other users of the Company’s financial information useful insight into the Company’s results of operations and underlying business performance by adjusting for items that the Company believes do not reflect its core operating performance and that may diminish comparability across periods. Adjusted return on equity should not be viewed as a substitute for return on equity calculated in accordance with GAAP, and other companies may define adjusted return on equity differently.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Adjusted return on equity calculation: | |||||||||||||||
| Numerator: adjusted net income | $ | 4,316 | $ | 4,789 | $ | 12,425 | $ | 11,122 | |||||||
| Denominator: average stockholders' equity | 415,159 | 144,733 | 413,725 | 140,450 | |||||||||||
| Adjusted return on equity | 4.2 | % | 13.2 | % | 6.0 | % | 15.8 | % | |||||||
| Return on equity | 2.0 | % | 3.8 | % | 5.6 | % | 15.4 | % | |||||||
Return on tangible equity and adjusted return on tangible equity
The Company defines tangible stockholders’ equity as stockholders’ equity less goodwill and other intangible assets. The Company defines return on tangible equity as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. The Company defines adjusted return on tangible equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. The Company regularly evaluates acquisition opportunities and have historically made acquisitions that affect stockholders’ equity. The Company uses return on tangible equity and adjusted return on tangible equity as internal performance measures in the management of the Company’s operations because the Company believes they give management and other users of its financial information useful insight into the Company’s results of operations and underlying business performance by adjusting for the effects of acquisitions on the Company’s stockholders’ equity and, in the case of adjusted return on tangible equity, by adjusting for items that the Company believes do not reflect its core operating performance and that may diminish comparability across periods. Return on tangible equity and adjusted return on tangible equity should not be viewed as substitutes for return on equity calculated in accordance with GAAP, and other companies may define return on tangible equity and adjusted return on tangible equity differently.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Return on tangible equity calculation: | |||||||||||||||
| Numerator: net income | $ | 2,126 | $ | 1,358 | $ | 11,568 | $ | 10,793 | |||||||
| Denominator: | |||||||||||||||
| Average stockholders' equity | 415,159 | 144,733 | 413,725 | 140,450 | |||||||||||
| Less: Average goodwill and other intangible assets | 213,836 | 3,453 | 214,543 | 3,459 | |||||||||||
| Average tangible stockholders' equity | 201,323 | 141,280 | 199,182 | 136,991 | |||||||||||
| Return on tangible equity | 4.2 | % | 3.8 | % | 11.6 | % | 15.8 | % | |||||||
| Return on equity | 2.0 | % | 3.8 | % | 5.6 | % | 15.4 | % | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Adjusted return on tangible equity calculation: | |||||||||||||||
| Numerator: adjusted net income | $ | 4,316 | $ | 4,789 | $ | 12,425 | $ | 11,122 | |||||||
| Denominator: average tangible stockholders' equity | 201,323 | 141,280 | 199,182 | 136,991 | |||||||||||
| Adjusted return on tangible equity | 8.6 | % | 13.6 | % | 12.5 | % | 16.2 | % | |||||||
| Return on equity | 2.0 | % | 3.8 | % | 5.6 | % | 15.4 | % | |||||||
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