QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company |
Emerging growth company
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Title of Each Class
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Trading Symbols
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Name of Each Exchange on Which Registered
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Page
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PART I
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FINANCIAL INFORMATION
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Item 1.
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1
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Item 2.
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20 | |
Item 3.
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29 | |
Item 4.
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29 | |
PART II
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OTHER INFORMATION
|
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Item 1.
|
30 | |
Item 1A.
|
30 | |
Item 2.
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30 | |
Item 3.
|
31 | |
Item 4.
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31 | |
Item 5.
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31 | |
Item 6.
|
32 | |
33 |
Item 1. |
Financial Statements
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March 31,
2023
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December 31,
2022
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Investments
|
||||||||
Fixed maturities
|
||||||||
Held to maturity, at amortized cost (net of allowance for expected credit losses of $
|
$
|
|
$
|
|
||||
Available for sale, at fair value
|
|
|
||||||
Equity securities, at fair value
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||||||
Short-term investments, at cost, which approximates fair value
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|
||||||
Total investments
|
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|
||||||
Cash
|
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|
||||||
Accrued investment income
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|
|
||||||
Premiums receivable
|
|
|
||||||
Reinsurance receivable (net of allowance for expected credit losses of $
|
|
|
||||||
Deferred policy acquisition costs
|
|
|
||||||
Deferred tax asset, net
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|
|
||||||
Prepaid reinsurance premiums
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|
||||||
Property and equipment, net
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|
||||||
Accounts receivable - securities
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||||||
Federal income taxes recoverable
|
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|
||||||
Due from affiliate
|
||||||||
Goodwill
|
|
|
||||||
Other intangible assets
|
|
|
||||||
Other
|
|
|
||||||
Total assets
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$
|
|
$
|
|
||||
Liabilities and Stockholders’ Equity
|
||||||||
Liabilities
|
||||||||
Losses and loss expenses
|
$
|
|
$
|
|
||||
Unearned premiums
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Reinsurance balances payable
|
|
|
||||||
Borrowings under lines of credit
|
|
|
||||||
Cash dividends declared to stockholders
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|
|
||||||
Due to affiliate
|
||||||||
Other
|
|
|
||||||
Total liabilities
|
|
|
||||||
Stockholders’ Equity
|
||||||||
Preferred stock, $
|
|
|
||||||
Class A common stock, $
and
|
|
|
||||||
Class B common stock, $
shares and outstanding
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Retained earnings
|
|
|
||||||
Treasury stock, at cost
|
(
|
)
|
(
|
)
|
||||
Total stockholders’ equity
|
|
|
||||||
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
Revenues:
|
||||||||
Net premiums earned
|
$
|
|
$
|
|
||||
Investment income, net of investment expenses
|
|
|
||||||
Net investment losses (includes ($
|
(
|
)
|
(
|
)
|
||||
Lease income
|
|
|
||||||
Installment payment fees
|
|
|
||||||
Total revenues
|
|
|
||||||
Expenses:
|
||||||||
Net losses and loss expenses
|
|
|
||||||
Amortization of deferred policy acquisition costs
|
|
|
||||||
Other underwriting expenses
|
|
|
||||||
Policyholder dividends
|
|
|
||||||
Interest
|
|
|
||||||
Other expenses, net
|
|
|
||||||
Total expenses
|
|
|
||||||
Income before income tax expense
|
|
|
||||||
Income tax expense (includes ($
|
|
|
||||||
Net income
|
$
|
|
$
|
|
||||
Income per common share:
|
||||||||
Class A common stock - basic and diluted
|
$
|
|
$
|
|
||||
Class B common stock - basic and diluted
|
$
|
|
$
|
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
Net income
|
$
|
|
$
|
|
||||
Other comprehensive income (loss), net of tax
|
||||||||
Unrealized gain (loss) on securities:
|
||||||||
Unrealized holding gain (loss) during the period, net of income tax expense (benefit) of $
|
|
(
|
)
|
|||||
Reclassification adjustment for losses (gains) included in net income, net of income
tax (benefit) expense of ($
|
|
(
|
)
|
|||||
Other comprehensive income (loss)
|
|
(
|
)
|
|||||
Comprehensive income (loss)
|
$
|
|
$
|
(
|
)
|
Class A
Shares
|
Class B
Shares
|
Class A
Amount
|
Class B
Amount
|
Additional
Paid-In Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Treasury Stock
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||||||||
Balance, December 31, 2022
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023
|
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Other comprehensive income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance, March 31, 2023
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
Class A
Shares
|
Class B
Shares
|
Class A
Amount
|
Class B
Amount
|
Additional
Paid-In Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
|
Treasury Stock
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||||||||
Balance, December 31, 2021
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Other comprehensive loss
|
—
|
—
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||
Balance, March 31, 2022
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income
|
$
|
|
$
|
|
||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
||||||||
Depreciation, amortization and other non-cash items
|
|
|
||||||
Net investment losses
|
|
|
||||||
Changes in assets and liabilities:
|
||||||||
Losses and loss expenses
|
|
(
|
)
|
|||||
Unearned premiums
|
|
|
||||||
Premiums receivable
|
(
|
)
|
(
|
)
|
||||
Deferred acquisition costs
|
(
|
)
|
(
|
)
|
||||
Deferred income taxes
|
|
(
|
)
|
|||||
Reinsurance receivable
|
(
|
)
|
|
|||||
Prepaid reinsurance premiums
|
(
|
)
|
|
|||||
Accrued investment income
|
(
|
)
|
(
|
)
|
||||
Due from affiliate
|
(
|
)
|
(
|
)
|
||||
Reinsurance balances payable
|
(
|
)
|
|
|||||
Current income taxes
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Other, net
|
|
|
||||||
Net adjustments
|
(
|
)
|
|
|||||
Net cash (used in) provided by operating activities
|
(
|
)
|
|
|||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of fixed maturities, held to maturity
|
(
|
)
|
(
|
)
|
||||
Purchases of fixed maturities, available for sale
|
(
|
)
|
(
|
)
|
||||
Purchases of equity securities, available for sale
|
(
|
)
|
(
|
)
|
||||
Maturity of fixed maturities:
|
||||||||
Held to maturity
|
|
|
||||||
Available for sale
|
|
|
||||||
Sales of fixed maturities:
|
||||||||
Available for sale
|
||||||||
Sales of equity securities, available for sale
|
|
|
||||||
Net (purchases) sales of property and equipment
|
(
|
)
|
|
|||||
Net sales of short-term investments
|
|
|
||||||
Net cash provided by (used in) investing activities
|
|
(
|
)
|
|||||
Cash Flows from Financing Activities:
|
||||||||
Cash dividends paid
|
(
|
)
|
(
|
)
|
||||
Issuance of common stock
|
|
|
||||||
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
Net decrease in cash
|
(
|
)
|
(
|
)
|
||||
Cash at beginning of period
|
|
|
||||||
Cash at end of period
|
$
|
|
$
|
|
||||
Cash paid during period - Interest
|
$
|
|
$
|
|
||||
Net cash paid during period - Taxes
|
$
|
|
$
|
|
1 - |
Organization
|
2 - |
Basis of Presentation
|
3 - |
Earnings Per Share
|
Three Months Ended March 31,
|
||||||||||||||||
2023
|
2022
|
|||||||||||||||
Class A
|
Class B
|
Class A
|
Class B
|
|||||||||||||
(in thousands, except per share data)
|
||||||||||||||||
Basic earnings per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Denominator:
|
||||||||||||||||
Weighted-average shares outstanding
|
|
|
|
|
||||||||||||
Basic earnings per share
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Diluted earnings per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Denominator:
|
||||||||||||||||
Number of shares used in basic computation
|
|
|
|
|
||||||||||||
Weighted-average shares effect of dilutive securities:
|
||||||||||||||||
Director and employee stock options
|
|
|
|
|
||||||||||||
Number of shares used in diluted computation
|
|
|
|
|
||||||||||||
Diluted earnings per share
|
$
|
|
$
|
|
$
|
|
$
|
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
Number of options to purchase Class A shares excluded
|
|
|
4 - |
Reinsurance
|
• |
excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover losses over a set retention of $
|
•
|
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover
|
5 - |
Investments
|
Carrying
Value
|
Allowance
for Credit
Losses
|
Amortized Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated Fair
Value
|
||||||||||||||||||||
(in thousands)
|
|||||||||||||||||||||||||
Held to Maturity
|
|||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ |
$ |
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
Obligations of states and political subdivisions
|
|
|
|
|
|||||||||||||||||||||
Corporate securities
|
|
|
|
|
|||||||||||||||||||||
Mortgage-backed securities
|
|
|
|
|
|||||||||||||||||||||
Totals
|
$ |
$ |
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Available for Sale
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Held to Maturity
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Available for Sale
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Estimated Fair
Value
|
|||||||
(in thousands)
|
||||||||
Held to maturity
|
||||||||
Due in one year or less
|
$
|
|
$
|
|
||||
Due after one year through five years
|
|
|
||||||
Due after five years through ten years
|
|
|
||||||
Due after ten years
|
|
|
||||||
Mortgage-backed securities
|
|
|
||||||
Total held to maturity
|
$
|
|
$
|
|
||||
Available for sale
|
||||||||
Due in one year or less
|
$
|
|
$
|
|
||||
Due after one year through five years
|
|
|
||||||
Due after five years through ten years
|
|
|
||||||
Due after ten years
|
|
|
||||||
Mortgage-backed securities
|
|
|
||||||
Total available for sale
|
$
|
|
$
|
|
Cost
|
Gross Gains
|
Gross Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
Cost
|
Gross Gains
|
Gross Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
(in thousands)
|
||||||||
Gross realized gains:
|
||||||||
Fixed maturities
|
$
|
|
$
|
|
||||
Equity securities
|
|
|
||||||
Real estate
|
||||||||
|
|
|
||||||
Gross realized losses:
|
||||||||
Fixed maturities
|
|
|
||||||
Equity securities
|
|
|
||||||
|
|
|||||||
Net realized (losses) gains
|
(
|
)
|
|
|||||
Gross unrealized gains on equity securities | ||||||||
Gross unrealized losses on equity securities | ( |
) | ( |
) |
||||
Fixed maturities - credit impairment charges | ( |
) | ||||||
Net investment losses | $ | ( |
) | $ | ( |
) |
Less Than 12 Months
|
More Than 12 Months
|
|||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Less Than 12 Months
|
More Than 12 Months
|
|||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
6 -
|
Segment Information
|
Three Months Ended March 31,
|
||||||||
2023
|
2022
|
|||||||
(in thousands)
|
||||||||
Revenues:
|
||||||||
Premiums earned:
|
||||||||
Commercial lines
|
$
|
|
$
|
|
||||
Personal lines
|
|
|
||||||
GAAP premiums earned
|
|
|
||||||
Net investment income
|
|
|
||||||
Investment losses
|
(
|
)
|
(
|
)
|
||||
Other
|
|
|
||||||
Total revenues
|
$
|
|
$
|
|
||||
Income before income tax expense:
|
||||||||
Underwriting (loss) income:
|
||||||||
Commercial lines
|
$
|
(
|
)
|
$
|
|
|||
Personal lines
|
|
|
||||||
SAP underwriting (loss) income
|
(
|
)
|
|
|||||
GAAP adjustments
|
|
|
||||||
GAAP underwriting (loss) income
|
(
|
)
|
|
|||||
Net investment income
|
|
|
||||||
Investment losses
|
(
|
)
|
(
|
)
|
||||
Other
|
(
|
)
|
|
|||||
Income before income tax expense
|
$
|
|
$
|
|
7 -
|
Borrowings
|