What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 151 added, 130 removed, 652 unchanged (30% of the section changed)

3 unchanged sentences

Balance Sheets

September 30,

Fixed maturities

30 unchanged sentences

Cash refunds due to Michigan policyholders

Accounts payable - securities

Total liabilities

18 unchanged sentences

and Subsidiaries

Statements of (Loss) Income

Three Months Ended June 30,

Statements of Loss

Three Months Ended September 30,

Net premiums earned

Investment income, net of investment expenses

Net investment (losses) gains (includes $ 287,861 and $ 479,211 accumulated other comprehensive income reclassifications)

Net investment losses (includes $ 371,194 and $ 26,163 accumulated other comprehensive income reclassifications)

Installment payment fees

6 unchanged sentences

Total expenses

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense (includes $ 60,451 and $ 100,634 income tax expense from reclassification items)

Net (loss) income

(Loss) earnings per common share:

Loss before income tax benefit

Income tax benefit (includes $ 77,951 and $ 5,494 income tax expense from reclassification items)

Loss per common share:

Class A common stock - basic and diluted

2 unchanged sentences

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended June 30,

Net (loss) income

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on securities:

Unrealized holding (loss) gain during the period, net of income tax (benefit) expense of ($ 3,174,636 ) and $ 511,306

Reclassification adjustment for gains included in net (loss) income, net of income tax expense of $ 60,451 and $ 100,634

Other comprehensive (loss) income

Comprehensive (loss) income

Consolidated Statements of Comprehensive Loss

Three Months Ended September 30,

Other comprehensive loss, net of tax

Unrealized loss on securities:

Unrealized holding loss during the period, net of income tax benefit of $ 4,572,428 and $ 432,664

Reclassification adjustment for gains included in net loss, net of income tax expense of $ 77,951 and $ 5,494

Other comprehensive loss

Comprehensive loss

See accompanying notes to consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Income

Six Months Ended June 30,

Consolidated Statements of (Loss) Income

Nine Months Ended September 30,

Net premiums earned

10 unchanged sentences

Total expenses

Income before income tax expense

Income tax expense (includes $ 95,175 and $ 94,505 income tax expense from reclassification items)

Earnings per common share:

Class A common stock - basic

Class A common stock - diluted

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense (includes $ 173,126

and $ 99,999 income tax expense from reclassification items)

Net (loss) income

(Loss) earnings per common share:

Class A common stock - basic and diluted

Class B common stock - basic and diluted

2 unchanged sentences

Consolidated Statements of Comprehensive (Loss) Income

Six Months Ended June 30,

Nine Months Ended September 30,

Net (loss) income

Other comprehensive loss, net of tax

9 unchanged sentences

Consolidated Statement of Stockholders’ Equity

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Paid-In Capital

18 unchanged sentences

Balance, June 30, 2022

Issuance of common stock

(stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive loss

Balance, September 30, 2022

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Statement of Stockholders’ Equity

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Paid-In Capital

17 unchanged sentences

Balance, June 30, 2021

Issuance of common stock

(stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive loss

Balance, September 30, 2021

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income

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

Depreciation, amortization and other non-cash items

17 unchanged sentences

Purchases of fixed maturities, held to maturity

( 106,290,824

Purchases of fixed maturities, available for sale

( 101,328,478

( 118,899,756

Purchases of equity securities, available for sale

2 unchanged sentences

Available for sale

Sales of fixed maturities securities, available for sale

Sales of equity securities, available for sale

Net sales of property and equipment

Net purchases of short-term investments

Net (purchases) sales of short-term investments

Net cash used in investing activities

2 unchanged sentences

Issuance of common stock

Payment on subordinated debentures

Payments on lines of credit

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England, Southern and Southwestern states.

At June 30, 2022, we had three

At September 30, 2022, we had three

our investment function, our commercial lines of insurance and our personal lines of insurance.

2 unchanged sentences

The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.

At June 30, 2022, Donegal Mutual held approximately 41 % of our outstanding Class A common stock and approximately 84 % of our

outstanding Class B common stock.

This ownership provides Donegal Mutual with approximately 70 % of the total voting power of our

At September 30, 2022, Donegal Mutual held approximately 42 % of our outstanding Class A common stock and approximately 84 % of our outstanding Class B

common stock.

Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions.

While each company maintains its separate corporate existence, our insurance

subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group.

As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities

and offer the same types of insurance products.

This ownership provides Donegal Mutual with approximately 71 % of the total voting power of our common stock.

insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions.

While each company maintains its separate corporate existence, our insurance subsidiaries and

Donegal Mutual conduct business together as the Donegal Insurance Group.

As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the

same types of insurance products.

Atlantic States, our largest subsidiary, participates in a proportional reinsurance agreement, or pooling agreement, with Donegal Mutual.

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flows for those interim periods.

Our results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2022.

Our results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2022.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and

11 unchanged sentences

Class B common stock:

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except per share data)

Basic (loss) earnings per share:

Allocation of net (loss) income

Basic loss per share:

Allocation of net loss

Weighted-average shares outstanding

Basic (loss) earnings per share

Diluted (loss) earnings per share:

Allocation of net (loss) income

Basic loss per share

Diluted loss per share:

Allocation of net loss

Number of shares used in basic computation

2 unchanged sentences

Number of shares used in diluted computation

Diluted (loss) earnings per share

Six Months Ended June 30,

Diluted loss per share

Nine Months Ended September 30,

(in thousands, except per share data)

Basic earnings per share:

Allocation of net income

Basic (loss) earnings per share:

Allocation of net (loss) income

Weighted-average shares outstanding

Basic earnings per share

Diluted earnings per share:

Allocation of net income

Basic (loss) earnings per share

Diluted (loss) earnings per share:

Allocation of net (loss) income

Number of shares used in basic computation

2 unchanged sentences

Number of shares used in diluted computation

Diluted earnings per share

Diluted (loss) earnings per share

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted

earnings per share because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Number of options to purchase Class A shares excluded

We did not include any effect of dilutive securities in the computation of diluted (loss) earnings per share for the three months ended June

30, 2022 because we sustained a net loss for the period.

We did not include any effect of dilutive securities in the computation of diluted (loss) earnings per share for the three and nine months

ended September 30, 2022 because we sustained a net loss for these periods.

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool their direct premiums written,

37 unchanged sentences

In March 2022, we received such payment from the MCCA and subsequently paid the refunds due to our Michigan policyholders.

The amortized cost and estimated fair values of our fixed maturities at June 30, 2022 were as follows:

The amortized cost and estimated fair values of our fixed maturities at September 30, 2022 were as follows:

Amortized Cost

20 unchanged sentences

Mortgage-backed securities

At June 30, 2022, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair

value of $ 262.0 million and an amortized cost of $ 295.1 million.

Our holdings at June 30, 2022 also included special revenue bonds with an aggregate fair value of $ 142.2

million and an amortized cost of $ 157.5 million.

With respect to both categories of those bonds at June 30, 2022, we held no

securities of any issuer that comprised more than 10 % of our holdings of either bond category.

Education bonds and water and sewer

utility bonds represented 46 % and 37 %,

respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2022.

Many of the issuers of the special revenue bonds we held at June 30, 2022 have the authority to impose ad

valorem taxes.

In that respect, many of the special revenue bonds we held at June 30, 2022 are similar to general obligation bonds.

At September 30, 2022, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate

fair value of $ 234.3 million and an amortized cost of $ 286.8 million.

Our holdings at September 30, 2022 also included special revenue bonds with an aggregate fair value of $ 129.2 million and an amortized cost of $ 153.8 million.

With respect to both categories of those

bonds at September 30, 2022, we held no securities of any issuer that comprised more than 10 % of our holdings of either bond

Education bonds and water and sewer utility bonds represented 47 % and 37 %, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2022.

Many of the issuers of the

special revenue bonds we held at September 30, 2022 have the authority to impose ad valorem taxes.

In that respect, many of the special revenue bonds we held at September 30, 2022 are similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities at December 31, 2021 were as follows:

36 unchanged sentences

We recorded amortization of $ 415,153 and $ 738,815 in other comprehensive loss during the

six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022 and December 31, 2021, net unrealized losses of $ 4.9

nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022 and December 31, 2021, net unrealized losses of $ 4.8

million and $ 5.2 million, respectively, remained within accumulated other comprehensive (loss) income.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2022 by contractual maturity.

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2022 by contractual maturity.

maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

16 unchanged sentences

Total available for sale

The cost and estimated fair values of our equity securities at June 30, 2022 were as follows:

The cost and estimated fair values of our equity securities at September 30, 2022 were as follows:

Estimated Fair

6 unchanged sentences

We present below gross gains and losses from investments and the change in the difference between fair value and cost of investments:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Net investment (losses) gains

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2022 as follows:

We held fixed maturities with unrealized losses representing declines that we considered temporary at September 30, 2022 as follows:

Less Than 12 Months

37 unchanged sentences

agency downgrades.

We held 827 debt securities that were in an unrealized loss position at June 30, 2022.

Based upon our analysis of

general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We held 919 debt securities that were in an unrealized loss position at September 30, 2022.

Based upon our

analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest

8 unchanged sentences

ordinarily include or exclude.

Financial data by segment for the three and six months ended June 30, 2022 and 2021 is as follows:

Three Months Ended June 30,

Financial data by segment for the three and nine months ended September 30, 2022 and 2021 is as follows:

Three Months Ended September 30,

(in thousands)

4 unchanged sentences

Net investment income

Investment (losses) gains

Investment losses

Total revenues

(Loss) income before income tax (benefit) expense:

Underwriting (loss) income:

Loss before income tax benefit:

Underwriting loss:

Commercial lines

Personal lines

SAP underwriting (loss) income

SAP underwriting loss

GAAP adjustments

GAAP underwriting (loss) income

GAAP underwriting loss

Net investment income

Investment (losses) gains

(Loss) income before income tax (benefit) expense

Six Months Ended June 30,

Investment losses

Loss before income tax benefit

Nine Months Ended September 30,

(in thousands)

6 unchanged sentences

Total revenues

Income before income tax expense:

(Loss) income before income tax (benefit) expense:

Underwriting (loss) income:

3 unchanged sentences

GAAP adjustments

GAAP underwriting (loss) income

GAAP underwriting loss

Net investment income

Investment (losses) gains

Income before income tax expense

(Loss) income before income tax (benefit) expense

Lines of Credit

1 unchanged sentence

The line of credit has no expiration date, no annual fees and no covenants.

At June 30, 2022, we had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00 %.

At September 30, 2022, we

had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00 %.

Atlantic States is a member of the FHLB of Pittsburgh.

1 unchanged sentence

Pittsburgh in exchange for cash advances.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at June

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at

September 30, 2022.

The cash advance carries a fixed interest rate of 1.74 % and is due in August 2024 .

4 unchanged sentences

The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’

membership in the FHLB of Pittsburgh at June 30, 2022.

membership in the FHLB of Pittsburgh at September 30, 2022.

FHLB of Pittsburgh stock purchased and owned

8 unchanged sentences

Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

compensation expense related to our stock compensation plans of $ 241,645 and $ 304,373 for the three months ended June 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 50,745 and $ 63,918 , respectively.

compensation expense related to our stock compensation plans of $ 158,966 and $ 181,595 for the three months ended September 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 33,383 and $ 38,135 , respectively.

We recorded compensation

expense related to our stock compensation plans of $ 485,785 and $ 597,168 for the six months ended June 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 102,015 and $ 125,405 , respectively.

At June 30, 2022, we

had $ 959,909 of unrecognized compensation expense related to nonvested share-based compensation granted under our stock

expense related to our stock compensation plans of $ 644,751 and $ 778,763 for the nine months ended September 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 135,398 and $ 163,540 , respectively.

At September 30, 2022,

we had $ 801,846 of unrecognized compensation expense related to nonvested share-based compensation granted under our stock

compensation plans that we expect to recognize over a weighted average period of approximately 1.5 years.

We received cash from option exercises under all stock compensation plans during the three months ended June 30, 2022 and 2021 of $ 11.2 million and $ 7.0 million,

We received cash from option exercises under all stock compensation plans during the three months ended September 30, 2022 and 2021 of $ 2.9 million and $ 764,956 ,

respectively.

We received cash from option exercises under all stock compensation plans during the six months ended June 30, 2022 and 2021 of $ 11.3

We received cash from option exercises under all stock compensation plans during the nine months ended September 30, 2022 and 2021 of $ 14.1

million and $ 12.2 million, respectively.

1 unchanged sentence

of $ 65,030 and $ 16,655

for the three months ended June 30, 2022 and 2021, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 264,812 and $ 421,135 for the six months ended June 30, 2022 and 2021, respectively.

for the three months ended September

30, 2022 and 2021, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 329,842

and $ 437,790 for the nine months ended September 30, 2022 and 2021, respectively.

Fair Value Measurements

35 unchanged sentences

obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable.

At June 30, 2022, we received two estimates per security from the pricing services, and we priced substantially

all of our Level 1 and Level 2 investments using those prices.

In our review of the estimates the pricing services provided at June 30, 2022, we did not identify any material discrepancies, and we did not make any adjustments to the estimates

the pricing services provided.

At September 30, 2022, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1

and Level 2 investments using those prices.

In our review of the estimates the pricing services provided at September 30, 2022, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and short-term investments at estimated fair value.

5 unchanged sentences

We evaluate our assets and liabilities to determine the appropriate level at which to classify them for each reporting period.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at

June 30, 2022:

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at September 30, 2022:

Fair Value Measurements Using

31 unchanged sentences

Equity securities

At June 30, 2022 and December 31, 2021, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

years 2016 through 2021

remained open for examination at June 30, 2022.

At September 30, 2022 and December 31, 2021, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

Tax years 2016 through 2021 remained open

for examination at September

We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax assets.

We established a valuation allowance of $ 7.9 million for our net state operating loss carryforward.

We have determined that we are not required to establish a valuation allowance for our

other deferred tax assets of $ 36.5 million and $ 28.1 million at June 30, 2022 and December 31, 2021, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future

taxable income and the implementation of tax planning strategies.

We have determined that we are not required to establish a valuation allowance for our other deferred tax

assets of $ 41.5 million and $ 28.1

million at September 30,

2022 and December 31, 2021, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning

Liabilities for Losses and Loss Expenses

9 unchanged sentences

We summarize activity in our insurance subsidiaries’ liabilities for losses and loss expenses as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

9 unchanged sentences

Our insurance subsidiaries recognized a decrease in their liabilities for losses and loss expenses of prior years of $ 30.6 million and $ 25.9 million for

the six months ended June 30, 2022 and 2021, respectively.

Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates

that increased or decreased their loss and loss expense reserves in those years.

The 2022 development represented 3.9 % of the

December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2022 development related to decreases in the liabilities for losses and

loss expenses of prior years for Atlantic States and MICO.

the nine months ended September 30, 2022 and 2021, respectively.

Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in

estimates that increased or decreased their loss and loss expense reserves in those years.

The 2022 development represented 4.9 %

of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2022 development related to decreases in the liabilities for losses

and loss expenses of prior years for Atlantic States and MICO.

The 2021 development represented 4.6 % of the December 31, 2020 net

12 unchanged sentences

Our insurance subsidiaries’

methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during the six months ended June 30, 2022.

methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during the nine months ended September 30, 2022.

The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current

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2022 from December 15, 2019.

We are a smaller reporting company and are in the process of evaluating our investment portfolio, reinsurance receivable and premiums receivable for the impact of the adoption of this guidance on our financial

position, results of operations and cash flows.

We are a smaller reporting company and are in the process of evaluating our investment portfolio, reinsurance receivable and premiums receivable, including a review of historical credit loss data and issuer credit

standing and using a probability of default methodology, to determine the impact of the adoption of this guidance on our financial position, results of operations and cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements