TIPTREE INC. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 20 20 and 2 019 F- 1 Consolidated Statements of Operations for the years ended December 31, 20 20 , 201 9 and 201 8 F- 2 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 20 20 , 201 9 and 20 18 F- 3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 20 20 , 201 9 and 201 8 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 20 20 , 201 9 and 201 8 F- 6 Notes to Consolidated Financial Statements F- 7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements Critical Audit Matter Description Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates. The Company estimates policy liabilities and unpaid claims reserves by applying a variety of generally accepted actuarial methods to historical loss development patterns, which require numerous assumptions and significant judgment. We identified policy liabilities and unpaid claims as a critical audit matter because of the significant estimates and assumptions management make in forecasting ultimate losses. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to policy liabilities and unpaid claims included the following, among others: • We tested the design and operating effectiveness of controls over policy liabilities and unpaid claims, including those related to the estimation and management’s review of the estimates as well as the selection of underlying assumptions. • We tested the design and operating effectiveness of controls over the completeness and accuracy of the premium and claim data utilized by management and their third-party actuaries. • We evaluated the methods and assumptions used by the Company to estimate the policy liabilities and unpaid claims reserve through the following procedures: ◦ With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims based on historical and industry claim development factors. ◦ With assistance from our actuarial specialists, we performed retrospective procedures comparing actual loss development with expected loss development to assess the reasonableness of assumption used, including consideration of potential bias, in the estimation of policy liabilities and unpaid claims. ◦ We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test that the inputs to the actuarial estimates were complete and accurate. /s/ Deloitte & Touche LLP New York, New York March 11, 2021 We have served as the Company's auditor since 2017. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 11, 2021 expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”), management excluded from its assessment the internal control over financial reporting at Smart AutoCare as the business was acquired on January 3, 2020. Smart AutoCare constitutes 12% of total assets and 9% of total revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at Smart AutoCare. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP New York, New York March 11, 2021 TIPTREE INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) As of December 31, 2020 December 31, 2019 Assets: Investments: Available for sale securities, at fair value, net of allowance for credit losses $ 377,133 $ 335,192 Loans, at fair value 90,732 108,894 Equity securities 123,838 155,378 Other investments 219,701 137,472 Total investments 811,404 736,936 Cash and cash equivalents 136,920 133,117 Restricted cash 58,355 11,473 Notes and accounts receivable, net 370,452 286,968 Reinsurance receivables 728,009 539,833 Deferred acquisition costs 229,430 166,493 Goodwill 179,236 99,147 Intangible assets, net 138,215 47,974 Other assets 162,034 68,510 Assets held for sale 181,705 107,835 Total assets $ 2,995,760 $ 2,198,286 Liabilities and Stockholders’ Equity Liabilities: Debt, net $ 366,246 $ 374,454 Unearned premiums 860,690 754,993 Policy liabilities and unpaid claims 233,438 144,384 Deferred revenue 399,211 94,601 Reinsurance payable 224,660 143,869 Other liabilities and accrued expenses 362,865 172,140 Liabilities held for sale 175,112 102,430 Total liabilities $ 2,622,222 $ 1,786,871 Stockholders’ Equity: Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding $ — $ — Common stock: $0.001 par value, 200,000,000 shares authorized, 32,682,462 and 34,562,553 shares issued and outstanding, respectively 33 35 Additional paid-in capital 315,014 326,140 Accumulated other comprehensive income (loss), net of tax 5,674 1,698 Retained earnings 35,423 70,189 Total Tiptree Inc. stockholders’ equity 356,144 398,062 Non-controlling interests 17,394 13,353 Total stockholders’ equity 373,538 411,415 Total liabilities and stockholders’ equity $ 2,995,760 $ 2,198,286 See accompanying notes to consolidated financial statements. F-1 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share data) For the Year Ended December 31, 2020 2019 2018 Revenues: Earned premiums, net $ 477,991 $ 499,108 $ 427,837 Service and administrative fees 186,973 106,239 102,315 Ceding commissions 21,101 9,608 9,651 Net investment income 9,916 14,017 19,179 Net realized and unrealized gains (losses) 62,410 83,868 28,782 Other revenue 51,910 59,888 38,062 Total revenues 810,301 772,728 625,826 Expenses: Policy and contract benefits 236,898 170,681 152,095 Commission expense 280,210 303,057 262,460 Employee compensation and benefits 172,737 129,479 113,557 Interest expense 32,582 27,059 27,013 Depreciation and amortization 17,578 13,569 12,596 Other expenses 109,148 99,744 77,901 Total expenses 849,153 743,589 645,622 Income (loss) before taxes ( 38,852 ) 29,139 ( 19,796 ) Less: provision (benefit) for income taxes ( 13,627 ) 9,017 ( 5,909 ) Net income (loss) from continuing operations ( 25,225 ) 20,122 ( 13,887 ) Discontinued operations: Income (loss) before taxes from discontinued operations — — 624 Gain on sale of discontinued operations — — 56,860 Less: Provision (benefit) for income taxes — — 13,714 Net income (loss) from discontinued operations — — 43,770 Net income (loss) ( 25,225 ) 20,122 29,883 Less: net income (loss) attributable to non-controlling interests - TFP — — 5,500 Less: net income (loss) attributable to non-controlling interests 3,933 1,761 450 Net income (loss) attributable to common stockholders $ ( 29,158 ) $ 18,361 $ 23,933 Net income (loss) per common share: Basic, continuing operations, net $ ( 0.86 ) $ 0.52 $ ( 0.38 ) Basic, discontinued operations, net — — 1.07 Basic earnings per share $ ( 0.86 ) $ 0.52 $ 0.69 Diluted, continuing operations, net ( 0.86 ) 0.50 ( 0.38 ) Diluted, discontinued operations, net — — 1.07 Diluted earnings per share $ ( 0.86 ) $ 0.50 $ 0.69 Weighted average number of common shares: Basic 33,859,775 34,578,292 34,715,852 Diluted 33,859,775 34,578,292 34,715,852 Dividends declared per common share $ 0.16 $ 0.16 $ 0.14 See accompanying notes to consolidated financial statements. F-2 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the Year Ended December 31, 2020 2019 2018 Net income (loss) $ ( 25,225 ) $ 20,122 $ 29,883 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available for sale securities: Unrealized holding gains (losses) arising during the period 5,653 6,320 ( 2,919 ) Related (provision) benefit for income taxes ( 1,289 ) ( 1,409 ) 662 Reclassification of (gains) losses included in net income ( 528 ) ( 1,312 ) 819 Related (provision) benefit for income taxes 113 280 ( 171 ) Unrealized gains (losses) on available for sale securities, net of tax 3,949 3,879 ( 1,609 ) Interest rate swaps (cash flow hedges): Unrealized gains (losses) on interest rate swaps — — 1,111 Related (provision) benefit for income taxes — — ( 276 ) Reclassification of (gains) losses included in net income (1) — — ( 3,845 ) Related (provision) benefit for income taxes — — 936 Unrealized (losses) gains on interest rate swaps from cash flow hedges, net of tax — — ( 2,074 ) Other comprehensive income (loss), net of tax 3,949 3,879 ( 3,683 ) Comprehensive income (loss) ( 21,276 ) 24,001 26,200 Less: Comprehensive income (loss) attributable to non-controlling interests - TFP — — 5,278 Less: Comprehensive income (loss) attributable to non-controlling interests 3,948 1,785 13 Comprehensive income (loss) attributable to common stockholders $ ( 25,224 ) $ 22,216 $ 20,909 (1) Deconsolidated as part of the sale of Care. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations. See accompanying notes to consolidated financial statements. F-3 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except shares) Number of Shares Par Value Additional paid in capital Accumulated other comprehensive income (loss) Retained earnings Shares held by subsidiaries Total stockholders’ equity to Tiptree Inc. Non-controlling interests - TFP Non-controlling interests - Other Total stockholders' equity Common stock Class B Common stock Class B Common stock Common stock Amount Class B Shares Class B Amount Balance at December 31, 2017 35,003,004 8,049,029 $ 35 $ 8 $ 295,582 $ 966 $ 38,079 ( 5,197,551 ) $ ( 34,585 ) ( 8,049,029 ) $ ( 8 ) $ 300,077 $ 77,494 $ 19,203 $ 396,774 Amortization of share-based incentive compensation — — — — 2,465 — — — — — — 2,465 — 3,889 6,354 Vesting of share-based incentive compensation 31,527 — — — ( 907 ) — — 161,574 1,050 — — 143 — — 143 Shares purchased under stock purchase plan ( 2,177,235 ) — ( 2 ) — ( 14,109 ) — — — — — — ( 14,111 ) — — ( 14,111 ) Reorganization merger (1) (2) 8,049,029 ( 8,049,029 ) 8 ( 8 ) 82,523 ( 341 ) — — — 8,049,029 8 82,190 ( 82,190 ) — — Cancellation of treasury shares ( 5,035,977 ) — ( 5 ) — ( 33,530 ) — — 5,035,977 33,535 — — — — — — Non-controlling interest contributions — — — — — — — — — — — — — 3,150 3,150 Non-controlling interest distributions — — — — — — — — — — — — ( 241 ) — ( 241 ) Net change in non-controlling interest — — — — ( 132 ) — — — — — — ( 132 ) — ( 14,097 ) ( 14,229 ) Dividends declared — — — — — — ( 4,781 ) — — — — ( 4,781 ) — — ( 4,781 ) Other comprehensive income, net of tax — — — — — ( 2,683 ) — — — — — ( 2,683 ) ( 563 ) ( 437 ) ( 3,683 ) Net income (loss) — — — — — — 23,933 — — — — 23,933 5,500 450 29,883 Balance at December 31, 2018 35,870,348 — $ 36 $ — $ 331,892 $ ( 2,058 ) $ 57,231 — $ — — $ — $ 387,101 $ — $ 12,158 $ 399,259 (1) Includes the exchange of 424,399 units of TFP for 1,187,468 shares of common stock. (2) On April 10, 2018, the Company completed a reorganization merger whereby TFP merged with and into the Company with the Company continuing as the surviving company (Reorganization Merger). After the Reorganization Merger, TFP ceased to exist and the Company owned 100 % of Operating Company. See Note (17) Stockholders’ Equity for more information. See accompanying notes to consolidated financial statements. F-4 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except shares) Common stock Number of shares Par value Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total Tiptree Inc. stockholders’ equity Non-controlling interests Total stockholders' equity Balance at December 31, 2018 35,870,348 $ 36 $ 331,892 $ ( 2,058 ) $ 57,231 $ 387,101 $ 12,158 $ 399,259 Adoption of accounting standard (3) — — — ( 99 ) 99 — — — Amortization of share-based incentive compensation — — 3,145 — — 3,145 2,917 6,062 Vesting of share-based incentive compensation (4) 164,935 — 187 — — 187 ( 2,483 ) ( 2,296 ) Shares purchased under stock purchase plan ( 1,472,730 ) ( 1 ) ( 9,084 ) — — ( 9,085 ) — ( 9,085 ) Non-controlling interest contributions — — — — — — 61 61 Non-controlling interest distributions (5) — — — — — — ( 3,585 ) ( 3,585 ) Net change in non-controlling interest — — — — — — 2,500 2,500 Dividends declared — — — — ( 5,502 ) ( 5,502 ) — ( 5,502 ) Other comprehensive income (loss), net of tax — — — 3,855 — 3,855 24 3,879 Net income (loss) — — — — 18,361 18,361 1,761 20,122 Balance at December 31, 2019 34,562,553 $ 35 $ 326,140 $ 1,698 $ 70,189 $ 398,062 $ 13,353 $ 411,415 Adoption of accounting standard (3) — — — 42 ( 42 ) — — — Amortization of share-based incentive compensation — — 3,441 — — 3,441 4,130 7,571 Vesting of share-based incentive compensation (4) 504,195 — 100 — — 100 ( 2,223 ) ( 2,123 ) Shares purchased under stock purchase plan ( 2,384,286 ) ( 2 ) ( 13,887 ) — — ( 13,889 ) — ( 13,889 ) Non-controlling interest distributions (5) — — ( 645 ) — — ( 645 ) ( 1,389 ) ( 2,034 ) Net change in non-controlling interest — — ( 135 ) — — ( 135 ) ( 425 ) ( 560 ) Dividends declared — — — — ( 5,566 ) ( 5,566 ) — ( 5,566 ) Other comprehensive income (loss), net of tax — — — 3,934 — 3,934 15 3,949 Net income (loss) — — — — ( 29,158 ) ( 29,158 ) 3,933 ( 25,225 ) Balance at December 31, 2020 32,682,462 $ 33 $ 315,014 $ 5,674 $ 35,423 $ 356,144 $ 17,394 $ 373,538 (3) Amounts reclassified due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies . (4) Includes subsidiary RSU exchanges. See Note (19) Stock Based Compensation. (5) Amounts reclassified due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies. See accompanying notes to consolidated financial statements. F-5 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, Operating Activities: 2020 2019 2018 Net income (loss) attributable to common stockholders $ ( 29,158 ) $ 18,361 $ 23,933 Net income (loss) attributable to non-controlling interests - TFP — — 5,500 Net income (loss) attributable to non-controlling interests 3,933 1,761 450 Net income (loss) ( 25,225 ) 20,122 29,883 Adjustments to reconcile net income to net cash provided by (used in) operating activities Net realized and unrealized (gains) losses ( 62,410 ) ( 83,868 ) ( 28,782 ) Net (gain) loss on sale of businesses 4,428 ( 7,598 ) ( 56,860 ) Non-cash compensation expense 8,117 6,363 6,657 Amortization/accretion of premiums and discounts 2,229 1,161 1,029 Depreciation and amortization expense 17,578 13,569 12,596 Non-cash lease expense 7,374 7,568 — Deferred provision (benefit) for income taxes 10,733 6,815 4,011 Amortization of deferred financing costs 1,015 714 934 Other ( 333 ) 1,381 671 Changes in operating assets and liabilities: Mortgage loans originated for sale ( 3,064,003 ) ( 2,048,228 ) ( 1,533,365 ) Proceeds from the sale of mortgage loans originated for sale 3,152,104 2,043,097 1,590,546 (Increase) decrease in notes and accounts receivable ( 48,527 ) ( 33,085 ) ( 35,256 ) (Increase) decrease in reinsurance receivables ( 116,839 ) ( 119,482 ) ( 67,384 ) (Increase) decrease in deferred acquisition costs ( 62,937 ) 3,570 ( 22,901 ) (Increase) decrease in other assets ( 22,417 ) 269 ( 12,400 ) Increase (decrease) in unearned premiums 105,697 155,549 95,998 Increase (decrease) in policy liabilities and unpaid claims 33,968 12,773 19,608 Increase (decrease) in deferred revenue 122,042 16,397 19,009 Increase (decrease) in reinsurance payable 53,716 26,272 27,043 Increase (decrease) in other liabilities and accrued expenses 23,859 383 6,687 Net cash provided by (used in) operating activities 140,169 23,742 57,724 Investing Activities: Purchases of investments ( 1,494,688 ) ( 389,206 ) ( 327,617 ) Proceeds from sales and maturities of investments 1,400,229 394,331 190,942 Proceeds from the sale of real estate 2,981 11,857 17,705 Purchases of property, plant and equipment ( 6,694 ) ( 8,519 ) ( 3,749 ) Proceeds from the sale of businesses 500 18,329 15,709 Proceeds from notes receivable 41,582 36,690 29,234 Issuance of notes receivable ( 62,088 ) ( 67,176 ) ( 31,331 ) Business and asset acquisitions, net of cash, restricted cash and deposits (1) ( 5,313 ) ( 4,633 ) — Net cash provided by (used in) investing activities ( 123,491 ) ( 8,327 ) ( 109,107 ) Financing Activities: Dividends paid ( 5,566 ) ( 5,502 ) ( 4,781 ) Non-controlling interest contributions — 61 3,150 Non-controlling interest distributions ( 2,134 ) ( 3,585 ) ( 241 ) Payment of debt issuance costs ( 4,571 ) ( 586 ) ( 1,143 ) Proceeds from borrowings and mortgage notes payable 3,379,688 2,237,329 1,632,469 Principal paydowns of borrowings and mortgage notes payable ( 3,321,779 ) ( 2,181,704 ) ( 1,617,346 ) Repurchases of common stock ( 13,889 ) ( 9,085 ) ( 14,111 ) Net cash provided by (used in) financing activities 31,749 36,928 ( 2,003 ) Net increase (decrease) in cash, cash equivalents and restricted cash 48,427 52,343 ( 53,386 ) Cash, cash equivalents and restricted cash – beginning of period 144,590 96,524 142,237 Cash, cash equivalents and restricted cash – beginning of period - held for sale 7,137 2,860 10,533 Cash, cash equivalents and restricted cash – end of period 200,154 151,727 99,384 Less: Reclassification of cash to assets held for sale 4,879 7,137 2,860 Cash, cash equivalents and restricted cash – end of period $ 195,275 $ 144,590 $ 96,524 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest expense $ 29,538 $ 26,224 $ 25,976 Cash (received) paid during the period for income taxes $ 1,066 $ 3,301 $ ( 5,088 ) Supplemental Schedule of Non-Cash Investing and Financing Activities: Right of use asset obtained in exchange for lease liability $ 9,989 $ 33,558 $ — Equity securities acquired as part of a dividend reinvestment plan $ 953 $ — $ — Acquired real estate properties through, or in lieu of, foreclosure of the related loan $ — $ 2,596 $ 7,367 Acquisition of non-controlling interest $ — $ 2,500 $ 82,190 Equity securities acquired through the sale of a subsidiary and asset sales $ — $ — $ 135,675 Cancellation of treasury shares $ — $ — $ 33,535 As of December 31, Reconciliation of cash, cash equivalents and restricted cash 2020 2019 2018 Cash and cash equivalents $ 136,920 $ 133,117 $ 86,003 Restricted cash 58,355 11,473 10,521 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 195,275 $ 144,590 $ 96,524 (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. See accompanying notes to consolidated financial statements. F-6 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (1) Organization Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into two 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 Capital. (2) Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. Non-controlling interests on the 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. Reclassifications As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current present ation. These reclassif ications had no effect on the reported results of operations. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited 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; • Vessel valuations, residual value of vessels and the useful lives of vessels; • Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims; • Deferred acquisition costs and value of business acquired (VOBA); • The realization of deferred tax assets, and recognition and measurement of uncertain tax positions; • Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and administration fees, and loan origination fees; and • Other matters that affect the reported amounts and disclosure of contingencies in the 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 F-7 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 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. Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets. Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations The results of operations of a business that has either been disposed of or are classified as held for sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceases the recording of depreciation and amortization on assets transferred. Accounting policies specific to our dispositions, assets and liabilities held for sale and discontinued operations are described in more detail in (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations. 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 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. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. 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. In certain cases, the inputs used to measure fair value may fall into F-8 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Tiptree’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the investment. From time to time, Tiptree’s assets and liabilities will transfer between one level to another level. It is Tiptree’s policy to recognize transfers between different levels at the end of each reporting period. Tiptree utilizes both observable and unobservable inputs in its valuation methodologies. Observable inputs 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. For broker quotes, 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. Fair Value Option In addition to the financial instruments that 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 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. Derivative Financial Instruments and Hedging From time to time, derivative instruments are used in the overall strategy to manage exposure to market risks primarily related to fluctuations in interest rates. As a matter of policy, derivatives are not used for speculative purposes. Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on the consolidated balance sheets. Derivative Instruments Designated as Cash Flow Hedging Instruments The Company uses cash flow hedges to reduce the exposure to variability of cash flows from floating rate borrowings. If a derivative instrument meets certain cash flow hedge accounting criteria, it is recorded on the consolidated balance sheet at its fair value, as either an asset or a liability, with offsetting changes in fair value recognized in AOCI. The effective portion of the changes in fair value of derivatives are reported in AOCI and amounts previously recorded in AOCI are recognized in earnings in the period in which the hedged transaction affects earnings. Any ineffective portions of the change in fair value of the derivative are recognized in current earnings. Stock Based Compensation The Company accounts for equity‑based compensation issued to employees, directors, and affiliates of the Company using the current fair value based methodology. The Company initially measures the cost of restricted stock unit (RSUs) and restricted stock awards at fair value on the date of grant and subsequently recognizes the cost of such awards over the vesting period using the straight-line method. The compensation costs are charged to expense over the vesting period with a corresponding credit to additional paid-in capital. Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. Grants of subsidiary RSUs exchangeable into common stock of the Company are accounted for as equity based upon their expected settlement method. The Company recognizes the cost of such awards over the vesting period using the straight-line method and uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs. Compensation expense will be recognized to the extent that it is probable that the performance condition will be achieved. The Company reassesses the probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period. F-9 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Income Taxes Deferred tax assets and liabilities are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are established for future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to reverse. A valuation allowance is established when necessary to reduce a deferred tax asset to the amount expected to be realized. Several of the Company’s subsidiaries file state tax returns on a standalone basis. Two of our subsidiaries file federal and state tax returns on a stand alone basis, one of which is held for sale. These U.S. federal and state income tax returns, when filed, will be subject to examination by the Internal Revenue Service and state departments of revenue. See Note (20) Income Taxes. The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. The Company’s provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold. The Company’s policy is to account for interest as a component of interest expense and penalties as a component of other expenses. Earnings Per Share The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and footnotes thereto. Basic earnings per Common Share (Basic EPS) excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, which includes vested RSUs, for the period. Diluted earnings per Common Share (Diluted EPS) reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares where such exercise or conversion would result in a lower earnings per share amount. The Company calculates EPS using the two-class method, which is an earnings allocation formula that determines EPS for common shares and participating securities. Unvested RSUs contain non-forfeitable rights to distributions or distribution equivalents (whether paid or unpaid) and are participating securities that are included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive distributions. The participating securities do not have a contractual obligation to absorb losses and are only allocated in periods where there is income from continuing operations. See Note (22) Earnings Per Share, for EPS computations. Investments The Company records all investment transactions on a trade‑date basis. Realized gains (losses) are determined using the specific-identification method. The Company classifies its investments in debt securities as available for sale or held-to-maturity based on the Company’s intent and ability to hold the debt security to maturity. The Company did not have any held-to-maturity securities at December 31, 2020 and 2019. Available for Sale Securities, at Fair Value (AFS) AFS are securities that are not classified as trading or held-to-maturity and are intended to be held for indefinite periods of time. AFS securities include those debt securities that management may sell as part of its asset/liability management strategy or in response to changes in interest rates, resultant prepayment risk or other factors. AFS securities are held at fair value on the consolidated balance sheet with changes in fair value including non-credit related losses, net of related tax effects, recorded in the AOCI component of stockholders’ equity in the period of change. Upon the disposition of an AFS security, the Company reclassifies the gain or loss on the security from AOCI to net realized and unrealized gains (losses) on the consolidated statements of operations. For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating F-10 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Subsequent activity related to the credit loss component (e.g. write-offs, recoveries) is recognized as part of the allowance for credit losses on AFS securities. For AFS securities which have an expectation of zero risk nonpayment of the amortized cost basis (e.g. U.S. Treasury securities or agency securities), the expected credit loss is zero. Loans, at Fair Value Loans, at fair value is substantially comprised of (i) corporate loans, (ii) non-performing residential loans (NPLs) and (iii) loans originated by the Company’s mortgage finance business. Changes in their fair value are reported within net realized and unrealized gains (losses) in our consolidated statements of operations. Corporate Loans Corporate loans are comprised of a diversified portfolio of middle market leveraged loans which are carried at fair value. In general, the fair value of leveraged loans is obtained from an independent pricing service which provides coverage of secondary market participants. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of leveraged loans based on internal models and other unobservable inputs. Non-Performing Residential Loans (NPLs) The Company has purchased portfolios of NPLs which consist of residential mortgage loans. Such loans are carried at fair value, which is measured on an individual loan basis. We seek to either (i) convert such loans into real estate owned property (REO) through foreclosure or another resolution process that can then be sold, or (ii) modify and resell them at higher prices if circumstances warrant. The Company has elected the fair value option for NPLs as we have concluded that fair value timely reflects the results of our investment performance. As substantially all of our loans were non-performing when acquired, we generally look to the estimated fair value of the underlying property collateral to assess the recoverability of our investments. We primarily utilize the local broker price opinion (BPO) but also consider any other comparable home sales or other market data, as considered necessary, in estimating a property’s fair value. For further discussion on the observable and unobservable inputs to the model and determination of fair value of NPLs, see Note (12) Fair Value of Financial Instruments. Certain NPLs are loans that are delinquent on obligated payments of principal and interest. Certain other NPLs are making some payments, generally as a result of a modification or a workout plan. The fair value of NPLs are determined using a discounted cash flow model. As such, both the changes in fair value and the net periodic cash flows related to NPLs are recorded in net realized and unrealized gains (losses) in the consolidated statements of operations. The Company does not hold any NPLs as of December 31, 2020. Mortgage Loans Held for Sale Mortgage loans held for sale represent loans originated and held until sold to secondary market investors. Such loans are typically warehoused for a period after origination or purchase before sale into the secondary market. Loans are sold either servicing released, or in select instances, servicing retained into the secondary loan market. The Company has elected to measure all mortgage loans held for sale at fair value. These loans are considered sold when the Company surrenders control to the purchaser. The gains or losses on sales of such loans, net of any accrual for standard representations and warranties, are reported in operating results as a component of net realized and unrealized gains (losses) in the consolidated statements of operations in the period when the sale occurs. F-11 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Equity Securities Equity securities are investments consisting of equity securities that are purchased principally for the purpose of selling them in the near term. Changes in fair value are recorded in net realized and unrealized gains (losses) on investments on the consolidated statements of operations in the period of change. Other Investments Foreclosed Residential Real Estate Property (REO) NPLs are reclassified to REO once the Company has obtained legal title to the property upon completion of a foreclosure sale or the borrower has conveyed all interest in the property to satisfy that loan through completion of a deed in lieu of foreclosure. Because the Company elected the fair value option for NPLs, upon recognition as REO, the property fair value is estimated using market values and, if the property meets held-for-sale criteria, it is initially recorded at fair value less costs to sell as its new cost basis. Subsequently, the property is carried at (i) the fair value of the asset minus the estimated costs to sell the asset or (ii) the initial REO value, whichever is lower. Adjustments to the carrying value of REOs are recorded in net realized and unrealized gains (losses). Vessels, net Investments in vessels, net are carried at cost (inclusive of capitalized acquisition costs, where applicable) less accumulated depreciation. Subsequent expenditures are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are expensed as incurred. Vessels acquired are recognized at their fair value as of the date of the acquisition. Depreciation is computed using the straight-line method over the vessel’s estimated remaining useful life, after considering the estimated salvage value. A vessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap rate. Vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Vessels are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable. Potential impairment indicators are primarily based upon a comparison of the market value of a vessel to its carrying value. Market values are based upon quoted prices from industry-recognized sources. The Company evaluates market quotes of vessels for reasonableness by comparison to available market transactions or internal valuation models. An impairment charge would be recognized if the estimated undiscounted future net cash flows expected to result from the operation and subsequent disposal of the vessel are less than the vessel’s carrying amount. The Company’s estimate of future revenue is based upon time charter equivalent (TCE) rates using current market rates. The Company uses average historical rates for periods beyond those for which rates are available. Estimated cash flows are net of brokerage and address commissions, vessel operating expenses, and estimated costs of drydocking and include an inflation factor, as appropriate. The projected undiscounted future cash flows are comprised of the net of these inflows and outflows, plus an estimated salvage value. As of December 31, 2020, the undiscounted future cash flows were higher than the carrying amount of each of the vessels in the Company’s fleet and, as such, no loss on impairment was recognized. Cash and Cash Equivalents The Company considers all highly liquid investments of sufficient credit quality purchased with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of U.S. denominated cash on hand, cash held in banks and investments in money market funds. Restricted Cash The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers, fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions. Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow F-12 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings. Notes and Accounts Receivable, Net Notes Receivable, Net The Company’s notes receivable, net includes receivables related to the insurance business for its premium financing programs. The Company accrues interest income on its notes receivable based on the contractual terms of the respective note. The Company monitors all notes receivable for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. In addition to allowances for bad debt for specific notes receivable, a general provision for bad debt is estimated for the Company’s notes receivable based on history. Account balances are generally charged against the allowance when the Company believes it is probable that the note receivable will not be recovered and has exhausted its contractual and legal remedies. Generally, receivables overdue more than 120 days are written off when the Company determines it has exhausted reasonable collection efforts and remedies, see Note (7) Notes and Accounts Receivable, net. Accounts and Premiums Receivable, Net Accounts and premiums receivable, net are primarily trade receivables from the insurance business that are carried at their approximate fair value. Accounts and premiums receivable from the Company’s insurance business consist primarily of advance commissions and agents' balances in course of collection and billed but not collected policy premiums, presented net of the allowance for doubtful accounts. For policy premiums that have been billed but not collected, the Company records a receivable on its consolidated balance sheets for the full amount of the premium billed, with a corresponding liability, net of its commission, to insurance carriers. The Company earns interest on the premium cash during the period of time between receipt of the funds and payment of these funds to insurance carriers. The Company maintains an allowance for doubtful accounts based on an estimate of uncollectible accounts. Retrospective commissions receivable, Trust receivables and Other receivables Retrospective commissions receivable, trust receivables and other receivables are primarily trade receivables from the insurance business that are carried net of allowance at their approximate fair value. Reinsurance Receivables Through the insurance business, the Company has various reinsurance agreements in place whereby the amount of risk in excess of its retention goals is reinsured by unrelated domestic and foreign insurance companies. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. Reinsurance receivables are based upon estimates and are reported on the consolidated balance sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. Management continually monitors the financial condition and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible. Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets. Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts. Deferred Acquisition Costs The Company defers certain costs of acquiring new and renewal insurance policies and other products as follows within the Company’s insurance business. Amortization of deferred acquisition costs was $ 265,781 , $ 287,834 and $ 246,330 for the years ended December 31, 2020, 2019 and 2018, respectively. Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not F-13 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) occurred. These capitalized costs are amortized as the related premium is earned. Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred. These capitalized costs are amortized as the related service and administrative fees are earned. The Company evaluates whether all deferred acquisition costs are recoverable at year-end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2020, 2019 and 2018. Goodwill and Intangible Assets, net The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets are amortized over their estimated useful lives principally using a pattern of economic benefit for customer relationships and a straight-line method for other intangible assets. Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The Company carries intangible assets, which represent customer and agent relationships, trade names, insurance licenses (certificates of authority granted by individual state departments of insurance), the value of in-force insurance policies acquired, software acquired or internally developed and fishing licenses. Management has deemed the insurance licenses to have an indefinite useful life. Costs incurred to renew or maintain insurance licenses are recorded as operating costs in the period in which they arise. See Note (9) Goodwill and Intangible Assets, net. Other Assets Other assets primarily consist of right of use assets, prepaid expenses, and furniture, fixtures and equipment, net. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. Debt, net Debt is carried on the consolidated balance sheets at an amount equal to the unpaid principal balance, net of any remaining unamortized discount or premium and direct and any incremental costs attributable to issuance. Discounts, premiums and direct and incremental costs are amortized as a component of interest expense in the consolidated statements of operations over the life of the debt. See Note (11) Debt, net. Unearned Premiums Premiums written are earned over the life of the respective policy using the Rule of 78's, pro rata, or other actuarial methods as appropriate for the type of business. Unearned premiums represent the portion of premiums that will be earned in the future. A premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income. As of December 31, 2020 and 2019, no deficiency reserves were recorded. Policy Liabilities and Unpaid Claims Policyholder account balances relate to investment-type individual annuity contracts in the accumulation phase. Policyholder account balances are carried at accumulated account values, which consist of deposits received, plus interest credited, less withdrawals and assessments. Minimum guaranteed interest credited to these contracts ranges from 3.0 % to 4.0 %. The Company’s claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. The Company’s actuaries apply a variety of generally accepted actuarial methods to the historical loss development patterns, to derive cumulative development factors. These cumulative development factors are applied to reported losses for each accident quarter to compute ultimate losses. The indicated required reserve is the difference between the ultimate losses and the reported losses. The actuarial methods used include but are not limited to the chain ladder method, the Bornhuetter-Ferguson method, and the expected loss ratio method. The actuarial analyses are performed on a basis gross of ceded F-14 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account the impact of reinsurance. The Company has not made any changes to its methodologies for determining claim reserves in the periods presented. Credit life and accidental death and dismemberment (AD&D) unpaid claims reserves include claims in the course of settlement and incurred but not reported (IBNR). Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other product lines, unpaid claims reserves include case reserves for reported claims and bulk reserves for IBNR claims. The Company uses a number of algorithms in establishing its unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, reported incurred losses, target loss ratios, and in-force amounts or a combination of these factors. Anticipated future loss development patterns form a key assumption underlying these analyses. Generally, unpaid claims reserves, and associated incurred losses, are impacted by loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity may include changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation, economic conditions, morbidity patterns and the attitudes of claimants towards settlements. The unpaid claims reserves represent the Company’s best estimates at a given time, based on the projections and analyses discussed above. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims reserves in the periods presented. In accordance with applicable statutory insurance company regulations, the Company’s recorded unpaid claims reserves are evaluated by appointed independent third-party actuaries, who perform this function in compliance with the Standards of Practice and Codes of Conduct of the American Academy of Actuaries. The independent actuaries perform their actuarial analyses annually and prepare opinions, statements, and reports documenting their determinations. For December 31, 2020 and 2019, our appointed independent third-party actuaries found the Company’s reserves to be adequate. Deferred Revenue Deferred revenues represent the portion of income that will be earned in the future attributable to motor club memberships, mobile device protection plans, and other non-insurance service contracts that are earned over the respective contract periods using Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. A deficiency reserve would be recorded if anticipated contract benefits, deferred acquisition costs and contract service costs exceed the recorded deferred revenues and anticipated investment income. As of December 31, 2020 and 2019 no deficiency reserves were recorded. Other Liabilities and Accrued Expenses Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. Revenue Recognition The Company earns revenues from a variety of sources: Earned Premiums, Net Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods. Management selects the appropriate method based on available information, and periodically reviews the F-15 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) selections as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company’s reinsurers, including producer owned reinsurance companies (PORCs), earned in the same manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer. Service and Administrative Fees The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned. Service Fees. S ervice fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Collateral tracking fee income is recognized when the service is performed and billed. 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. During the years ended December 31, 2020, 2019 and 2018, respectively, the Company did not incur a loss with respect to a specific significant service fee contract. Administrative Fees. Administrative fee revenue includes the administration of premium associated with our producers and their 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. Ceding Commissions Ceding commissions earned under reinsurance agreements are based on contractual formulas that take into account, in part, underwriting performance and investment returns experienced by the assuming companies. As experience changes, adjustments to the ceding commissions are reflected in the period incurred and are based on the claim experience of the related policy. The adjustment is calculated by adding the earned premium and investment income from the assets held in trust for the Company’s benefit less earned commissions, incurred claims and the reinsurer's fee for the coverage. 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 a 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. Vessel related revenue is recorded in other investment income as a part of other revenue. Policy and Contract Benefits Member Benefit Claims Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized as expense when incurred. Net Losses and Loss Adjustment Expenses Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance F-16 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) contract claims, net of amounts ceded. Net losses include actual claims paid and the change in unpaid claim reserves. Commissions Payable and Expense Commissions are paid to distributors and retailers selling credit insurance policies, motor club memberships, mobile device protection, and warranty service contracts, and are generally deferred and expensed in proportion to the earning of related revenue. Credit insurance commission rates, in many instances, are set by state regulators and are also impacted by market conditions. In certain instances, credit insurance commissions are subject to retrospective adjustment based on the profitability of the related policies. Under these retrospective commission arrangements, the producer of the credit insurance policies receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the costs associated with those policies, which includes the Company’s administrative fees, claims, reserves, and premium taxes. The Company analyzes the retrospective commission calculation periodically for each producer and, based on the analysis associated with each such producer, the Company records a liability for any positive net retrospective commission earned and due to the producer or, conversely, records a receivable, net of allowance, for amounts due from such producer for instances where the net result of the retrospective commission calculation is negative. Commissions payable are included in other liabilities and accrued expenses. Recent Accounting Standards Recently Adopted Accounting Pronouncements Standard Description Adoption Date Impact on Financial Statements 2016-13 Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Topic 326 amended guidance on reporting credit losses for assets held on an amortized cost basis and AFS debt securities. For assets held on an amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in previous 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 AFS debt securities, credit losses should be measured in a manner similar to previous GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. Changes in the allowance account are recorded in the period of change as a credit loss expense or reversal of credit loss expense. The measurement of credit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost. January 1, 2020 The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement The amendments in this update require additions, modifications and elimination to the fair value measurement disclosure. The objective of these disclosure requirements is to provide users of financial statements with information about assets and liabilities measured at fair value: (a) The valuation techniques and inputs that a reporting entity uses to arrive at its measures of fair value, including judgments and assumptions that the entity makes, (b) The uncertainty in the fair value measurements as of the reporting date, and (c) How changes in fair value measurements affect an entity’s performance and cash flows. January 1, 2020 The retrospective adoption of this standard resulted in additional disclosures related to inputs of Level 3 investments. This adoption resulted in no material impact to the Company’s consolidated financial statements. See Note (12) Fair Value of Financial Instruments. 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income The amendments in this update allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this update affect any entity that is required to apply the provisions of Topic 220 and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. January 1, 2019 The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements. F-17 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Standard Description Adoption Date Impact on Financial Statements 2016-02 Leases (Topic 842) This new standard introduced a new lessee model that brings substantially all leases onto the balance sheet. In addition, while the new guidance retains most of the principles of the previous existing lessor model in GAAP, it aligns many of those principles with ASC 606, Revenue From Contracts With Customers. January 1, 2019 The adoption of this guidance (practical expedient) resulted in the Company recognizing a right of use asset of $ 32,052 as part of other assets and a lease liability of $ 33,558 as part of other liabilities and accrued expenses in the consolidated balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance for its operating lease agreements at January 1, 2019. 2014-09 Revenue from Contracts with Customers (Topic 606) This ASU outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance, including industry-specific guidance. January 1, 2018 The Company has chosen the modified-retrospective method of adopting Topic 606, and has assessed these contracts and concluded that changes in accounting and revenue recognition upon adoption of Topic 606 were not material to the Company’s financial position as of January 1, 2018, and did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements, Not Yet Adopted Standard Description Adoption Date Impact on Financial Statements 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception 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. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the effect on its consolidated financial statements. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020, through December 31, 2022. The Company is evaluating their option to adopt the guidance when it is applicable. The Company is currently evaluating the effect on its consolidated financial statements. (3) Acquisitions 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 preliminary allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of approximately F-18 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) $ 20,000 and $ 5,340 . It is expected that the tax basis in goodwill and intangible assets will be similar to the GAAP values provided above. See Note (9) Goodwill and Intangible Assets, net. Acquisition of Smart AutoCare On January 3, 2020, a subsidiary of the Company acquired (the Acquisition) all of the equity interests 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 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 escrow account for 18 months to satisfy indemnity claims. Simultaneously, pursuant to the Commutation Transaction, affiliates of Seller paid Freedom $ 102,000 in cash. The Purchase Agreement also provides for an earn out of up to $ 50,000 in cash based on Smart AutoCare achieving specified performance metrics measured on the 3 -year and 5 -year anniversary of closing (Reserve Based Earn-Out Amount) and an additional earn out of up to $ 30,000 payable in cash or Tiptree common stock based on Smart AutoCare achieving other certain specified performance metrics measured on the 4 -year and 5 -year anniversary of closing (Profits Based Earn-Out Amount). In addition, the purchase price will be subject to a true-up following the 5 -year anniversary of the closing (Underwriting Profitability True-Up) based on the adequacy of certain legacy reserves, offset by certain earnings on new business. Fortegra Warranty may hold back all or a portion of any Reserve Based Earn-Out Amounts until final determination of the legacy reserves used to calculate the Underwriting Profitability True-Up if in Tiptree’s reasonable opinion such amount may be needed to offset a deficiency in such legacy reserves. In addition, if the deficiency in the legacy reserves used to calculate the Underwriting Profitability True-Up is greater than the aggregate amount owing to Seller for the Reserve-Based Earn-Out Amount and Profits-Based Earn-Out Amount, Seller shall pay Tiptree an amount equal to the lesser of such difference and $ 10,000 . Smart AutoCare’s results are included in the Company’s Insurance segment. The financial results of Smart AutoCare have been included in the Company’s results as of the acquisition date. For the period from the Acquisition until December 31, 2020, Smart AutoCare total revenue was $ 70,022 and the loss before taxes was $ 226 . The fair value of assets acquired and liabilities assumed represent the allocation as our evaluation of facts and circumstances available as of the acquisition date. The allocation of the purchase price to the intangible assets is based on fair value estimates and have been reviewed by management. The allocation of the purchase price has been finalized and all measurement period adjustments have been recorded. Management’s allocation of the purchase price to the net assets acquired resulted in the recording of finite-lived intangible assets valued at $ 93,700 , with an estimated amortization period of 5 to 13.5 years. It is expected that the tax basis in intangible assets will be similar to the GAAP values provided above. The residual amount of the purchase 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 Insurance segment. It is expected that $ 21,127 of this goodwill will be tax deductible over a 15 year period. F-19 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following table presents the determination of the acquisition date fair value amounts for the identifiable assets acquired, liabilities assumed, and goodwill recorded in connection with the Acquisition, in accordance with the acquisition method of accounting: As of January 3, 2020 Assets: Investments: Available for sale securities, at fair value $ 110 Total investments 110 Cash and cash equivalents 120,934 Restricted cash 764 Notes and accounts receivable, net 6,214 Reinsurance receivables 71,337 Intangible assets, net 93,700 Other assets 34,053 Total assets $ 327,112 Liabilities: Policy liabilities and unpaid claims $ 55,151 Deferred revenue 182,568 Reinsurance payable 27,075 Other liabilities and accrued expenses 10,860 Total liabilities 275,654 Net assets acquired 51,458 Goodwill 60,346 $ 111,804 Acquisition costs $ 3,539 Supplemental pro forma results of operations have not been presented for the Acquisition as they are not material in relation to the Company’s reported results. 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 Assets Weighted Average Amortization Period (in Years) Value as of acquisition date Customer relationships 7.2 $ 86,000 Software licensing 5.0 600 Trade names 13.5 7,100 Total acquired finite-lived intangible assets 7.7 $ 93,700 On July 1, 2019, a subsidiary in our insurance business acquired a majority interest in Ingenasys, Ltd., the parent holding company of Defend Insurance Group (Defend), for total net cash consideration of approximately $ 4,600 . Defend is an automotive finance and insurance provider and insurance administrator operating in the Czech Republic, Poland, Hungary, Slovakia, and the UK. Identifiable assets acquired were primarily made up of goodwill and intangible assets. See Note (9) Goodwill and Intangible Assets, net. F-20 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations Dispositions On April 26, 2019, the Company completed the sale of the management contracts and related assets for the CLOs managed by Telos Asset Management, LLC (Telos). The pre-tax gain on sale for the year ended December 31, 2019 was $ 7,598 , which is included in other revenue. See (16) Other Revenue and Other Expenses. The sale did not meet the requirements to be classified as a discontinued operation. The sale agreement also contains a provision which provides for contingent consideration if the Telos business achieves specific performance metrics. This contingent consideration represents a gain contingency, and the Company will not recognize any additional gain unless such consideration is realized. On February 1, 2018, the Company completed the sale of Care, as well as two senior living properties held in our insurance business, to Invesque Inc. (Invesque). The pre-tax comprehensive income on the sale was approximately $ 54,860 , which consists of $ 56,860 gain on sale of a subsidiary, $ 1,845 of realized gain on the sale of the insurance properties, offset by the reclassification of an interest rate swap from AOCI of $ 3,845 . The gain on sale of a subsidiary includes $ 10,676 of earnout consideration recognized in December 2018 as a result of a portfolio disposition by Invesque. Total consideration received for the sale of Care was $ 150,741 , including approximately 16.6 million shares of Invesque, resulting in an ownership of approximately 34 % of the acquiring company at the time of sale. The Company has elected to apply the fair value option to the investment in Invesque. As such, these shares are held at fair value within equity securities. When the Company entered into a purchase agreement on November 16, 2017 to sell Care, the Company concluded that the sale met the requirements to be classified as a discontinued operation. As a result, the Company reclassified the income and expenses attributable to Care to net income (loss) from discontinued operations through the completion of the sale. Assets and Liabilities Held for Sale The Company has entered into a definitive agreement to sell Luxury, and it is classified as held for sale at December 31, 2020 and December 31, 2019. The agreement did not meet the requirements to be classified as a discontinued operation. The following table presents detail of Luxury’s assets and liabilities held for sale in the consolidated balance sheets for the following periods: As of December 31, 2020 December 31, 2019 Assets: Investments: Loans, at fair value $ 164,802 $ 98,272 Other investments 4,345 1,019 Total investments 169,147 99,291 Cash and cash equivalents 4,870 7,137 Restricted cash 9 — Notes and accounts receivable, net 1,760 238 Other assets 5,919 1,169 Assets held for sale $ 181,705 $ 107,835 Liabilities: Debt, net $ 162,072 $ 97,822 Other liabilities and accrued expenses (1) 13,040 4,608 Liabilities held for sale $ 175,112 $ 102,430 (1) Includes deferred tax liabilities of $ 939 as of December 31, 2020. During the year ended December 31, 2020, the Company recorded an impairment of $ 4,428 related to assets and liabilities held for sale. See Note (16) Other Revenue and Other Expenses. No impairment related to assets and liabilities held for sale was recorded for the years ended December 31, 2019 or 2018. F-21 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Luxury has a total borrowing capacity at December 31, 2020 of $ 214,000 . As of December 31, 2020 and 2019, a total of $ 162,072 and $ 97,822 , respectively, was outstanding under such financing agreements. Discontinued Operations The following table presents detail of Care’s revenues and expenses of discontinued operations in the consolidated statements of operations for the following periods: Year Ended December 31, 2020 2019 2018 Revenues: Rental and related revenue $ — $ — $ 6,476 Other revenue — — 149 Total revenues — — 6,625 Expenses: Employee compensation and benefits — — 2,788 Interest expense — — 1,252 Other expenses — — 1,961 Total expenses — — 6,001 Net income (loss) before taxes from discontinued operations — — 624 Gain on sale of discontinued operations — — 56,860 Less: provision (benefit) for income taxes — — 13,714 Net income (loss) from discontinued operations $ — $ — $ 43,770 The following table presents a summary of cash flows related to discontinued operations included in the consolidated statements of cash flows for the following periods: Year Ended December 31, 2020 2019 2018 Net cash provided by (used in): Operating activities $ — $ — $ ( 2,095 ) Investing activities — — ( 592 ) Financing activities — — ( 123 ) Net cash flows provided by discontinued operations $ — $ — $ ( 2,810 ) Significant Accounting Policies Related to Dispositions and Discontinued Operations Except as noted below, Care and our CLO management business adhered to the Significant Accounting Policies as described in Note (2) Summary of Significant Accounting Policies. Investments Revenue Recognition Rental and Related Revenue Rental revenue from residents in properties owned by Care but managed by a management company pursuant to a management agreement (Managed Properties) were recognized monthly as services were provided, as lease periods for residents were short-term in nature. The Company recognized rental revenue from triple net leases on a straight-line basis over the non-cancelable term of the lease unless another systematic and rational basis was more representative of the time pattern in which the use benefit was derived from the leased property. Renewal options in leases with rental terms that were higher than those in the primary term were excluded from the calculation of straight-line rent if the renewals were not reasonably assured. The Company commenced rental revenue recognition when the tenant took control of the leased space. The Company recognized lease termination payments as a component of rental revenue in the period received, provided that there were no further obligations under the lease. Revenue related to rental revenue was primarily attributable to services provided to the occupants of our senior living properties. F-22 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Management Fee Income The Company earned management and incentive fees from the CLOs it managed. These management fees were paid periodically in accordance with the terms of the individual management agreements for as long as the Company managed the funds. Management fees typically consisted of fees based on the amount of assets held in the CLOs. Management fees were recognized as revenue when earned. The Company did not recognize incentive fees until all contractual contingencies were removed. Management fee income is recorded in other revenue. (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 Fortegra Group, LLC (Fortegra), along with its subsidiaries, is a leading provider of specialty insurance underwriting, warranty and service contract products and related service solutions. Based on the ASC 280 quantitative analysis performed as of December 31, 2020, our reportable segments are 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 operating segments and other business activities, as Tiptree Capital. Corporate activities include holding company interest expense, employee compensation and benefits, and other expenses. Our reportable segments’ income or loss is reported before income taxes and non-controlling interests. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired. For the year ended December 31, 2020, Mortgage has been broken out of Tiptree Capital as a reportable segment since it meets the quantitative threshold for disclosure. Prior year segments have been conformed to the current year presentation. Intercompany transactions are eliminated. Descriptions of our Insurance reportable segment and Tiptree Capital, including our Mortgage reportable segment are as follows: Insurance operations are conducted through Fortegra, which includes Fortegra Financial Corporation and Fortegra Warranty. Fortegra underwrites and administers specialty insurance programs and products, and is a leading provider of credit and asset protection products and administration services. Fortegra’s programs are provided across a diverse range of products and services including credit protection insurance, warranty and service contract products, premium finance, and niche personal and commercial lines of insurance. On January 3, 2020, Fortegra Warranty acquired Smart AutoCare, a vehicle warranty solutions provider in the United States. On December 31, 2020, Fortegra acquired Sky Auto, a vehicle service contract marketer within the United States. See Note (3) Acquisitions. Tiptree Capital: Mortgage operations are conducted through Reliance. The Company’s mortgage origination business originates loans for sale to institutional investors, including GSEs and FHA/VA and services loans on behalf of Fannie Mae, Freddie Mac, and GNMA. Other includes our asset management, mortgage operations of Luxury, shipping operations, and other investments (including our Invesque shares). F-23 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The tables below present the components of revenue, expense, income (loss) before taxes, and assets for our reportable segments as well as Tiptree Capital - Other for the following periods: Year Ended December 31, 2020 Tiptree Capital Insurance Mortgage Other Total Total revenues $ 691,061 $ 112,165 $ 7,075 $ 810,301 Total expenses ( 664,113 ) ( 81,063 ) ( 68,317 ) ( 813,493 ) Corporate expenses — — — ( 35,660 ) Income (loss) before taxes $ 26,948 $ 31,102 $ ( 61,242 ) $ ( 38,852 ) Less: provision (benefit) for income taxes ( 13,627 ) Net income (loss) $ ( 25,225 ) Less: net income (loss) attributable to non-controlling interests 3,933 Net income (loss) attributable to common stockholders $ ( 29,158 ) Year Ended December 31, 2019 Tiptree Capital Insurance Mortgage Other Total Total revenues $ 635,085 $ 66,121 $ 71,522 $ 772,728 Total expenses ( 598,055 ) ( 63,162 ) ( 48,131 ) ( 709,348 ) Corporate expenses — — — ( 34,241 ) Income (loss) before taxes $ 37,030 $ 2,959 $ 23,391 $ 29,139 Less: provision (benefit) for income taxes 9,017 Net income (loss) $ 20,122 Less: net income (loss) attributable to non-controlling interests 1,761 Net income (loss) attributable to common stockholders $ 18,361 Year Ended December 31, 2018 Tiptree Capital Insurance Mortgage Other Total Total revenues $ 544,586 $ 51,624 $ 29,616 $ 625,826 Total expenses ( 530,414 ) ( 51,289 ) ( 33,675 ) ( 615,378 ) Corporate expenses — — — ( 30,244 ) Income (loss) before taxes from continuing operations $ 14,172 $ 335 $ ( 4,059 ) $ ( 19,796 ) Less: provision (benefit) for income taxes ( 5,909 ) Net income (loss) from discontinued operations 43,770 Net income (loss) $ 29,883 Less: net income (loss) attributable to non-controlling interests 5,950 Net income (loss) attributable to Common Stockholders $ 23,933 The Company conducts its operations primarily in the U.S. with less than 6 % of total revenues generated overseas for the years ended December 31, 2020, 2019 and 2018. The following table presents the reportable segments and Tiptree Capital - Other assets for the following periods: As of December 31, 2020 As of December 31, 2019 Tiptree Capital Tiptree Capital Insurance Mortgage Other Corporate Total Insurance Mortgage Other Corporate Total Total assets $ 2,452,798 $ 217,138 $ 302,068 $ 23,756 $ 2,995,760 $ 1,730,636 $ 154,589 $ 297,009 $ 16,052 $ 2,198,286 F-24 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (6) Investments 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 as of the following periods: As of December 31, 2020 Tiptree Capital Insurance Mortgage Other Total Available for sale securities, at fair value, net of allowance for credit losses $ 377,133 $ — $ — $ 377,133 Loans, at fair value 7,795 82,937 — 90,732 Equity securities 98,130 — 25,708 123,838 Other investments 125,833 9,439 84,429 219,701 Total investments $ 608,891 $ 92,376 $ 110,137 $ 811,404 As of December 31, 2019 Tiptree Capital Insurance Mortgage Other Total Available for sale securities, at fair value, net of allowance for credit losses $ 335,192 $ — $ — $ 335,192 Loans, at fair value 10,174 98,720 — 108,894 Equity securities 62,816 — 92,562 155,378 Other investments 42,452 7,490 87,530 137,472 Total investments $ 450,634 $ 106,210 $ 180,092 $ 736,936 F-25 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (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 December 31, 2020 and December 31, 2019 are held by subsidiaries in the insurance business. The following tables present the Company's investments in AFS securities: 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 $ — $ 5,245 $ ( 58 ) $ 196,303 Obligations of state and political subdivisions 42,583 — 1,768 ( 1 ) 44,350 Corporate securities 92,761 — 2,181 ( 1 ) 94,941 Asset backed securities 37,975 — 316 ( 2,099 ) 36,192 Certificates of deposit 1,355 — — — 1,355 Obligations of foreign governments 3,961 — 31 — 3,992 Total $ 369,751 $ — $ 9,541 $ ( 2,159 ) $ 377,133 (1) - Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statements of operations (as a credit loss on AFS securities). Amount excludes unrealized losses relating to non-credit factors. As of December 31, 2019 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 189,596 $ 2,138 $ ( 144 ) $ 191,590 Obligations of state and political subdivisions 45,249 1,104 ( 15 ) 46,338 Corporate securities 50,514 719 ( 2 ) 51,231 Asset backed securities 45,634 89 ( 1,705 ) 44,018 Certificates of deposit 896 — — 896 Obligations of foreign governments 1,099 20 — 1,119 Total $ 332,988 $ 4,070 $ ( 1,866 ) $ 335,192 The amortized cost and fair values of AFS 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. As of December 31, 2020 December 31, 2019 Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 30,306 $ 30,602 $ 9,584 $ 9,602 Due after one year through five years 149,378 153,406 130,223 131,952 Due after five years through ten years 26,621 27,479 19,508 20,125 Due after ten years 125,471 129,454 128,039 129,495 Asset backed securities 37,975 36,192 45,634 44,018 Total $ 369,751 $ 377,133 $ 332,988 $ 335,192 F-26 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (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 December 31, 2020 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 $ 15,323 $ ( 58 ) 41 $ 2 $ — 2 Obligations of state and political subdivisions 379 ( 1 ) 5 — — — Corporate securities 901 ( 1 ) 3 — — — Asset backed securities — — — 18,927 ( 2,099 ) 9 Total $ 16,603 $ ( 60 ) 49 $ 18,929 $ ( 2,099 ) 11 As of December 31, 2019 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 $ 31,416 $ ( 132 ) 75 $ 3,888 $ ( 12 ) 38 Obligations of state and political subdivisions 3,774 ( 15 ) 20 — — — Corporate securities 2,820 ( 2 ) 12 742 — 7 Asset backed securities 3,878 ( 11 ) 17 19,480 ( 1,694 ) 11 Total $ 41,888 $ ( 160 ) 124 $ 24,110 $ ( 1,706 ) 56 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 December 31, 2020 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 December 31, 2020: Obligations of state and political subdivisions Corporate securities Asset backed securities Total Increase in the allowance for the initial adoption of ASU 2016-13 $ ( 1 ) $ ( 50 ) $ ( 2 ) $ ( 53 ) Reduction in credit losses due to AFS securities sold during the year — 3 — 3 Recoveries of amounts previously written off during the year 1 47 2 50 Ending balance of the allowance for credit losses on AFS securities $ — $ — $ — $ — 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: Year Ended December 31, 2020 Credit losses (gains from recoveries) on AFS securities $ ( 53 ) 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 or replace investments in F-27 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 AFS securities: As of December 31, 2020 December 31, 2019 Fair value of restricted investments in trust pursuant to reinsurance agreements $ 44,349 $ 33,478 Fair value of restricted investments for special deposits required by state insurance departments 9,447 6,275 Total fair value of restricted investments $ 53,796 $ 39,753 The following table presents additional information on the Company’s AFS securities: For the Year Ended December 31, 2020 2019 2018 Purchases of AFS securities $ 158,357 $ 253,415 $ 192,288 Proceeds from maturities, calls and prepayments of AFS securities $ 84,923 $ 36,459 $ 30,089 Gains (losses) realized on maturities, calls and prepayments of AFS securities $ — $ — $ ( 30 ) Gross proceeds from sales of AFS securities $ 35,603 $ 170,495 $ 56,191 The following table presents the gross realized gains and gross realized losses from sales and or redemptions of AFS securities: For the Year Ended December 31, 2020 2019 2018 Gross realized gains $ 594 $ 1,558 $ 50 Gross realized (losses) ( 66 ) ( 246 ) ( 839 ) Total net realized gains (losses) from investment sales and redemptions 528 1,312 ( 789 ) Loans, at fair value 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 December 31, 2020 As of December 31, 2019 Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as Collateral Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as Collateral Insurance: Corporate loans (1) $ 7,795 $ 12,281 $ ( 4,486 ) $ — $ 9,787 $ 12,006 $ ( 2,219 ) $ — Non-performing loans (2) — — — — 387 409 ( 22 ) — Mortgage: Mortgage loans held for sale (3) 82,937 78,590 4,347 81,630 98,720 95,680 3,040 98,086 Total loans, at fair value $ 90,732 $ 90,871 $ ( 139 ) $ 81,630 $ 108,894 $ 108,095 $ 799 $ 98,086 (1) The cost basis of Corporate loans was approximately $ 11,282 and $ 11,969 at December 31, 2020 and December 31, 2019, respectively. (2) The cost basis of NPLs was approximately $ 282 at December 31, 2019, respectively. The are no NPLs as of December 31, 2020. (3) As of December 31, 2020 and December 31, 2019, there were two mortgage loans held for sale and one mortgage loan held for sale that were 90 days or more past due, respectively, with a fair value of $ 534 and $ 198 , respectively. F-28 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Equity securities Equity securities represents the carrying amount of the Company's basis in equity investments. Included within the equity securities balance are 17.0 million shares of Invesque as of December 31, 2020, and 16.6 million as of December 31, 2019, for which the Company has elected to apply the fair value option. The following table presents information on the cost and fair value of the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods: As of December 31, 2020 Insurance Tiptree Capital - Other Total Cost Fair Value Cost Fair Value Cost Fair Value Invesque $ 23,339 $ 5,370 $ 111,491 $ 25,708 $ 134,830 $ 31,078 Fixed income exchange traded fund 62,438 63,875 — — 62,438 63,875 Other equity securities 38,069 28,885 — — 38,069 28,885 Total equity securities $ 123,846 $ 98,130 $ 111,491 $ 25,708 $ 235,337 $ 123,838 As of December 31, 2019 Insurance Tiptree Capital - Other Total Cost Fair Value Cost Fair Value Cost Fair Value Invesque $ 23,188 $ 19,376 $ 110,688 $ 92,562 $ 133,876 $ 111,938 Fixed income exchange traded fund 25,256 25,039 — — 25,256 25,039 Other equity securities 35,889 18,401 — — 35,889 18,401 Total equity securities $ 84,333 $ 62,816 $ 110,688 $ 92,562 $ 195,021 $ 155,378 Other investments The following table contains information regarding the Company’s other investments as of the following periods: As of December 31, 2020 Tiptree Capital Insurance Mortgage Other Total Corporate bonds, at fair value (1) $ 105,777 $ — $ — $ 105,777 Vessels, net (2) — — 83,028 83,028 Debentures 17,703 — — 17,703 Other 2,353 9,439 1,401 13,193 Total other investments $ 125,833 $ 9,439 $ 84,429 $ 219,701 As of December 31, 2019 Tiptree Capital Insurance Mortgage Other Total Corporate bonds, at fair value (1) $ 20,705 $ — $ — $ 20,705 Vessels, net (2) — — 85,991 85,991 Debentures 15,423 — — 15,423 Other 6,324 7,490 1,539 15,353 Total other investments $ 42,452 $ 7,490 $ 87,530 $ 137,472 (1) The cost basis of corporate bonds was $ 97,284 and $ 20,146 as of December 31, 2020 and December 31, 2019, respectively. (2) Net of accumulated depreciation of $ 8,372 and $ 3,817 as of December 31, 2020 and December 31, 2019, respectively. F-29 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Net Investment Income - Insurance Net investment income represents investment income and expense from investments related to insurance operations as disclosed within net investment income on the consolidated statements of operations. The following table presents the components of net investment income by source of income: For the Year Ended December 31, 2020 2019 2018 Interest: AFS securities $ 7,685 $ 8,404 $ 6,560 Loans, at fair value 801 3,284 10,809 Other investments 4,245 1,218 1,350 Dividends from equity securities 1,482 2,813 2,092 Other 8 — 97 Subtotal 14,221 15,719 20,908 Less: investment expenses 4,305 1,702 1,729 Net investment income $ 9,916 $ 14,017 $ 19,179 Other Investment Income - Tiptree Capital Other investment income represents other revenue from other Tiptree non-insurance activities as disclosed within other revenue on the consolidated statements of operations, see Note (16) Other Revenue and Other Expenses. The following tables present the components of other investment income by type: For the Year Ended December 31, 2020 2019 2018 Interest: Loans, at fair value (1) $ 5,617 $ 6,206 $ 4,343 Other — 269 175 Dividends from equity securities 2,533 10,132 9,224 Loan fee income 17,900 12,631 7,827 Vessel related revenue 22,697 16,747 3,972 Other investment income $ 48,747 $ 45,985 $ 25,541 (1) Primarily relates to Loans, at fair value classified as Held for Sale. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations F-30 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Net realized and unrealized gains (losses) The following table presents the components of net realized and unrealized gains (losses) recorded on the consolidated statements of operations. Net unrealized gains (losses) on AFS securities are included within other comprehensive income (OCI), and as such, are not included in this table. Net realized and unrealized gains (losses) on non-investment financial assets and liabilities are included below: For the Year Ended December 31, 2020 2019 2018 Net realized gains (losses) Insurance: Reclass of unrealized gains (losses) on AFS securities from OCI $ 528 $ 1,312 $ ( 819 ) Gains from recoveries (credit losses) on AFS securities 53 — — Net realized gains (losses) on loans ( 945 ) 2,100 2,071 Net realized gains (losses) on equity securities ( 24,586 ) 947 2,721 Net realized gain on corporate bonds 7,299 39 1,627 Other 2,511 279 — Tiptree Capital Mortgage: Net realized gains (losses) on loans 101,411 52,617 44,509 Other: Net realized gains (losses) on loans (1) 35,753 23,403 16,638 Other — ( 260 ) ( 2,084 ) Total net realized gains (losses) 122,024 80,437 64,663 Net unrealized gains (losses) Insurance: Net change in unrealized gains (losses) on loans ( 1,461 ) ( 3,899 ) ( 4,730 ) Net unrealized gains (losses) on equity securities held at period end ( 22,793 ) 7,621 ( 9,815 ) Reclass of unrealized (gains) losses from prior periods for equity securities sold 17,290 ( 807 ) ( 2,291 ) Other 10,162 ( 697 ) ( 428 ) Tiptree Capital Mortgage: Net change in unrealized gains (losses) on loans 1,270 840 134 Other ( 6,093 ) 357 ( 2,246 ) Other: Net change in unrealized gains (losses) on loans (1) 2,185 983 60 Net unrealized gains (losses) on equity securities held at period end ( 67,656 ) ( 992 ) ( 17,134 ) Other 7,482 25 569 Total net unrealized gains (losses) ( 59,614 ) 3,431 ( 35,881 ) Total net realized and unrealized gains (losses) $ 62,410 $ 83,868 $ 28,782 (1) Primarily relates to Loans, at fair value classified as Held for Sale. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations (7) Notes and Accounts Receivable, net The following table presents the total notes and accounts receivable, net: As of December 31, 2020 2019 Notes receivable, net - premium financing program $ 62,075 $ 42,192 Accounts and premiums receivable, net 95,269 50,712 Retrospective commissions receivable 131,760 105,387 Trust receivables 54,393 63,925 Other receivables 26,955 24,752 Total notes and accounts receivable, net $ 370,452 $ 286,968 F-31 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following table presents the total valuation allowance and bad debt expense for the following periods: Valuation allowance Bad Debt Expense As of December 31, For the Year Ended December 31, 2020 2019 2020 2019 2018 Notes receivable, net - premium financing program (1) $ 101 $ 95 $ 223 $ 175 $ 195 Accounts and premiums receivable, net $ 169 $ 109 $ 28 $ 36 $ 39 (1) As of December 31, 2020 and December 31, 2019, there were $ 215 and $ 93 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 insurance business for the following periods: Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net As of December 31, 2020 Life insurance in force $ 5,153,151 $ 2,985,196 $ — $ 2,167,955 For the Year Ended December 31, 2020 Premiums written: Life insurance $ 69,704 $ 39,761 $ 1,550 $ 31,493 4.9 % Accident and health insurance 117,235 78,233 12,696 51,698 24.6 % Property and liability insurance 825,845 509,818 144,332 460,359 31.4 % Total premiums written 1,012,784 627,812 158,578 543,550 29.2 % Premiums earned: Life insurance 68,637 37,194 1,437 32,880 4.4 % Accident and health insurance 118,183 78,365 11,599 51,417 22.6 % Property and liability insurance 691,310 405,469 107,853 393,694 27.4 % Total premiums earned $ 878,130 $ 521,028 $ 120,889 $ 477,991 25.3 % As of December 31, 2019 Life insurance in force $ 5,176,056 $ 2,884,009 $ — $ 2,292,047 For the Year Ended December 31, 2019 Premiums written: Life insurance $ 75,060 $ 40,555 $ 1,692 $ 36,197 4.7 % Accident and health insurance 133,514 87,447 3,201 49,268 6.5 % Property and liability insurance 709,515 350,093 92,246 451,668 20.4 % Total premiums written 918,089 478,095 97,139 537,133 18.1 % Premiums earned: Life insurance 68,282 35,929 1,607 33,960 4.7 % Accident and health insurance 123,182 82,660 3,165 43,687 7.2 % Property and liability insurance 597,852 242,180 65,789 421,461 15.6 % Total premiums earned $ 789,316 $ 360,769 $ 70,561 $ 499,108 14.1 % As of December 31, 2018 Life insurance in force $ 4,846,303 $ 2,662,173 $ — $ 2,184,130 For the Year ended December 31, 2018 Premiums written: Life insurance $ 69,516 $ 38,239 $ 1,874 $ 33,151 5.7 % Accident and health insurance 126,951 85,136 3,229 45,044 7.2 % Property and liability insurance 616,135 277,856 50,346 388,625 13.0 % Total premiums written 812,602 401,231 55,449 466,820 11.9 % F-32 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net Premiums earned: Life insurance 64,346 32,865 1,766 33,247 5.3 % Accident and health insurance 118,482 80,258 3,262 41,486 7.9 % Property and liability insurance 552,792 231,093 31,405 353,104 8.9 % Total premiums earned $ 735,620 $ 344,216 $ 36,433 $ 427,837 8.5 % The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses (LAE) incurred: Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net For the Year Ended December 31, 2020 Losses and LAE Incurred Life insurance $ 46,268 $ 27,292 $ 645 $ 19,621 3.3 % Accident and health insurance 18,354 15,715 7,032 9,671 72.7 % Property and liability insurance 282,906 182,115 48,165 148,956 32.3 % Total losses and LAE incurred 347,528 225,122 55,842 178,248 31.3 % Member benefit claims (1) 58,650 Total policy and contract benefits $ 236,898 For the Year Ended December 31, 2019 Losses and LAE Incurred Life insurance $ 38,306 $ 22,607 $ 443 $ 16,142 2.7 % Accident and health insurance 18,832 15,022 362 4,172 8.7 % Property and liability insurance 225,200 147,290 52,785 130,695 40.4 % Total losses and LAE incurred 282,338 184,919 53,590 151,009 35.5 % Member benefit claims (1) 19,672 Total policy and contract benefits $ 170,681 For the Year ended December 31, 2018 Losses and LAE Incurred Life insurance $ 36,488 $ 21,037 $ 886 $ 16,337 5.4 % Accident and health insurance 18,986 15,666 686 4,006 17.1 % Property and liability insurance 227,512 141,184 28,181 114,509 24.6 % Total losses and LAE incurred 282,986 177,887 29,753 134,852 22.1 % Member benefit claims (1) 17,243 Total policy and contract benefits $ 152,095 (1) Member benefit claims are not covered by reinsurance. The following table presents the components of the reinsurance receivables: F-33 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) As of December 31, 2020 December 31, 2019 Prepaid reinsurance premiums: Life insurance (1) $ 70,066 $ 72,675 Accident and health insurance (1) 66,261 66,393 Property and liability insurance (2) 423,868 286,411 Total 560,195 425,479 Ceded claim reserves: Life insurance 4,133 3,350 Accident and health insurance 11,118 11,065 Property and liability insurance 98,092 74,384 Total ceded claim reserves recoverable 113,343 88,799 Other reinsurance settlements recoverable 54,471 25,555 Reinsurance receivables $ 728,009 $ 539,833 (1) Including policyholder account balances ceded. (2) Includes amounts from the acquired balance sheet of Smart AutoCare. See Note (3) Acquisitions. The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from non-affiliated reinsurers: As of December 31, 2020 Total of the three largest receivable balances from non-affiliated reinsurers $ 164,857 As of December 31, 2020, the non-affiliated reinsurers from whom our insurance business has the largest receivable balances were: MFI Insurance Company, LTD (A. M. Best Rating: Not rated), Frandisco Property and Casualty Company (A. M. Best Rating: Not rated) and Canada Life International Reinsurance (Barbados) Corporation (A. M. Best Rating: Not rated).The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit. As of December 31, 2020, 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. (9) Goodwill and Intangible Assets, net The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by operating segment and/or reporting unit, as appropriate: As of December 31, 2020 As of December 31, 2019 Insurance Other Total Insurance Other Total Customer relationships $ 143,300 $ — $ 143,300 $ 53,500 $ — $ 53,500 Accumulated amortization ( 32,263 ) — ( 32,263 ) ( 24,318 ) — ( 24,318 ) Trade names 14,750 800 15,550 6,750 800 7,550 Accumulated amortization ( 4,382 ) ( 440 ) ( 4,822 ) ( 3,273 ) ( 360 ) ( 3,633 ) Software licensing 9,300 640 9,940 8,500 640 9,140 Accumulated amortization ( 8,650 ) ( 503 ) ( 9,153 ) ( 8,500 ) ( 411 ) ( 8,911 ) Insurance policies and contracts acquired 36,500 — 36,500 36,500 — 36,500 Accumulated amortization ( 36,238 ) — ( 36,238 ) ( 36,115 ) — ( 36,115 ) Insurance licensing agreements (1) 13,761 — 13,761 14,261 — 14,261 Other 640 1,000 1,640 — — — Intangible assets, net 136,718 1,497 138,215 47,305 669 47,974 Goodwill 177,528 1,708 179,236 97,439 1,708 99,147 Total goodwill and intangible assets, net $ 314,246 $ 3,205 $ 317,451 $ 144,744 $ 2,377 $ 147,121 (1) Represents intangible assets with an indefinite useful life. Impairment tests are performed at least annually on these assets. F-34 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 impairment related charges: Insurance Other (1) Total Balance at December 31, 2018 $ 89,854 $ 1,708 $ 91,562 Goodwill acquired (2) 7,585 — 7,585 Balance at December 31, 2019 97,439 1,708 99,147 Goodwill acquired (2) 84,476 — 84,476 Purchase accounting adjustments (3) ( 4,387 ) — ( 4,387 ) Balance at December 31, 2020 $ 177,528 $ 1,708 $ 179,236 Accumulated impairments $ — $ 699 $ 699 (1) Other is primarily comprised of Mortgage. (2) Relates to acquisitions in respective years. See Note (3) Acquisitions. (3) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of acquisitions in our insurance business as of July 1, 2019 and January 3, 2020. The Company conducts annual impairment tests of its goodwill as of October 1. For the years ended December 31, 2020, 2019 and 2018, no impairments were recorded on the Company’s goodwill. 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 impairment-related charges: Insurance Other Total Balance at December 31, 2018 $ 51,281 $ 840 $ 52,121 Intangible assets acquired (1) 3,750 — 3,750 Less: amortization expense ( 7,726 ) ( 171 ) ( 7,897 ) Balance at December 31, 2019 $ 47,305 $ 669 $ 47,974 Intangible assets acquired (1) (2) 99,040 1,000 100,040 Purchase accounting adjustment (3) ( 300 ) — ( 300 ) Less: amortization expense ( 9,327 ) ( 172 ) ( 9,499 ) Balance at December 31, 2020 $ 136,718 $ 1,497 $ 138,215 (1) Relates to acquisitions in respective years. See Note (3) Acquisitions. (2) The addition to Other relates to a fishing license acquired by our shipping operations. (3) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of an acquisition in our insurance business as of July 1, 2019. The following table presents the amortization expense on finite-lived intangible assets for the following periods: For the Year Ended December 31, 2020 2019 2018 Amortization expense on intangible assets $ 9,499 $ 7,897 $ 9,729 For the years ended December 31, 2020, 2019 and 2018, no 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 operating segment and/or reporting unit, as appropriate: F-35 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) As of December 31, 2020 Insurance Other (1) Total 2021 $ 12,951 $ 170 $ 13,121 2022 14,459 127 14,586 2023 14,198 80 14,278 2024 12,811 80 12,891 2025 11,101 40 11,141 2026 and thereafter 57,437 — 57,437 Total $ 122,957 $ 497 $ 123,454 (1) Other is primarily comprised of Mortgage. (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 reported in other investments. Derivative liabilities are reported within other liabilities and accrued expenses. Derivatives, at fair value 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 to be announced (TBA) mortgage backed securities to economically hedge the risk of potential changes in the value of the loans that would 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. In addition, the Company enters into 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. The following table presents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk: As of December 31, 2020 As of December 31, 2019 Notional values Asset derivatives Liability derivatives Notional values Asset derivatives Liability derivatives Interest rate lock commitments $ 219,929 $ 9,207 $ — $ 279,048 $ 7,336 $ — Forward delivery contracts 35,979 — 22 87,773 36 — TBA mortgage backed securities 291,000 232 1,508 235,000 118 428 Other 3,058 2,090 560 10,360 — 3,330 Total $ 549,966 $ 11,529 $ 2,090 $ 612,181 $ 7,490 $ 3,758 F-36 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (11) Debt, net The following table presents the balance of the Company’s debt obligations, net of discounts and deferred financing costs. Stated interest rate or range of rates Maximum borrowing capacity as of As of Debt Type Stated maturity date December 31, 2020 December 31, 2020 December 31, 2019 Corporate debt Secured revolving credit agreements August 2023 LIBOR + 2.25 % $ 200,000 $ — $ 25,000 Secured term credit agreements February 2025 LIBOR + 6.75 % 120,313 120,313 68,210 Preferred trust securities June 2037 LIBOR + 4.10 % 35,000 35,000 35,000 Junior subordinated notes October 2057 8.50 % 125,000 125,000 125,000 Total corporate debt 280,313 253,210 Asset based debt (1) Asset based revolving financing October 2023 LIBOR + 2.75 % 75,000 27,510 21,576 Residential mortgage warehouse borrowings (2) April 2021 - LIBOR + 2.00 % 110,000 55,994 90,673 August 2021 to LIBOR + 3.00 % Vessel backed term loan November 2024 LIBOR + 4.75 % 15,800 15,800 18,000 Total asset based debt 99,304 130,249 Total debt, face value 379,617 383,459 Unamortized discount, net ( 2,035 ) ( 198 ) Unamortized deferred financing costs ( 11,336 ) ( 8,807 ) Total debt, net $ 366,246 $ 374,454 (1) Asset based debt is generally recourse only to specific assets and related cash flows. (2) The weighted average coupon rate for residential mortgage warehouse borrowings was 2.75 % and 3.83 % at December 31, 2020 and December 31, 2019, respectively. The following table presents the amount of interest expense the Company incurred on its debt for the following periods: For the Year Ended December 31, 2020 2019 2018 Interest expense - corporate debt $ 23,322 $ 19,682 $ 18,162 Interest expense - asset based debt 9,260 7,377 8,851 Interest expense on debt $ 32,582 $ 27,059 $ 27,013 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 December 31, 2020 2021 $ 64,444 2022 8,450 2023 35,960 2024 15,450 2025 95,313 2026 and thereafter 160,000 Total $ 379,617 The following narrative is a summary of certain terms of our debt agreements for the period ended December 31, 2020: Corporate Debt Secured Revolving Credit Agreements As of December 31, 2020 and December 31, 2019, a total of $ 0 and $ 25,000 , respectively, was outstanding under the revolving line of credit in our insurance business. F-37 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) On August 4, 2020, Fortegra entered into an Amended and Restated Credit Agreement by and among Fortegra Financial and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing lender (the Fortegra Credit Agreement). The Fortegra Credit Agreement provides for a $ 200,000 revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $ 17,500 for swing loans and matures on August 4, 2023. The Fortegra Credit Agreement replaced the $ 30,000 revolving line of credit with the Fifth Third Bank (the “Working Capital Facility”) . As of December 31, 2019, the Company had the Working Capital Facility of $ 30,000 , which provided for a $ 30,000 accordion feature. The Working Capital Facility had a maturity date of April 28, 2020 and an interest rate of 30-day LIBOR rate plus 1.20 %. On December 30, 2019, the Working Capital Facility was amended, adding the ability to issue up to $ 75,000 in standby letters of credit (“SBLCs”), and applying an aggregate maximum of $ 75,000 for the combined values of outstanding debt and issued SBLCs. The Working Capital Facility contained terms and conditions typical for a transaction of this type. Secured Term Credit Agreement On February 21, 2020, the Operating Company borrowed $ 125,000 under a new credit agreement (Credit Agreement) with Fortress Credit Corp. (Fortress). The proceeds were used to repay the Company’s prior credit agreement with Fortress, with a balance of $ 68,210 as of December 31, 2019, and for working capital and general corporate purposes. Pursuant to an Amendment, Assumption and Consent Agreement, dated July 17, 2020 by and among Tiptree, certain of its subsidiaries and Fortress, Tiptree Holdings LLC (Tiptree Holdings) became the borrower under the Credit Agreement, dated as of February 21, 2020, by and among Tiptree, certain of its subsidiaries and Fortress. The Credit Agreement will mature on February 21, 2025, with principal amounts of the loans to be repaid in consecutive quarterly installments. Loans under the Credit Agreement bear interest at a variable rate per annum equal to LIBOR (with a minimum LIBOR rate of 1.00 %), plus a margin of 6.75 % per annum. The obligations under the Credit Agreement are secured by liens on substantially all of the assets of Tiptree Holdings and guaranteed by the Company and Tiptree Holdings’ direct wholly owned first tier subsidiaries (Guarantors). The Credit Agreement contains various customary affirmative and negative covenants of the Company, Tiptree Holdings and the other Guarantors (subject to customary exceptions), including, but not limited to, limitations on indebtedness, liens, investments and acquisitions, negative pledges, junior payments, conduct of business, transactions with affiliates, dispositions of assets, prepayment of certain indebtedness and limits on guarantees by subsidiaries of Tiptree Holdings’ and the Guarantors’ indebtedness. The Credit Agreement also contains a financial covenant which limits corporate leverage as defined by its Corporate Leverage Ratio (as defined in the Credit Agreement). The Credit Agreement also contains customary mandatory repayment provisions (subject to customary exceptions) and requires that net cash proceeds from the sale by Tiptree and certain of its subsidiaries of capital stock of Invesque be applied to prepay loans until the outstanding principal amount of loans is $ 62,500 , with remaining proceeds subject to reinvestment rights. Prepayments, whether mandatory or voluntary, reduce future scheduled amortization payments in the order they come due. The Credit Agreement also requires the payment of a prepayment fee upon a repricing transaction or equity issuance consummated after the closing date, or the sale of Fortegra, or any of its material subsidiaries. As of December 31, 2020, a total of $ 120,313 was outstanding under this agreement. Junior Subordinated Notes A subsidiary in our insurance business issued $ 125,000 of 8.50 % Fixed Rate Resetting Junior Subordinated Notes due October 2057. Substantially all of the net proceeds were used to repay the existing secured credit agreement, which was terminated thereafter. The notes are unsecured obligations of the subsidiary and rank in right of payment and upon liquidation, junior to all of the subsidiary’s current and future senior indebtedness. The notes are not obligations of or guaranteed by any subsidiaries of the subsidiary, or any other Tiptree entities. So long as no event of default has occurred and is continuing, all or part of the interest payments on the notes can be deferred on one or more occasions for up to five consecutive years per deferral period. This credit agreement contains customary financial covenants that require, among other items, maximum leverage and limitations on restricted payments under certain circumstances. F-38 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Preferred Trust Securities A subsidiary in our insurance business has $ 35,000 of preferred trust securities due June 15, 2037. Interest is payable quarterly at an interest rate of LIBOR plus 4.10 %. The Company may redeem the preferred trust securities, in whole or in part, at a price equal to the full outstanding principal amount of such preferred trust securities outstanding plus accrued and unpaid interest. Asset Based Debt Asset Backed Revolving Financing As of December 31, 2019, a total of $ 9,840 was outstanding under the borrowing related to our premium finance business in our insurance business. During April 2019, the maturity date of this borrowing was extended to April 2021 with a new rate of LIBOR plus 2.40 %. On December 30, 2019, the maximum borrowing capacity of this borrowing was reduced from $ 25,000 to $ 13,000 . This agreement was replaced on October 16, 2020 with a new agreement, described below. On August 5, 2019, a subsidiary in our insurance business entered into a $ 15,000 revolving line of credit agreement related to our warranty service contract finance business. The borrowing has a maturity date of April 28, 2021 and a rate of LIBOR plus 2.40 %. On December 30, 2019, the maximum borrowing capacity of this borrowing was increased from $ 15,000 to $ 27,000 . As of December 31, 2019, a total of $ 11,736 was outstanding under the borrowing. This agreement was replaced on October 16, 2020 with a new agreement, described below. On October 16, 2020, subsidiaries in our insurance business entered into a three year $ 75,000 secured credit agreement which replaced the individual agreements in our premium finance and warranty service contract finance businesses. The borrowers can select from various borrowing and rate options under the agreement, as well the option to convert certain borrowings to term loans, if no default or event of default exists. The agreement extends up to $ 20,000 for our premium finance business and up to $ 55,000 for our warranty service contract finance business, and is secured by substantially all of the assets of the borrowers. The obligations under the agreement are non-recourse to Fortegra and its subsidiaries (other than borrowers and their subsidiaries). As of December 31, 2020, a total of $ 27,510 was outstanding under the borrowing. Residential Mortgage Warehouse Borrowings In April 2020, a subsidiary in our mortgage business renewed a $ 60,000 warehouse line of credit, extending the maturity date to April 2021 and establishing a LIBOR floor of 1.0 %. Additionally, during March 2020, another warehouse line maturing in August 2020 temporarily raised the maximum borrowing capacity to $ 65,000 , returning to a maximum borrowing capacity of $ 50,000 in May 2020 and establishing a LIBOR floor of 0.50 %. In August 2020, the $ 50,000 warehouse line of credit was extended to August 2021, and established a LIBOR floor of 0.50 % to 1.00 %. As of December 31, 2020 and December 31, 2019, a total of $ 55,994 and $ 90,673 , respectively, was outstanding under such financing agreements. Vessel Backed Term Loan On November 28, 2019, subsidiaries in our shipping business entered into a $ 18,000 term loan facility. Amounts borrowed under the facility are not allowed to be reborrowed. The borrowing has a maturity date of November 28, 2024 and a rate of LIBOR plus 4.75 %, with quarterly principal payments of $ 550 . This facility is secured by liens on 2.00 of our vessels as well as the assets of the borrowing entities and their parent guarantor. This credit agreement contains customary financial covenants that require, among other items, minimum liquidity, positive working capital, minimum required security coverage ratio of 150 %, and the existence of a maintenance reserve account funded on a quarterly basis prior to anticipated scheduled drydocking costs. As of December 31, 2020, a total of $ 15,800 was outstanding under the borrowing. As of December 31, 2020, the Company is in compliance with the representations and covenants for outstanding borrowings or has obtained waivers for any events of non-compliance. F-39 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (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 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 (2) Summary of Significant Accounting Policies 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 measurements 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-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. 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 The fair values of available for sale securities are based on prices provided by an independent pricing service and a third-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 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 AFS 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 Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third-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 or 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 The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks are based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 in the fair value hierarchy. F-40 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Loans, at fair value Corporate Loans : These loans are comprised of a diversified portfolio of middle market and broadly syndicated leveraged loans and are generally classified under 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. Mortgage Loans Held for Sale : Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs. Derivative Assets and Liabilities Derivatives are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage backed 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. Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s consolidated balance sheet. 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 pull through assumption. The fair values of these commitments generally fall under Level 3 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 fall under Level 2 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. 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 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, measured on a recurring basis: 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 $ — $ 196,303 $ — $ 196,303 Obligations of state and political subdivisions — 44,350 — 44,350 F-41 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (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 Obligations of foreign governments — 3,992 — 3,992 Certificates of deposit 1,355 — — 1,355 Asset backed securities — 35,334 858 36,192 Corporate securities — 94,941 — 94,941 Total available for sale securities, at fair value 1,355 374,920 858 377,133 Loans, at fair value: Corporate loans — — 7,795 7,795 Mortgage loans held for sale — 82,937 — 82,937 Total loans, at fair value — 82,937 7,795 90,732 Equity securities: Invesque 31,078 — — 31,078 Fixed income exchange traded fund 63,875 — — 63,875 Other equity securities 28,850 — 35 28,885 Total equity securities 123,803 — 35 123,838 Other investments, at fair value: Corporate bonds — 105,777 — 105,777 Derivative assets 2,090 232 9,207 11,529 CLOs — — 802 802 Total other investments, at fair value 2,090 106,009 10,009 118,108 Mortgage servicing rights (1) — — 14,758 14,758 Total $ 127,248 $ 563,866 $ 33,455 $ 724,569 Liabilities: Derivative liabilities (2) $ — $ 2,090 $ — $ 2,090 Securities sold, not yet purchased (2) 16,479 30,158 — 46,637 Contingent consideration payable (2) — — 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, 2019 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 $ — $ 191,590 $ — $ 191,590 Obligations of state and political subdivisions — 46,338 — 46,338 Obligations of foreign governments — 1,119 — 1,119 Certificates of deposit 896 — — 896 Asset backed securities — 42,833 1,185 44,018 Corporate securities — 51,231 — 51,231 Total available for sale securities, at fair value 896 333,111 1,185 335,192 Loans, at fair value: Corporate loans — — 9,787 9,787 Mortgage loans held for sale — 98,720 — 98,720 Non-performing loans — — 387 387 F-42 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) As of December 31, 2019 Quoted prices in active markets Level 1 Other significant observable inputs Level 2 Significant unobservable inputs Level 3 Fair value Total loans, at fair value — 98,720 10,174 108,894 Equity securities: Invesque 111,938 — — 111,938 Fixed income exchange traded fund 25,039 — — 25,039 Other equity securities 18,158 — 243 18,401 Total equity securities 155,135 — 243 155,378 Other investments, at fair value: Corporate bonds — 20,705 — 20,705 Derivative assets — 154 7,336 7,490 CLOs — — 4,768 4,768 Total other investments, at fair value — 20,859 12,104 32,963 Mortgage servicing rights (1) — — 8,764 8,764 Total $ 156,031 $ 452,690 $ 32,470 $ 641,191 Liabilities: Derivative liabilities (2) $ — $ 3,758 $ — $ 3,758 Total $ — $ 3,758 $ — $ 3,758 (1) Included in other assets. (2) Included in other liabilities and accrued expenses. The following table presents 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 Year Ended December 31, 2020 (1) 2019 (1) Balance at January 1, $ 32,470 $ 152,845 Net realized and unrealized gains or losses included in: Earnings 2,253 1,901 OCI ( 329 ) ( 323 ) Origination of IRLCs 120,267 77,082 Purchases 3,862 153 Sales ( 6,672 ) ( 123,497 ) Issuances — 111 Conversions to real estate owned — ( 2,596 ) Conversions to mortgage loans held for sale ( 118,396 ) ( 73,206 ) Balance at December 31, $ 33,455 $ 32,470 Changes in unrealized gains (losses) included in earnings related to assets still held at period end $ ( 7,978 ) $ ( 1,884 ) Changes in unrealized gains (losses) included in OCI related to assets still held at period end $ ( 329 ) $ ( 323 ) (1) 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-43 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities. As of December 31, As of December 31, Assets 2020 2019 Valuation technique Unobservable input(s) (1) 2020 2019 Fair Value Range WA Range WA IRLCs $ 9,207 $ 7,336 Internal model Pull through rate 50 % to 95 % 68 % 50 % to 95 % 61 % Mortgage servicing rights 14,758 8,764 External model Discount rate 10 % to 13 % 11 % 10 % to 13 % 11 % Cost to service $ 75 to $ 90 $ 82 $ 75 to $ 90 $ 86 Prepayment speed 8 % to 60 % 22 % 7 % to 50 % 18 % Total $ 23,965 $ 16,100 Liabilities Contingent consideration payable - Smart AutoCare $ 200 $ — Cash Flow Model Forecast Cash EBITDA $ 20,000 to $ 30,000 N/A N/A Actuarial Analysis Assumed Claim Liabilities $ 55,000 $ 55,000 N/A Total $ 200 $ — (1) Unobservable inputs were weighted by the relative fair value of the instruments. 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 December 31, 2020 As of December 31, 2019 Level within fair value hierarchy Fair value Carrying value Level within fair value hierarchy Fair value Carrying value Assets: Debentures (1) 2 $ 17,703 $ 17,703 2 $ 15,423 $ 15,423 Notes receivable, net 2 62,075 62,075 2 42,192 42,192 Total assets $ 79,778 $ 79,778 $ 57,615 $ 57,615 Liabilities: Debt, net 3 $ 392,951 $ 377,582 3 $ 396,699 $ 383,261 Total liabilities $ 392,951 $ 377,582 $ 396,699 $ 383,261 (1) Included in other investments. Debentures: Since interest 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 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 under Level 2 in 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 is determined based on dealer quotes. Categorized under Level 3 in the fair value hierarchy. Additionally, the following financial assets and liabilities on the consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value: Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized under Level 1 in the fair value hierarchy. F-44 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in the fair value hierarchy. See 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 term nature. Categorized under Level 2 in the fair value hierarchy. (13) Liability for Unpaid Claims and Claim Adjustment Expenses The following tables present undiscounted information about incurred and paid claims development as of December 31, 2020 and 2019, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. This information is presented in the aggregate for all short duration contracts, due to the commonality of claims characteristics. The tables reflect five years of information because historically approximately 95 % of incurred losses have been paid within five years of the accident period. 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 duration contracts for the following periods: For the Year Ended December 31, 2020 2019 Policy liabilities and unpaid claims balance as of January 1, $ 144,384 $ 131,611 Less: liabilities of policy-holder account balances, gross ( 11,589 ) ( 13,659 ) Less: non-insurance warranty benefit claim liabilities ( 85 ) ( 94 ) Gross liabilities for unpaid losses and loss adjustment expenses 132,710 117,858 Less: reinsurance recoverable on unpaid losses - short duration ( 88,599 ) ( 90,016 ) Less: other lines, gross ( 230 ) ( 227 ) Net balance as of January 1, short duration 43,881 27,615 Incurred (short duration) related to: Current year 172,007 144,925 Prior years 5,443 5,169 Total incurred 177,450 150,094 Paid (short duration) related to: Current year 127,721 122,348 Prior years 9,665 11,480 Total paid 137,386 133,828 Net balance as of December 31, short duration 83,945 43,881 Plus: reinsurance recoverable on unpaid losses - short duration 113,163 88,599 Plus: other lines, gross 247 230 Gross liabilities for unpaid losses and loss adjustment expenses 197,355 132,710 Plus: liabilities of policy-holder account balances, gross 5,419 11,589 Plus: non-insurance warranty benefit claim liabilities (1) 30,664 85 Policy liabilities and unpaid claims balance as of December 31, $ 233,438 $ 144,384 (1) Primarily relates to Smart AutoCare which was acquired on January 3, 2020. See Note (3) Acquisitions for more information. F-45 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member benefit claims: For the Year Ended December 31, 2020 2019 2018 Short duration incurred $ 177,450 $ 150,094 $ 131,861 Other lines incurred 27 184 124 Unallocated loss adjustment expenses 771 731 2,867 Total losses incurred $ 178,248 $ 151,009 $ 134,852 During the year ended December 31, 2020 , the Company experienced an increase in prior year development of $ 5,443 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. The underlying cause of this development was the result of a subset of risk where the loss ratio pegs used in our year end actuarial determination was low given the ultimate frequency that emerged. During the year ended December 31, 2019 , the Company experienced an increase in prior year development of $ 5,169 primarily in our non-standard auto business. The underlying cause of this development was higher than expected claim frequency. Management considers the prior year development for each of the 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 and our review of the statement of actuarial opinions provided by our actuarial consultants, 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. I ncurred and Paid Development The following table presents information about incurred and paid loss development and average claim duration as of December 31, 2020, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated count of unreported claims. The number of claims is measured by claim event. The Company considers a claim that does not result in a liability as a claim closed without payment. F-46 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance As of December 31, 2020 For the Years Ended December 31, Total of IBNR Liabilities Plus Expected Development of Reported Claims Cumulative Number of Reported Claims Accident Year 2016 (Unaudited) 2017 (Unaudited) 2018 (Unaudited) 2019 (Unaudited) 2020 2016 $ 84,178 $ 87,290 $ 87,993 $ 88,615 $ 89,629 $ 17 257 2017 103,306 104,898 105,601 105,787 $ 96 326 2018 129,352 133,225 133,158 $ 2,366 399 2019 144,925 149,166 $ 15,572 403 2020 172,007 $ 52,734 328 Total $ 649,747 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2016 (Unaudited) 2017 (Unaudited) 2018 (Unaudited) 2019 (Unaudited) 2020 2016 62,989 $ 84,185 $ 86,531 $ 88,482 $ 88,976 2017 84,493 102,620 105,075 105,852 2018 105,740 112,619 114,490 2019 122,348 128,787 2020 127,721 Total $ 565,826 All outstanding liabilities before 2016, net of reinsurance 24 Liabilities for loss and loss adjustment expenses, net of reinsurance $ 83,945 Duration The following table presents supplementary information about average historical claims duration as of December 31, 2020 for short duration contracts: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Years 1 2 3 4 5 Short duration 77.2 % 12.6 % 2.1 % 1.5 % 0.6 % F-47 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Reconciliation of Reserves to Balance Sheet The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims: As of December 31, 2020 Net outstanding liabilities: Short duration $ 83,945 Insurance lines other than short duration 67 Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance 84,012 Reinsurance recoverable on unpaid losses and loss adjustment expenses: Short duration 113,163 Other insurance lines 180 Total reinsurance recoverable on unpaid losses and loss adjustment expenses 113,343 Total gross liability for unpaid losses and loss adjustment expenses 197,355 Liabilities of policy-holder account balances, gross 5,419 Non-insurance warranty benefit claim liabilities 30,664 Total policy liabilities and unpaid claims $ 233,438 (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 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: For the Year Ended December 31, 2020 2019 2018 Motor club revenue $ 36,159 $ 36,076 $ 32,242 Warranty coverage revenue 98,574 27,597 26,058 Vessel related revenue 22,697 16,747 3,972 Management fee income — 1,267 6,694 Other 6,127 7,317 7,840 Revenue from contracts with customers $ 163,557 $ 89,004 $ 76,806 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 F-48 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Information on Remaining Performance Obligations 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 December 31, 2020. Contract Balances 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. Charter 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. Management Fees The Company earned management fee income in the form of base management fees and incentive fees from the CLOs it managed. These base management fees were billed as the services were provided and paid periodically in accordance with the terms of the individual management agreements for as long as the Company managed the funds. Base management fees typically consisted of fees based on the amount of assets held in the CLOs. Base management fees were recognized as revenue when earned. The Company did not recognize incentive fees until all contractual contingencies were removed. 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, 2020 December 31, 2020 Beginning balance Additions Amortizations Ending balance Deferred acquisition costs Motor club revenue $ 13,700 $ 27,014 $ 27,633 $ 13,081 Warranty coverage revenue 1,027 58,906 11,199 48,734 Total $ 14,727 $ 85,920 $ 38,832 $ 61,815 Deferred revenue Motor club revenue $ 17,910 $ 35,218 $ 36,159 $ 16,969 Warranty coverage revenue (1) 49,368 405,537 106,514 $ 348,391 Total $ 67,278 $ 440,755 $ 142,673 $ 365,360 (1) Additions include $ 182,568 from the acquired balance sheet of Smart AutoCare. See Note (3) Acquisitions. Write-offs were not material for any period presented. F-49 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (15) Other Assets and Other Liabilities and Accrued Expenses Other Assets The following table presents the components of other assets as reported in the consolidated balance sheets: As of December 31, 2020 2019 Right of use asset - Operating leases (1) $ 27,291 $ 23,832 Furniture, fixtures and equipment, net 15,798 12,305 Income tax receivable 19,513 817 Mortgage servicing rights 14,758 8,764 Prepaid expenses 8,159 8,461 Loans eligible for repurchase 70,593 6,733 Other 5,922 7,598 Total other assets $ 162,034 $ 68,510 (1) See Note (21) Commitments and Contingencies for additional information. The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods: For the Year Ended December 31, 2020 2019 2018 Depreciation expense related to furniture, fixtures and equipment $ 3,257 $ 2,753 $ 1,984 Other Liabilities and Accrued Expenses The following table presents the components of other liabilities and accrued expenses as reported in the consolidated balance sheets: As of December 31, 2020 2019 Accounts payable and accrued expenses $ 106,142 $ 68,829 Operating lease liability (1) 32,914 29,491 Deferred tax liabilities, net 24,183 32,306 Securities sold, not yet purchased 46,637 — Due to brokers 45,047 1,140 Loans eligible for repurchase liability 70,593 6,733 Commissions payable 18,678 9,179 Other 18,671 24,462 Total other liabilities and accrued expenses $ 362,865 $ 172,140 (1) See Note (21) Commitments and Contingencies for additional information. (16) Other Revenue and Other Expenses Other Revenue The following table presents the components of other revenue as reported in the consolidated statement of operations. Other revenue is primarily generated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table. For the Year Ended December 31, 2020 2019 2018 Other investment income (1) $ 48,747 $ 45,985 $ 25,541 Gain (loss) on sale of businesses (2) ( 4,428 ) 7,598 — Management fee income — 1,267 6,694 Other (3) 7,591 5,038 5,827 Total other revenue $ 51,910 $ 59,888 $ 38,062 (1) See Note (6) Investments for the components of Other investment income. F-50 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (2) Related to the impairment of Luxury for the year ended December 31, 2020, and the sale of Telos for the year ended December 31, 2019. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations. (3) Includes $ 7,025 , $ 4,566 and $ 2,554 for the year ended December 31, 2020, 2019 and 2018, respectively, related to Insurance. Other Expenses The following table presents the components of other expenses as reported in the consolidated statement of operations: For the Year Ended December 31, 2020 2019 2018 Professional fees $ 20,711 $ 20,820 $ 15,216 General and administrative 22,295 18,563 16,218 Premium taxes 15,824 15,205 14,026 Mortgage origination expenses 14,603 12,200 8,857 Rent and related 14,074 12,642 11,114 Operating expenses from vessels 13,210 9,781 3,777 Loss on extinguishment of debt 353 1,241 428 Other 8,078 9,292 8,265 Total other expenses $ 109,148 $ 99,744 $ 77,901 (17) Stockholders’ Equity Stock Repurchases On November 2, 2020, 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 shares purchased during the first, second and third quarters of 2020 were purchased under a previous authorization. The following table presents the Company’s stock repurchase activity and remaining authorization. For the Year Ended December 31, 2020 Number of shares purchased Average price per share Share repurchase plan 1,884,286 $ 5.51 Block repurchase 500,000 7.00 Total 2,384,286 $ 5.82 Remaining repurchase authorization $ 16,571 Dividends The Company declared cash dividends per share for the following periods presented below: Dividends per share for the For the Year Ended December 31, 2020 2019 2018 First quarter $ 0.04 $ 0.04 $ 0.035 Second quarter 0.04 0.04 0.035 Third quarter 0.04 0.04 0.035 Fourth quarter (1) 0.04 0.04 0.035 Total cash dividends declared $ 0.16 $ 0.16 $ 0.140 (1) See Note (25) Subsequent Events for when dividend was declared. Reorganization Merger On April 10, 2018, the Company completed a reorganization merger whereby TFP merged with and into the Company with the Company continuing as the surviving company (Reorganization Merger). After the Reorganization Merger, TFP ceased to F-51 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) exist and the Company owned 100 % of Operating Company. As a result of the merger, the balance of Non-controlling interest - TFP as of the merger date was allocated to Additional paid-in capital and Accumulated other comprehensive income (loss), as detailed in the consolidated statement of changes in stockholders’ equity. In connection with the Reorganization Merger, each TFP limited partner other than Tiptree received 2.798 shares of Class A common stock for each partnership unit, 6,861,561 Class A common shares were issued, and all outstanding Class B common stock was canceled. Outstanding warrants to acquire 652,500 shares of Class A common stock at an exercise price of $ 11.33 per share owned by TFP were canceled. In addition, warrants to acquire 103,994 shares of Class A common stock at an exercise price of $ 11.33 were issued to partners of TFP other than Tiptree, and expired unexercised on December 31, 2018. Warrants to acquire 805,986 TFP LP units at $ 21.232 per unit were canceled and Tiptree issued warrants for 2,255,149 Tiptree shares of Class A common stock at an exercise price of $ 7.59 per share to holders of the canceled TFP warrants. On April 16, 2018, the Company canceled 5,035,977 shares of Class A common stock held by a subsidiary of the Company, which had no effect on total Tiptree Inc. stockholders’ equity. At the 2018 Annual Meeting of Stockholders of the Company held on June 6, 2018, the Company’s stockholders approved an amendment and restatement (the Amendment) to the Fourth Articles of Amendment and Restatement of the Company (as amended by the Amendment, the Fifth A&R Charter) to remove all references to the Company’s Class B common stock as well as other ministerial changes, including changing the name of our Class A common stock to Common Stock. The Amendment was filed with the State Department of Assessments and Taxation of Maryland on June 7, 2018. Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions The Company’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, Surplus and Net Income The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as of December 31, 2020 and December 31, 2019. As of December 31, 2020 2019 Combined statutory capital and surplus of the Company's insurance company subsidiaries $ 202,710 $ 134,179 Required minimum statutory capital and surplus $ 64,950 $ 17,950 Under the National Association of Insurance Commissioners 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 U.S. domiciled insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of December 31, 2020. The following table presents the statutory net income of the Company’s U.S. domiciled statutory insurance companies for the following periods: For the Year Ended December 31, 2020 2019 2018 Net income of statutory insurance companies $ 19,647 $ 8,444 $ 13,986 The Company also has a foreign insurance subsidiary that is not subject to SAP. The statutory capital and surplus amounts and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP. F-52 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 eliminates all dividends from its subsidiaries in the consolidated financial statements. The following table presents the dividends paid to the Company by its U.S domiciled insurance company subsidiaries and the combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the following periods: For the Year Ended December 31, 2020 2019 Ordinary dividends $ — $ 9,001 Extraordinary dividends — 1,188 Total dividends $ — $ 10,189 As of December 31, 2020 December 31, 2019 Amount available for ordinary dividends of the Company's insurance company subsidiaries $ 13,418 $ 4,527 At December 31, 2020, 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 $ 13,418 . 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. F-53 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (18) Accumulated Other Comprehensive Income (Loss) The following table presents the activity in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods: Unrealized gains (losses) on Amount attributable to non-controlling interests Available for sale securities Interest rate swaps Total AOCI (loss) TFP Other Total AOCI (loss) to Tiptree Inc. Balance at December 31, 2017 $ ( 460 ) $ 2,074 $ 1,614 $ ( 222 ) $ ( 426 ) $ 966 Other comprehensive income (losses) before reclassifications ( 2,257 ) 835 ( 1,422 ) 61 211 ( 1,150 ) Amounts reclassified from AOCI 648 — 648 — — 648 Reclassification of AOCI - interest rate swaps (1) — ( 2,909 ) ( 2,909 ) 502 226 ( 2,181 ) Reorganization merger — — — ( 341 ) — ( 341 ) Period change ( 1,609 ) ( 2,074 ) ( 3,683 ) 222 437 ( 3,024 ) Balance at December 31, 2018 $ ( 2,069 ) $ — $ ( 2,069 ) $ — $ 11 $ ( 2,058 ) Other comprehensive income (losses) before reclassifications 4,911 — 4,911 — ( 24 ) 4,887 Amounts reclassified from AOCI ( 1,032 ) — ( 1,032 ) — — ( 1,032 ) Period change 3,879 — 3,879 — ( 24 ) 3,855 Adoption of accounting standard (1) ( 99 ) — ( 99 ) — ( 99 ) Balance at December 31, 2019 $ 1,711 $ — $ 1,711 $ — $ ( 13 ) $ 1,698 Other comprehensive income (losses) before reclassifications 4,364 — 4,364 — ( 15 ) 4,349 Amounts reclassified from AOCI ( 415 ) — ( 415 ) — — ( 415 ) Period change 3,949 — 3,949 — ( 15 ) 3,934 Adoption of accounting standard (1) 42 — 42 — — 42 Balance at December 31, 2020 $ 5,702 $ — $ 5,702 $ — $ ( 28 ) $ 5,674 (1) Due to adoption of 2018-02 and 2016-13, respectively. See Note (2) Summary of Significant Accounting Policies. The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the consolidated statement of operations for the following periods: For the Year Ended December 31, Affected line item in consolidated statements of operations Components of AOCI 2020 2019 2018 Unrealized gains (losses) on available for sale securities $ 528 $ 1,312 $ ( 819 ) Net realized and unrealized gains (losses) Related tax (expense) benefit ( 113 ) ( 280 ) 171 Provision for income tax Net of tax $ 415 $ 1,032 $ ( 648 ) Reclassification of AOCI - interest rate swaps (1) $ — $ — $ 3,845 Gain on sale of discontinued operations Related tax (expense) benefit — — ( 936 ) Provision for income tax Net of tax $ — $ — $ 2,909 (1) Relates to the sale of Care. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations. (19) Stock Based Compensation Equity Plans 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 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 F-54 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock: 2017 Equity Plan Number of shares (1) Available for issuance as of December 31, 2017 6,017,012 RSU and option awards granted ( 558,034 ) Forfeited 15,236 Available for issuance as of December 31, 2018 5,474,214 RSU and option awards granted ( 702,264 ) Forfeited 8,318 Subsidiary exchanged shares ( 14,405 ) Available for issuance as of December 31, 2019 4,765,863 RSU, stock and option awards granted ( 977,446 ) Available for issuance as of December 31, 2020 3,788,417 (1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock. Restricted Stock Units 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 vest and become non-forfeitable with respect to one-third of Tiptree shares granted on each of the one , two and three 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 presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated: Number of shares issuable Weighted average grant date fair value Unvested units as of December 31, 2017 598,882 $ 6.48 Granted 315,371 5.95 Vested ( 222,387 ) 6.39 Forfeited ( 15,236 ) 6.04 Unvested units as of December 31, 2018 676,630 $ 6.27 Granted 476,449 6.25 Vested ( 186,152 ) 6.44 Forfeited ( 8,318 ) 6.10 Unvested units as of December 31, 2019 958,609 $ 6.23 Granted 552,169 7.04 Vested ( 557,633 ) 6.54 Unvested units as of December 31, 2020 953,145 $ 6.52 F-55 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated: For the Year Ended December 31, For the Year Ended December 31, Granted 2020 2019 2018 Vested 2020 2019 2018 Directors 82,912 48,076 46,572 Directors 82,912 48,076 46,572 Employees (1) 469,257 428,373 268,799 Employees 474,721 138,076 175,815 Total Granted 552,169 476,449 315,371 Total Vested 557,633 186,152 222,387 Taxes ( 53,438 ) ( 35,622 ) ( 29,286 ) Exchanged — 14,405 — Net Vested 504,195 164,935 193,101 (1) Includes 256,619 , 307,148 and 147,467 shares that vest ratably over three years and 212,638 , 112,907 and 121,332 shares that cliff vest in February 2023, 2022 and 2021, respectively, for the years ended December 31, 2020, 2019 and 2018, respectively. Subsidiary Incentive Plans Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, such vested awards may be exchanged at fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. 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 cash. The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated: Grant date fair value of equity shares issuable Unvested balance as of December 31, 2017 $ 8,792 Granted 1,113 Vested ( 1,771 ) Performance assumption adjustment 576 Unvested balance as of December 31, 2018 $ 8,710 Granted — Vested ( 4,991 ) Performance assumption adjustment 560 Unvested balance as of December 31, 2019 $ 4,279 Granted 1,108 Vested ( 4,237 ) Performance assumption adjustment 3,155 Unvested balance as of December 31, 2020 $ 4,305 The net vested and unvested balance of subsidiary awards (assuming full vesting) translates to an aggregate of 2,954,566 which are eligible for exchange as of December 31, 2020. F-56 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Stock Option 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. The option awards have a 10 -year term and are subject the recipient’s continuous service, a market requirement, and vest one third on each of the three , four , and five year anniversaries of the grant date. The market requirement is a book value per share target that can be met at any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. 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. 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 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 periods: Year Ended December 31, Valuation Input 2020 2019 Assumption Average Assumption Average Historical volatility 27.60 % N/A 27.69 % N/A Risk-free rate 1.51 % N/A 2.62 % N/A Dividend yield 2.20 % N/A 2.21 % N/A Expected term (years) 7.0 6.5 The following table presents the Company's stock option activity for the current period: 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, 2017 821,864 $ 6.36 $ 2.82 — Granted 242,663 5.85 1.88 — Balance, December 31, 2018 1,064,527 $ 6.24 $ 2.61 — Granted 225,815 6.26 1.69 — Balance, December 31, 2019 1,290,342 $ 6.24 $ 2.45 — Granted 425,277 7.25 1.83 — Balance, December 31, 2020 1,715,619 $ 6.49 $ 2.29 — Weighted average remaining contractual term at December 31, 2020 (in years) 7.1 Stock Based Compensation Expense The following table presents total stock based compensation expense and the related income tax benefit recognized on the consolidated statements of operations: F-57 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Year Ended December 31, 2020 2019 2018 Employee compensation and benefits $ 7,571 $ 6,062 $ 6,354 Director compensation 546 301 303 Income tax benefit ( 1,705 ) ( 1,374 ) ( 1,438 ) Net stock based compensation expense $ 6,412 $ 4,989 $ 5,219 Additional information on total non-vested stock based compensation is as follows: As of December 31, 2020 Stock options Restricted stock awards and RSUs Unrecognized compensation cost related to non-vested awards $ 521 $ 4,551 Weighted - average recognition period (in years) 1.27 1.43 (20) Income Taxes The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss): Year Ended December 31, 2020 2019 2018 Current provision (benefit) for income taxes: Federal $ ( 26,273 ) $ 991 $ ( 9,650 ) State 1,692 386 ( 1,182 ) Foreign 221 825 754 Total current provision (benefit) for income taxes ( 24,360 ) 2,202 ( 10,078 ) Deferred provision (benefit) for income taxes: Federal 10,415 6,502 4,110 State 697 335 59 Foreign ( 379 ) ( 22 ) — Total deferred provision (benefit) for income taxes 10,733 6,815 4,169 Total provision (benefit) for income taxes from continuing operations $ ( 13,627 ) $ 9,017 $ ( 5,909 ) Provision (benefit) for income taxes from discontinued operations — — 13,714 Total provision (benefit) for income taxes $ ( 13,627 ) $ 9,017 $ 7,805 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses. During the year ended December 31, 2020, the Company recorded a $ 7,293 tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $ 16,795 and an increase to our current receivable of $ 24,088 . The Company continues to assess the potential tax impacts of this legislation on its financial position and results of operations. The U.S. federal rate is before the consideration of rate reconciling items. A reconciliation of the expected federal provision (benefit) for income taxes on income from continuing operations using the federal statutory income tax rate to the actual provision (benefit) for income taxes and resulting effective income tax rate is as follows for the periods indicated below: F-58 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) Year Ended December 31, 2020 2019 2018 Income (loss) before income taxes from continuing operations $ ( 38,852 ) $ 29,139 $ ( 19,796 ) Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Expected federal provision (benefit) for income taxes at the federal statutory income tax rate ( 8,159 ) 6,119 ( 4,157 ) Effect of state provision (benefit) for income taxes, net of federal benefit 1,929 549 ( 471 ) Effect of CARES Act refund claims ( 7,293 ) — — Effect of foreign operations ( 938 ) 440 1,053 Effect of permanent differences 62 ( 30 ) 170 Effect of dividends received deduction ( 26 ) ( 29 ) ( 1,534 ) Effect of return-to-accrual 330 1,524 ( 404 ) Effect of other items 468 444 ( 566 ) Tax (benefit) on income from continuing operations $ ( 13,627 ) $ 9,017 $ ( 5,909 ) Effective tax rate 35.1 % 31.0 % 29.9 % For the year ended December 31, 2020, the Company’s effective tax rate on income from continuing operations was equal to 35.1 %. The effective tax rate for the year ended December 31, 2020 is higher than the U.S. statutory income tax rate of 21.0 % primarily from the impact of expected refunds arising from the CARES Act. For the year ended December 31, 2019, the Company’s effective tax rate on income from continuing operations was equal to 31 %. The effective tax rate for the year ended December 31, 2019 is higher than the U.S. statutory income tax rate of 21.0 % primarily due to the non-recurring return-to-provision, as well as ongoing state and foreign taxes. For the year ended December 31, 2018, the Company’s effective tax rate on losses from continuing operations was equal to 29.9 %. The effective tax rate for the year ended December 31, 2018 is higher than the U.S. statutory income tax rate of 21.0 % primarily due to the dividends received deduction, offset by the effect of foreign operations. The table below presents the components of the Company’s net deferred tax assets and liabilities as of the respective balance sheet dates: As of December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 26,404 $ 17,384 Unrealized losses 25,527 4,242 Accrued expenses 3,560 5,470 Unearned premiums 25,626 14,189 Deferred revenue 7,042 6,301 Other deferred tax assets 7,091 5,720 Total deferred tax assets 95,250 53,306 Less: Valuation allowance ( 6,871 ) ( 4,961 ) Total net deferred tax assets 88,379 48,345 Deferred tax liabilities: Property 2,697 1,554 Unrealized gains 17,968 6,005 Other deferred tax liabilities 4,057 3,370 Deferred acquisition cost 47,061 35,066 Advanced commissions 30,977 25,392 Intangibles 10,741 9,264 Total deferred tax liabilities 113,501 80,651 Net deferred tax liability (1) $ 25,122 $ 32,306 (1) Includes $939 classified as held for sale. See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations F-59 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) As of January 2016, Tiptree has established a U.S. federal consolidated income tax group and as such files on a consolidated basis, with certain exceptions such as a Fortegra life insurance company and Luxury. Tiptree consolidated, and certain subsidiaries on a separate basis, file returns in various state jurisdictions, and as such may have state tax obligations. Additionally, as needed the Company will take all necessary steps to comply with any income tax withholding requirements. As of December 31, 2020, the Company had total U.S. Federal net operating loss carryforwards (NOLs) of $ 70,803 arising from continuing operations. The following table presents the U.S. Federal NOLs by tax year of expiration: As of December 31, 2020 Tax Year of Expiration 2026 $ 86 2027 124 2028 — 2029 166 2030 17 2031 — 2032 — 2033 — 2034 1,893 2035 562 2036 39,862 2037 1,766 2038 — Indefinite 26,327 Total $ 70,803 In addition to the U.S. Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $ 11,446 as of December 31, 2020. Valuation allowances have been established for various state deferred tax assets of $ 6,871 , which are primarily state NOLs, since management has concluded it is more likely than not they will expire unutilized based on existing positive and negative evidence. Management believes it is more likely than not the remaining NOLs and deferred tax assets will be utilized prior to their expiration dates. As of December 31, 2020, the consolidated valuation allowance for Tiptree was $ 6,871 . In 2020, the Company recorded a net increase in its valuation allowances equal to $ 1,910 , compared to a net increase in its valuation allowance of $ 1,869 in 2019. As of December 31, 2020, the Company had no material unrecognized tax benefits or accrued interest and penalties. This is consistent with the tax years ending December 31, 2019 and December 31, 2018. Federal tax years 2017 and onward are open for examination as of December 31, 2020. F-60 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (21) Commitments and Contingencies Operating Leases All leases are office space leases and are classified as operating leases that expire through 2031. Some of our office leases include the 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 December 31, 2020: As of December 31, 2020 Right of use asset - Operating leases $ 27,291 Operating lease liability $ 32,914 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 December 31, 2020, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows: December 31, 2020 2021 $ 8,665 2022 7,740 2023 7,049 2024 6,176 2025 5,445 2026 and thereafter 16,091 Total minimum payments 51,166 Less: liabilities held for sale ( 887 ) Less: present value adjustment ( 17,365 ) Total $ 32,914 The following table presents rent expense for the Company’s office leases recorded on the consolidated statements of operations for the following periods: For the Year Ended December 31, 2020 2019 2018 Rent expense for office leases (1) $ 7,374 $ 8,612 $ 7,519 (1) Includes lease expense of $ 509 and $ 385 for the years ended December 31, 2020 and 2019, respectively, for assets held for sale. 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, the trial court issued an Order denying the Company’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied the Company’s Motion for Summary Judgment as to certain disability insurance policies. In January 2018, the court vacated its November 2017 order granting Company’s Motion for Summary Judgment as to the life certificates at issue with leave to refile. No trial or additional hearings are currently F-61 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) 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 the 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. (22) Earnings Per Share The Company calculates basic net income per share of common stock (common share) based on the weighted average number of common shares outstanding, which includes vested corporate RSUs. Unvested corporate RSUs have a 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 under which the income available to common stockholders is allocated to the unvested corporate RSUs. Diluted net income attributable to common stockholders includes the effect of unvested subsidiaries’ RSUs, when dilutive. The assumed exercise of all potentially dilutive instruments are included in the diluted net income per common share calculation, if dilutive. F-62 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) The following table presents a reconciliation of basic and diluted net income per common share for the following periods: For the Year Ended December 31, 2020 2019 2018 Net income (loss) from continuing operations $ ( 25,225 ) $ 20,122 $ ( 13,887 ) Less: Net income (loss) attributable to non-controlling interests 3,933 1,761 ( 612 ) Net income allocated to participating securities — 472 — Net income (loss) attributable to common stockholders ( 29,158 ) 17,889 ( 13,275 ) Net income (loss) from discontinued operations — — 43,770 Less: Net income (loss) from discontinued operations attributable to non-controlling interests — — 6,562 Net income (loss) from discontinued operations attributable to common stockholders — — 37,208 Net income (loss) attributable to common shares - basic $ ( 29,158 ) $ 17,889 $ 23,933 Effect of Dilutive Securities: Securities of subsidiaries — ( 723 ) — Net income (loss) attributable to common shares - diluted $ ( 29,158 ) $ 17,166 $ 23,933 Weighted average number of shares of common stock outstanding - basic 33,859,775 34,578,292 34,715,852 Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations — — — Weighted average number of shares of common stock outstanding - diluted 33,859,775 34,578,292 34,715,852 Basic: Net income (loss) from continuing operations $ ( 0.86 ) $ 0.52 $ ( 0.38 ) Net income (loss) from discontinued operations — — 1.07 Basic net income (loss) attributable to common shares $ ( 0.86 ) $ 0.52 $ 0.69 Diluted: Net income (loss) from continuing operations $ ( 0.86 ) $ 0.50 $ ( 0.38 ) Net income (loss) from discontinued operations — — 1.07 Diluted net income (loss) attributable to common shares $ ( 0.86 ) $ 0.50 $ 0.69 (23) Related Party Transactions 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 agreed to invest $ 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 will pay 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 $ 2,792 and $ 1,006 of management and incentive fees to Corvid Peak for the year ended December 31, 2020 and 2019, 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 year ended December 31, 2020 and 2019 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 year ended December 31, 2020 were not material. F-63 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 (in thousands, except share data) (24) Summarized Quarterly Information (Unaudited) 2020 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 129,671 $ 199,194 $ 224,041 $ 257,395 Total expenses 211,422 194,760 210,144 232,827 Income (loss) before taxes ( 81,751 ) 4,434 13,897 24,568 Less: provision (benefit) for income taxes ( 21,181 ) ( 5 ) ( 844 ) 8,403 Net income (loss) ( 60,570 ) 4,439 14,741 16,165 Less: net income (loss) attributable to non-controlling interests ( 563 ) 623 1,978 1,895 Net income (loss) attributable to common stockholders $ ( 60,007 ) $ 3,816 $ 12,763 $ 14,270 Net (loss) income per Common Share: Basic earnings per share $ ( 1.74 ) $ 0.11 $ 0.37 $ 0.42 Diluted earnings per share $ ( 1.74 ) $ 0.10 $ 0.35 $ 0.40 Weighted average number of Common Shares: Basic 34,566,330 33,984,195 33,684,301 33,213,307 Diluted 34,566,330 33,984,195 33,684,301 33,213,307 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 183,903 $ 191,072 $ 189,185 $ 208,568 Total expenses 178,748 175,367 190,783 198,691 Income (loss) before taxes 5,155 15,705 ( 1,598 ) 9,877 Less: provision (benefit) for income taxes 854 3,501 ( 649 ) 5,311 Net income (loss) 4,301 12,204 ( 949 ) 4,566 Less: net income (loss) attributable to non-controlling interests 376 458 508 419 Net income (loss) attributable to common stockholders $ 3,925 $ 11,746 $ ( 1,457 ) $ 4,147 Net (loss) income per Common Share: Basic earnings per share $ 0.11 $ 0.33 $ ( 0.04 ) $ 0.12 Diluted earnings per share $ 0.11 $ 0.32 $ ( 0.04 ) $ 0.11 Weighted average number of Common Shares: Basic 34,673,054 34,527,230 34,552,171 34,562,219 Diluted 34,673,054 34,527,230 34,552,171 34,578,357 (25) Subsequent Events On March 9, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.04 per share to holders of common stock with a record date of March 22 2021, and a payment date of March 29, 2021. F-64 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.