TIPTREE INC. 10-K

Item 9A. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of its Executive Chairman, Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of December 31, 2020. Based upon that evaluation, the Company’s Executive Chairman, Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2020. For the year ended December 31, 2020, the Company’s management excluded the Smart AutoCare business acquired on January 3, 2020 (within the Insurance segment) from its evaluation of internal control over financial reporting. The total revenues and total assets for Smart AutoCare for the period January 3, 2020 through December 31, 2020 and as of December 31, 2020, were approximately $70 million and $349 million, respectively, which represent 9% and 12% of the Company’s total consolidated revenues and total consolidated assets for this period, respectively. The Company is committed to maintaining a strong internal control environment which is accompanied by management’s ongoing focus on processes and related controls to achieve accurate and reliable financial reporting. However, all systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of the effectiveness of internal control 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. (b) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors of the Company; and 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 our financial statements. If the Company identifies any material weaknesses, the COSO Framework does not allow the Company to conclude that our internal control over financial reporting is effective. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Based upon its assessment, management concluded that the Company’s internal control over financial reporting as of December 31, 2020 was effective using the COSO Framework. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm that audited the Company’s consolidated financial statements as of and for the year ended December 31, 2020, as stated in their report, included in Item 8 of this Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. (c) Changes in Internal Control over Financial Reporting There were no changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. PART III Item 10. Directors, Executive Officers and Corporate Governance Information concerning our executive officers is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Information with respect to our directors and the nomination process is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Information regarding our audit committee and our audit committee financial experts is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Information required by Item 405 of Regulation S-K is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Item 11. Executive Compensation Information with respect to executive compensation is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions, and Director Independence Information with respect to such contractual relationships and independence is incorporated herein by reference to the information in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. Item 14. Principal Accountant Fees and Services Information with respect to principal accounting fees and services and pre-approval policies are incorporated herein by reference to information included in the Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders. PART IV Item 15. Exhibits, Financial Statement Schedules The following documents are filed as a part of this Form 10-K: (a)(1) All Financial Statements Index to Financial Statements: Page Consolidated Balance Sheet as of December 31, 20 20 and 201 9 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 201 8 F- 3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 20 20 , 201 9 and 201 8 F- 5 Consolidated Statements of Cash Flows for the years ended December 31, 20 20 , 201 9 and 20 18 F- 6 Notes to Consolidated Financial Statements F- 7 (a)(2) Financial Statement Schedules Schedule II—“Financial Information of Registrant”, is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements and notes thereto contained in Item 8—“Financial Statements and Supplementary Data.” The financial statements of Invesque Inc. required by Rule 3-09 of Regulation S-X will be provided as Exhibits 99.1 and 99.2 to this report. All other financial statements and financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instruction, are not material or are not applicable and, therefore, have been omitted. (a)(3) Exhibits Exhibit No. Description 2.1 Agreement and Plan of Merger, dated April 9, 2018, by and among Tiptree Financial Partners, L.P. and Tiptree Inc. (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 10, 2018 and herein incorporated by reference). 3.1 Fifth Articles of Amendment and Restatement of the Registrant, effective June 6, 2018 (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on June 7, 2018 and herein incorporated by reference). 3.2 Fourth Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on January 4, 2017 and herein incorporated by reference). 3.3 Articles Supplementary of the Registrant, dated December 29, 2014 (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on December 29, 2014 and herein incorporated by reference). 4.1 Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-A/A (File No. 001-33549), filed on June 7, 2018 and herein incorporated by reference. 4.2 Form of Warrant to Purchase Common Stock (Expiring June 30, 2022) (previously filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 10, 2018 and herein incorporated by reference). 4.3 Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934 (previously filed as Exhibit 4 .3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 1 2 , 20 20 and herein incorporated by reference). Exhibit No. Description 10.1 Registrant’s 2017 Omnibus Incentive Plan (previously filed as Exhibit 10.1 to the Registrant’s Form S-8 Registration Statement (File No. 333-218827), filed on June 19, 2017 and herein incorporated by reference).** 10.2 Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan (previously filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference)** 10.3 Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (annual vesting) (previously filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference). ** 10.4 Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (cliff vesting) (previously filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference). ** 10.5 Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (previously filed as Exhibit 10. 5 to the Registrant ’ s Annual Report on Form 10-K ( File No. 0 01-33549) , filed on March 12, 2020 and herein incorporated by referen ce) .** 10.6 Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (annual vesting) (previously filed as Exhibit 10. 6 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference) .** 10.7 Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (cliff vesting) (previously filed as Exhibit 10. 7 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference) .** 10.8 Form of Indemnification Agreement (previously filed as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-11, as amended (File No. 333-141634), filed on June 7, 2007 and herein incorporated by reference). 10.9 Amended and Restated Transition Services Agreement between Tricadia Holdings, L.P. and Tiptree Inc., dated as of February 15, 2019 (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 22, 2019 and herein incorporated by reference). 10.10 Credit Agreement, dated as of February 21, 2020, between Tiptree Inc., Tiptree Operating Company, LLC, Fortress Credit Corp. as Administrative Agent, Collateral Agent and Lead Arranger, and the lenders party thereto. (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed February 21, 2020 and herein incorporated by reference). 10.11 Amended and Restated Credit Agreement, dated as of August 4, 2020 by and among Fortegra Financial Corporation (“Fortegra”) 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 (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed August 5, 2020 and herein incorporated by reference). 10.12 Credit Agreement, dated as of October 16, 2020 by and among South Bay Financial Corporation, South Bay Funding LLC, the lenders from time to time party thereto and Fifth Third Bank, National Association as the administrative agent (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed October 21, 2020 and herein incorporated by reference). 10.13 Equity Interest Purchase Agreement, dated December 16, 2019, by and among Tiptree Warranty Holdings, LLC and Peter Masi (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on December 17, 2019 and herein incorporated by reference). 10.14 Amendment to Partner Emeritus Agreement, effective January 1, 2021, by and between Tiptree Inc. and Arif Inayatullah (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on January 4, 2021 and herein incorporated by reference). 21.1 Subsidiaries of the Registrant (filed herewith). 23.1 Consent of Independent Registered Public Accounting Firm (filed herewith). 23.2 Consent of KPMG LLP, Independent Auditors of Invesque Inc. (filed herewith). 23.3 Consent of KPMG LLP, Independent Auditors of Invesque Inc. (filed herewith). 31.1 Certification of Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). Exhibit No. Description 31.2 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 99.1 Consolidated Financial Statements of Invesque Inc. as at December 31, 2020 and 2019 (filed herewith) . 99.2 Consolidated Financial Statements of Invesque Inc. as at December 31, 2018 and 2017 (previously filed as Exhibit 99.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference). 101.INS XBRL Instance Document* 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* 104 Cover page from Tiptree Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in iXBRL (included in Exhibit 101). * Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (audited) for December 31, 2020 and December 31, 2019, (ii) the Consolidated Statements of Operations (audited) for the years ended December 31, 2020, 2019 and 2018, (iii) the Consolidated Statements of Comprehensive Income (Loss) (audited) for the years ended December 31, 2020, 2019 and 2018, (iv) the Consolidated Statements of Changes in Stockholders’ Equity (audited) for the years ended December 31, 2020, 2019 and 2018, (v) the Consolidated Statements of Cash Flows (audited) for the years ended December 31, 2020, 2019 and 2018 and (vi) the Notes to the Consolidated Financial Statements (audited). ** Denotes a management contract or compensatory plan, contract or arrangement. Item 16. Form 10-K Summary None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Tiptree Inc. Date: March 11, 2021 By:/s/ Jonathan Ilany Jonathan Ilany Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Jonathan Ilany Jonathan Ilany Chief Executive Officer and Director (Principal Executive Officer) March 11, 2021 /s/ Sandra Bell Sandra Bell Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 11, 2021 /s/ Michael G. Barnes Michael G. Barnes Executive Chairman and Director March 11, 2021 /s/ Paul M. Friedman Paul M. Friedman Director March 11, 2021 /s/ Lesley Goldwasser Lesley Goldwasser Director March 11, 2021 /s/ Bradley E. Smith Bradley E. Smith Director March 11, 2021 /s/ Dominique Mielle Dominique Mielle Director March 11, 2021 Schedule II — Condensed Financial Information of Registrant TIPTREE INC. PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME (All amounts in thousands) Year Ended December 31, 2020 2019 2018 Revenues Interest income (1) $ 223 $ — $ 137 Other revenue 232 — 10 Total revenues 455 — 147 Expenses Employee compensation and benefits 15,195 — — Interest expense 4,681 — — Professional fees 4,476 — — Rent and facilities 2,094 — — General and administrative 1,259 — — Depreciation and amortization 807 — — Loss on extinguishment of debt 353 — — Other expenses 1,513 3 30 Total expenses 30,378 3 30 Equity in earnings (losses) of subsidiaries, net of tax (2) ( 24,855 ) 18,364 ( 13,392 ) Income (loss) before taxes ( 54,778 ) 18,361 ( 13,275 ) Less: provision (benefit) for income taxes ( 25,620 ) — — Net income (loss) ( 29,158 ) 18,361 ( 13,275 ) Discontinued operations: Income from discontinued operations, net of tax and non-controlling interest — — 414 Gain on sale of discontinued operations, net of tax and non-controlling interest — — 36,794 Discontinued operations, net of tax and non-controlling interest — — 37,208 Net income (loss) attributable to Tiptree Inc. common stockholders $ ( 29,158 ) $ 18,361 $ 23,933 (1) E liminated in consolidation for the period ending December 31, 2018 only. (2) E liminated in consolidation. TIPTREE INC. PARENT COMPANY ONLY CONDENSED BALANCE SHEETS (All amounts in thousands, except share data) As of December 31, 2020 2019 Assets Investment in subsidiaries (1) $ 337,951 $ 397,395 Cash and cash equivalents 712 87 Notes and accounts receivable, net 2,622 — Intercompany receivables, net (1) — — Income taxes receivable 15,590 — Deferred tax assets 44,161 — Other assets 15,332 580 Total assets $ 416,368 $ 398,062 Liabilities and Stockholders’ Equity Liabilities Deferred tax liabilities $ 23,889 $ — Operating lease liability 12,241 — Intercompany payables, net (1) 9,861 — Accrued expenses 7,490 — Other liabilities 6,743 — Total liabilities $ 60,224 $ — 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 stockholders’ equity 356,144 398,062 Total liabilities and stockholders' equity $ 416,368 $ 398,062 (1) E liminated in consolidation. TIPTREE INC. PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS (All amounts in thousands) Year Ended December 31, 2020 2019 2018 Operating Activities: Net income (loss) attributable to Tiptree Inc. common stockholders $ ( 29,158 ) $ 18,361 $ 23,933 Adjustments to reconcile net income to net cash provided by operating activities Equity in earnings of subsidiaries (1) 24,855 ( 18,364 ) ( 23,816 ) Depreciation expense 807 — — Deferred provision (benefit) for income taxes ( 15,815 ) — — Non-cash lease expense 1,660 — — Non-cash compensation expense 3,110 — — Amortization of deferred financing costs 172 — — Changes in operating assets and liabilities Changes in other operating assets and liabilities 1,264 ( 583 ) 4,772 Net cash provided by (used in) operating activities ( 13,105 ) ( 586 ) 4,889 Investing Activities: Asset acquisitions due to merger with Operating Co. 488 — — Net cash flows provided by (used in) provided by investing activities 488 — — Financing Activities: Distributions from subsidiaries (1) 35,092 14,587 — Dividends paid ( 5,565 ) ( 5,502 ) ( 4,781 ) Repurchases of common stock ( 13,889 ) ( 9,085 ) — Subsidiary RSU exchanges ( 2,034 ) — — Vesting of share-based incentive compensation ( 362 ) — — Net cash provided by (used in) financing activities 13,242 — ( 4,781 ) Net increase (decrease) in cash and cash equivalents 625 ( 586 ) 108 Cash and cash equivalents at beginning of period 87 673 565 Cash and cash equivalents at end of period $ 712 $ 87 $ 673 Cash (received) paid for income taxes $ ( 166 ) $ 2,168 $ ( 5,915 ) (1) E liminated in consolidation. Note 1. Basis of Presentation 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. Pursuant to the terms discussed in Note—(11) Debt, net in the notes to consolidated financial statements, a secured corporate credit agreement of a subsidiary of Tiptree restricts that subsidiary’s ability to pay or make any dividend or distribution to Tiptree Inc. In addition, certain other subsidiaries’ activities are regulated, or subject to specific restriction on transfers as a result of financing arrangements. As a result of these restrictions, these condensed financial statements of the Registrant have been prepared in accordance with Rule 12-04 of Regulation S-X, as restricted net assets of the Company's subsidiaries (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the Company's consolidated net assets as of December 31, 2020. For the periods ending December 31, 2019 and 2018, the Company was a holding company without any operations of its own. On July 17, 2020, Operating Company merged into Tiptree, with Tiptree as the surviving entity (the Reorganization). In connection with the Reorganization, Operating Company contributed substantially all of its assets to Caroline Holdings LLC, a wholly owned subsidiary of Operating Company, which was renamed Tiptree Holdings LLC. Prior to the Reorganization, the Company was allocated itemized expenses of $ 2,000 related to operating as a public company from Operating Company for the six months ended June 30, 2020. These condensed financial statements have been prepared on a "parent-only" basis. Under a parent-only presentation, the Parent Company's investments in subsidiaries are presented under the equity method of accounting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed financial information should be read in conjunction with the Tiptree Inc. consolidated financial statements and related Notes thereto. Note 2. Dividends Received The Company received distributions of $ 35,092 , $ 14,587 and $ 4,781 for the years ended December 31, 2020, 2019 and 2018, respectively.