Donegal Group Inc 10-Q for FY2023 Q1

Donegal Group Inc (DGICA)

10-Q 2023-05-05 For: 2023-03-31

Added on April 12, 2026

About this 10-Q

Donegal Group Inc filed this 10-Q on May 5, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $224.75M; up 8.2% from $207.63M a year earlier
Net income: $5.2M; down 60.4% from net income of $13.15M a year earlier

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Delaware	23-2424711
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered

Class A Common Stock, $.01 par value	DGICA	The NASDAQ Global Select Market

Class B Common Stock, $.01 par value	DGICB	The NASDAQ Global Select Market

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	31
Item 4.	Removed and Reserved	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signatures		33

	March 31, 2023			December 31, 2022
	(Unaudited)
Assets
Investments
Fixed maturities
Held to maturity, at amortized cost (net of allowance for expected credit losses of $1,355,484 and $0)	$	693,778,523		$	688,439,360
Available for sale, at fair value		546,469,475			523,791,931
Equity securities, at fair value		37,584,654			35,104,840
Short-term investments, at cost, which approximates fair value		28,137,598			57,321,111
Total investments		1,305,970,250			1,304,657,242
Cash		22,836,044			25,123,332
Accrued investment income		10,183,882			8,861,292
Premiums receivable		189,545,403			173,846,294
Reinsurance receivable (net of allowance for expected credit losses of $1,466,994 and $0)		460,681,422			456,522,223
Deferred policy acquisition costs		77,189,596			73,170,230
Deferred tax asset, net		20,686,146			21,603,017
Prepaid reinsurance premiums		170,551,420			160,591,399
Property and equipment, net		2,757,161			2,755,105
Accounts receivable - securities		1,288			1,842
Federal income taxes recoverable		7,761,084			8,510,897
Due from affiliate		2,478,004			—
Goodwill		5,625,354			5,625,354
Other intangible assets		958,010			958,010
Other		1,460,420			1,123,098
Total assets	$	2,278,685,484		$	2,243,349,335
Liabilities and Stockholders’ Equity
Liabilities
Losses and loss expenses	$	1,123,534,684		$	1,121,045,758
Unearned premiums		609,684,232			577,653,130
Accrued expenses		4,692,378			4,226,390
Reinsurance balances payable		3,275,447			3,495,824
Borrowings under lines of credit		35,000,000			35,000,000
Cash dividends declared to stockholders		—			5,296,990
Due to affiliate		—			5,173,289
Other		8,936,574			7,864,942
Total liabilities		1,785,123,315			1,759,756,323
Stockholders’ Equity
Preferred stock, $0.01 par value, authorized 2,000,000 shares; none issued		—			—
Class A common stock, $0.01 par value, authorized 50,000,000 shares, issued 30,298,312 and 30,120,263 shares and outstanding 27,295,724 and 27,117,675 shares		302,984			301,203
Class B common stock, $0.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares		56,492			56,492
Additional paid-in capital		328,375,472			325,601,647
Accumulated other comprehensive loss		(37,696,109	)		(41,703,747	)
Retained earnings		243,749,687			240,563,774
Treasury stock, at cost		(41,226,357	)		(41,226,357	)
Total stockholders’ equity		493,562,169			483,593,012
Total liabilities and stockholders’ equity	$	2,278,685,484		$	2,243,349,335

	Three Months Ended March 31,
	2023			2022
Revenues:
Net premiums earned	$	215,233,160		$	199,248,624
Investment income, net of investment expenses		9,449,078			7,858,881
Net investment losses (includes ($ 2,199,673) and $165,354 accumulated other comprehensive income reclassifications)		(331,189	)		(76,247	)
Lease income		89,347			104,628
Installment payment fees		305,375			490,831
Total revenues		224,745,771			207,626,717
Expenses:
Net losses and loss expenses		138,105,889			117,883,002
Amortization of deferred policy acquisition costs		37,798,000			34,182,000
Other underwriting expenses		40,611,437			37,106,304
Policyholder dividends		1,343,340			1,648,751
Interest		152,957			153,033
Other expenses, net		437,715			427,388
Total expenses		218,449,338			191,400,478
Income before income tax expense		6,296,433			16,226,239
Income tax expense (includes ($ 461,931) and $34,724 income tax (benefit) expense from reclassification items)		1,092,837			3,081,210
Net income	$	5,203,596		$	13,145,029
Income per common share:
Class A common stock - basic and diluted	$	0.16		$	0.43
Class B common stock - basic and diluted	$	0.15		$	0.39

	Class A Shares		Class B Shares		Class A Amount		Class B Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2022		30,120,263		5,649,240	$	301,203	$	56,492	$	325,601,647	$	(41,703,747	)	$	240,563,774		$	(41,226,357	)	$	483,593,012
Issuance of common stock (stock compensation plans)		35,045		—		350		—		440,746		—			—			—			441,096
Share-based compensation		143,004		—		1,431		—		2,218,355		—			—			—			2,219,786
Net income		—		—		—		—		—		—			5,203,596			—			5,203,596
Cash dividends declared		—		—		—		—		—		—			(7,057	)		—			(7,057	)
Grant of stock options		—		—		—		—		114,724		—			(114,724	)		—			—
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023		—		—		—		—		—		—			(1,895,902	)		—			(1,895,902	)
Other comprehensive income		—		—		—		—		—		4,007,638			—			—			4,007,638
Balance, March 31, 2023		30,298,312		5,649,240	$	302,984	$	56,492	$	328,375,472	$	(37,696,109	)	$	243,749,687		$	(41,226,357	)	$	493,562,169

	Carrying Value		Allowance for Credit Losses		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	101,899	$	62	$	101,961	$	—	$	9,660	$	92,301
Obligations of states and political subdivisions		382,388		318		382,706		2,105		48,800		336,011
Corporate securities		198,202		968		199,170		17		17,854		181,333
Mortgage-backed securities		11,290		7		11,297		—		517		10,780
Totals	$	693,779	$	1,355	$	695,134	$	2,122	$	76,831	$	620,425

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	83,666	$	134	$	4,654	$	79,146
Obligations of states and political subdivisions		45,383		72		4,105		41,350
Corporate securities		212,358		2		14,710		197,650
Mortgage-backed securities		248,187		246		20,110		228,323
Totals	$	589,594	$	454	$	43,579	$	546,469

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	31,672	$	6,631	$	718	$	37,585

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	80,775	$	2,009	$	77,265	$	12,305
Obligations of states and political subdivisions		75,542		4,515		233,732		48,390
Corporate securities		198,944		8,137		177,785		24,427
Mortgage-backed securities		57,432		1,646		162,160		18,981
Totals	$	412,693	$	16,307	$	650,942	$	104,103

FHLB of Pittsburgh stock purchased and owned	$	1,573,300
Collateral pledged, at par (carrying value $46,842,191)		50,046,414
Borrowing capacity currently available		9,107,146

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	79,146	$	—	$	79,146	$	—
Obligations of states and political subdivisions		41,350		—		41,350		—
Corporate securities		197,650		—		197,650		—
Mortgage-backed securities		228,323		—		228,323		—
Equity securities		37,585		35,301		2,284		—
Total investments in the fair value hierarchy	$	584,054	$	35,301	$	548,753	$	—

	At and For the Three Months Ended March 31, 2023				At and For the Three Months Ended March 31, 2022
	Held-to- Maturity, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Held-to- Maturity, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
	(in thousands)				(in thousands)
Balance at January 1	$	688,439	$	—	$	668,105	$	—
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1				1,268				—
Current period change for expected credit losses				87				—
Balance at end of period	$	693,779	$	1,355	$	690,691	$	—

	At and For the Three Months Ended March 31, 2023				At and For the Three Months Ended March 31, 2022
	Reinsurance Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Reinsurance Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
	(in thousands)				(in thousands)
Balance at January 1	$	456,522	$	—	$	455,411	$	—
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1				1,132				—
Current period change for expected credit losses				335				—
Balance at end of period	$	460,681	$	1,467	$	448,296	$	—

	Three Months Ended March 31,
	2023			2022
Cash Flows from Operating Activities:
Net income	$	5,203,596		$	13,145,029
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and other non-cash items		1,122,609			1,343,128
Net investment losses		331,189			76,247
Changes in assets and liabilities:
Losses and loss expenses		2,488,926			(6,032,916	)
Unearned premiums		32,031,102			16,780,670
Premiums receivable		(15,699,109	)		(13,612,915	)
Deferred acquisition costs		(4,019,366	)		(3,579,838	)
Deferred income taxes		355,524			(334,190	)
Reinsurance receivable		(5,291,035	)		7,115,224
Prepaid reinsurance premiums		(9,960,021	)		2,412,533
Accrued investment income		(1,322,590	)		(1,233,871	)
Due from affiliate		(7,651,293	)		(287,192	)
Reinsurance balances payable		(220,377	)		123,455
Current income taxes		749,813			3,427,885
Accrued expenses		465,988			871,443
Other, net		734,310			535,049
Net adjustments		(5,884,330	)		7,604,712
Net cash (used in) provided by operating activities		(680,734	)		20,749,741
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity		(12,092,863	)		(28,656,113	)
Purchases of fixed maturities, available for sale		(34,354,601	)		(34,281,491	)
Purchases of equity securities, available for sale		(3,590,015	)		(5,276,815	)
Maturity of fixed maturities:
Held to maturity		6,127,883			9,203,976
Available for sale		12,365,403			23,296,757
Sales of fixed maturities:
Available for sale		748,250			—
Sales of equity securities, available for sale		3,066,129			14,408,819
Net (purchases) sales of property and equipment		(44,700	)		28,288
Net sales of short-term investments		29,183,513			3,498,167
Net cash provided by (used in) investing activities		1,408,999			(17,778,412	)
Cash Flows from Financing Activities:
Cash dividends paid		(5,304,047	)		(4,920,758	)
Issuance of common stock		2,288,494			314,940
Net cash used in financing activities		(3,015,553	)		(4,605,818	)

	Three Months Ended March 31,
	2023				2022
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic earnings per share:
Numerator:
Allocation of net income	$	4,387	$	817	$	10,986	$	2,159
Denominator:
Weighted-average shares outstanding		27,193		5,577		25,787		5,577
Basic earnings per share	$	0.16	$	0.15	$	0.43	$	0.39

Diluted earnings per share:
Numerator:
Allocation of net income	$	4,387	$	817	$	10,986	$	2,159
Denominator:
Number of shares used in basic computation		27,193		5,577		25,787		5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		173		—		22		—
Number of shares used in diluted computation		27,366		5,577		25,809		5,577
Diluted earnings per share	$	0.16	$	0.15	$	0.43	$	0.39

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	38,587	$	38,484
Due after one year through five years		107,029		102,259
Due after five years through ten years		243,499		220,660
Due after ten years		294,722		248,242
Mortgage-backed securities		11,297		10,780
Total held to maturity	$	695,134	$	620,425

Available for sale
Due in one year or less	$	46,221	$	45,327
Due after one year through five years		181,269		169,788
Due after five years through ten years		88,229		80,403
Due after ten years		25,688		22,628
Mortgage-backed securities		248,187		228,323
Total available for sale	$	589,594	$	546,469

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	130,466		$	124,329
Personal lines		84,767			74,920
GAAP premiums earned		215,233			199,249
Net investment income		9,449			7,859
Investment losses		(331	)		(76	)
Other		395			595
Total revenues	$	224,746		$	207,627
Income before income tax expense:
Underwriting (loss) income:
Commercial lines	$	(7,912	)	$	62
Personal lines		879			4,642
SAP underwriting (loss) income		(7,033	)		4,704
GAAP adjustments		4,407			3,725
GAAP underwriting (loss) income		(2,626	)		8,429
Net investment income		9,449			7,859
Investment losses		(331	)		(76	)
Other		(196	)		14
Income before income tax expense	$	6,296		$	16,226

Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance	Adjusted Loss and Loss Expense Reserves Net of Reinsurance at March 31, 2023		Percentage Change in Stockholders’ Equity at March 31, 2023(1)		Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2022		Percentage Change in Stockholders’ Equity at December 31, 2022(1)
(dollars in thousands)
(10.0)%	$	602,168		10.7%	$	602,876		10.9%
(7.5)		618,894		8.0		619,622		8.2
(5.0)		635,621		5.4		636,369		5.5
(2.5)		652,348		2.7		653,115		2.7
Base		669,075		—		669,862		—
2.5		685,802		(2.7)		686,609		(2.7)
5.0		702,529		(5.4)		703,355		(5.5)
7.5		719,256		(8.0)		720,102		(8.2)
10.0		735,983		(10.7)		736,848		(10.9)

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 January 1-31, 2023	Class A – None Class B – None	Class A – None Class B – None	Class A – None Class B – None

Month #2 February 1-28, 2023	Class A – None Class B – None	Class A – None Class B – None	Class A – None Class B – None

Month #3 March 1-31, 2023	Class A – 95,000 Class B – None	Class A – $15.37 Class B – None	Class A – 95,000 Class B – None	(1)

Total	Class A – 95,000 Class B – None	Class A – $15.37 Class B – None	Class A – 95,000 Class B – None

Exhibit No.	Description

Exhibit 31.1	Certification of Chief Executive Officer	Filed herewith

Exhibit 31.2	Certification of Chief Financial Officer	Filed herewith

Exhibit 32.1	Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code	Filed herewith

Exhibit 32.2	Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code	Filed herewith

Exhibit 101.INS	XBRL Instance Document	Filed herewith

Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

Exhibit 101.PRE	XBRL Taxonomy Presentation Linkbase Document	Filed herewith

Exhibit 101.CAL	XBRL Taxonomy Calculation Linkbase Document	Filed herewith

Exhibit 101.LAB	XBRL Taxonomy Label Linkbase Document	Filed herewith

Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

Exhibit 104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)	Filed herewith

	DONEGAL GROUP INC.

May 5, 2023	By:	/s/ Kevin G. Burke
		Kevin G. Burke, President and Chief Executive Officer

May 5, 2023	By:	/s/ Jeffrey D. Miller
		Jeffrey D. Miller, Executive Vice President
		and Chief Financial Officer

Date: May 5, 2023	/s/ Kevin G. Burke
	Kevin G. Burke, President and Chief Executive Officer