EX-99.2 4 ef20035326_ex99-2.htm EXHIBIT 99.2

Exhibit 99.2

Unaudited Pro Forma Consolidated Financial Statements
 
On August 30, 2024, Conifer Holdings, Inc. (the “Company”), completed the sale of all of the issued and outstanding membership interests of Conifer Insurance Services, LLC (“CIS”) (the “CIS Sale”). CIS comprised the Company’s managing general agency “MGA” business and was the legal entity used to implement the strategic shift to non risk-bearing revenue from an underwriting-based model as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. This represents the Company’s entire Wholesale Agency segment. Additionally, the Company repaid debt and redeemed its preferred stock from the net proceeds from the sale of CIS on August 30, 2024. In connection with the sale of CIS, the Company also disposed of its equity method investment in SSU on August 30, 2024.

The following unaudited pro forma consolidated financial statements and accompanying notes reflect the impact of the CIS Sale as if it occurred: a) on June 30, 2024, for the unaudited pro forma consolidated balance sheet; and b) on January 1, 2023 for the unaudited pro forma consolidated statements of operations for the six months ended June 30, 2024 and the year ended December 31, 2023. In accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, the transaction accounting adjustments for the CIS Sale and the other transactions described above consist of those directly attributable to the disposal of CIS, the repayment of debt and the redemption of the preferred stock and the sale of our equity method investment in SSU.
 
The unaudited pro forma consolidated financial statements and accompanying notes are based on information currently available, are provided for illustrative purposes only and are not intended to reflect what the Company’s actual results of operations or financial position would have been had the CIS Sale and other related transactions occurred on the dates indicated above, nor is it necessarily indicative of the Company’s future results of operations or financial position after the occurrence of the transactions described above. Actual and future results may vary significantly from the results reflected in the unaudited pro forma consolidated financial statements.
 
The unaudited pro forma consolidated financial statements have been derived from and should be read in conjunction with the historical unaudited consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 and the historical audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands)

   
As of June 30, 2024
 
   
Historical
   
Disposed
CIS (a)
   
Transaction Accounting Adjustments
   
Other
Adjust- ments (p)
   
Pro forma
 
Assets
                             
Investment securities:
                             
Debt securities, at fair value
 
$
119,371
   
$
   
$
   
$
   
$
119,371
 
Equity securities, at fair value
   
1,660
     
     
     
     
1,660
 
Short-term investments, at fair value
   
23,339
     
     
     
     
23,339
 
Total investments
   
144,370
     
     
     
     
144,370
 
 
                                       
Cash and cash equivalents
   
9,697
     
(8,945
)
   
43,401
 (b)
   
(13,400
) (d)
   
30,753
 
Premiums and agents' balances receivable, net
   
30,583
     
(14,464
)
   
     
     
16,119
 
Receivable from Affiliate
   
1,174
     
     
     
     
1,174
 
Reinsurance recoverables on unpaid losses
   
74,358
     
     
     
     
74,358
 
Reinsurance recoverables on paid losses
   
8,614
     
     
     
     
8,614
 
Prepaid reinsurance premiums
   
13,494
     
     
     
     
13,494
 
Deferred policy acquisition costs
   
4,606
     
     
     
     
4,606
 
Other assets
   
6,038
     
(2,023
)
   
     
3,270
(e)
   
7,285
 
Total assets
 
$
292,934
   
$
(25,432
)
 
$
43,401
   
$
(10,130
)
 
$
300,773
 
Liabilities and Shareholders' Equity
                                       
Liabilities:
                                       
Unpaid losses and loss adjustment expenses
 
$
174,786
   
$
   
$
   
$
   
$
174,786
 
Unearned premiums
   
44,820
     
     
     
     
44,820
 
Reinsurance premiums payable
   
1,408
     
     
     
     
1,408
 
Debt
   
24,832
     
     
     
(8,447
) (f)
   
16,385
 
Funds held under reinsurance agreements
   
23,602
     
     
     
     
23,602
 
Premiums payable to other insureds
   
19,299
     
(19,288
)
   
     
     
11
 
Accounts payable and accrued expenses
   
5,352
     
(3,415
)
   
250
(b)
   
      2,187  
Total liabilities
   
294,099
     
(22,703
)
   
250
     
(8,447
)
   
263,199
 
 
                                       
Commitments and contingencies
   
     
     
     
     
 
 
                                       
Shareholders' equity:
                                       
Preferred stock, no par value
   
6,000
     
     
     
(6,000
) (g)
   
 
Common stock, no par value
   
98,170
     
     
     
     
98,170
 
Accumulated deficit
   
(90,559
)
   
      40,422
(c)
   
4,317
 (h)
   
(45,820
)
Accumulated other comprehensive (loss)
   
(14,776
)
   
     
     
     
(14,776
)
Total shareholders' equity
   
(1,165
)
   
      40,422

   
(1,683
)
   
37,574
 
Total liabilities and shareholders' equity
 
$
292,934
   
$
(22,703
)
 
$
40,672

 
$
(10,130
)
 
$
300,773
 


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Stetements of Operations (unaudited)
(dollars in thousands, except per share data)

   
Six Months Ended June 30, 2024
 
   
Historical
   
Disposed
CIS (i)
   
Transaction Accounting Adjustments
   
Other
Adjust-
ments (p)
   
Pro forma
 
Revenue and Other Income
                             
Gross earned premiums
 
$
63,613
   
$
   
$
   
$
   
$
63,613
 
Ceded earned premiums
   
(30,060
)
   
     
     
     
(30,060
)
Net earned premiums
   
33,553
     
     
     
     
33,553
 
Net investment income
   
3,057
     
(38
)
   
     
     
3,019
 
Net realized investment gains (losses)
   
(118
)
   
     
     
     
(118
)
Change in fair value of equity securities
   
(153
)
   
     
     
     
(153
)
Gain on Sale of CIS
   
     
     
     
     
 
Agency commission income
   
13,167
     
(13,170
)
   
     
     
(3
)
Other income
   
420
     
(124
)
   
     
     
296
 
Total revenue and other income
   
49,926
     
(13,332
)
   
     
     
36,594
 
 
                                       
Expenses
                                       
Losses and loss adjustment expenses, net
   
25,801
     
     
     
     
25,801
 
Policy acquisition costs
   
17,493
     
(10,738
)
   
     
     
6,755
 
Operating expenses
   
8,751
     
(2,441
)
   
     
     
6,310
 
Interest expense
   
1,746
     
     
     
(696
) (j)
   
1,050
 
Total expenses
   
53,791
     
(13,179
)
   
     
(696
)
   
39,916
 
 
                                       
Income (loss) before income taxes
   
(3,865
)
   
(153
)
   
     
696
     
(3,322
)
Equity earnings (losses) in Affiliate, net of tax
   
286
     
     
     
(286
) (k)
   
 
Income tax expense (benefit)
   
(18
)
   
     
     
     
(18
)
 
                                       
Net income (loss)
 
$
(3,561
)
 
$
(153
)
 
$
   
$
410
   
$
(3,304
)
Preferred stock dividends
   
315
     
     
     
(315
) (l)
   
 
Net income (loss) allocable to common shareholders
   
(3,876
)
   
(153
)
   
     
725
     
(3,304
)
 
                                       
Earnings (loss) per common share, basic and diluted
 
$
(0.32
)
 
$
(0.01
)
 
$
   
$
(0.06
)
 
$
(0.27
)
 
                                       
Weighted average common shares outstanding, basic and diluted
   
12,222,881
     
12,222,881
     
     
12,222,881
     
12,222,881
 


CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Stetements of Operations (unaudited)
(dollars in thousands, except per share data)

   
Year Ended December 31, 2023
 
   
Historical
   
Disposed CIS (i)
   
Transaction Accounting Adjustments
   
Other Adjust- ments (p)
   
Pro forma
 
Revenue and Other Income
                             
Gross earned premiums
 
$
146,572
   
$
   
$
   
$
   
$
146,572
 
Ceded earned premiums
   
(62,637
)
   
     
     
     
(62,637
)
Net earned premiums
   
83,935
     
     
     
     
83,935
 
Net investment income
   
5,526
     
(24
)
   
     
     
5,502
 
Net realized investment gains (losses)
   
(20
)
   
     
     
     
(20
)
Change in fair value of equity securities
   
608
     
     
     
     
608
 
Gain from sale of renewal rights
   
2,335
     
(2,335
)
   
     
     
 
Gain on CIS Sale
   
     
     
40,422
(m)
   
 
   
40,422
 
Realized gain on sale of equity method investment
               
    6,500  (n)     6,500  
Agency commission income
   
5,680
     
(5,680
)
   
     
     
 
Other income
   
694
     
(138
)
   
     
     
556
 
Total revenue and other income
   
98,758
     
(8,177
)
   
40,422
     
6,500
     
137,503
 
 
                                       
Expenses
                                       
Losses and loss adjustment expenses, net
   
82,413
     
(33
)
   
     
     
82,380
 
Policy acquisition costs
   
20,892
     
(5,680
)
   
     
     
15,212
 
Operating expenses
   
17,891
     
(483
)
   
225
 (o)
   
     
17,633
 
Interest expense
   
3,206
     
     
     
1,234
 (j)
   
4,440
 
Total expenses
   
124,402
     
(6,196
)
   
225
     
1,234
     
119,665
 
 
                                       
Income (loss) before income taxes
   
(25,644
)
   
(1,981
)
   
40,197
     
5,266
     
17,838
 
Equity earnings (losses) in Affiliate, net of tax
   
(251
)
   
     
     
251
 (k)
   
 
Income tax expense (benefit)
   
9
     
(213
)
   
     
     
(204
)
 
                                       
Net income (loss)
 
$
(25,904
)
 
$
(1,768
)
 
$
40,197
   
$
5,517
   
$
18,042
 
Preferred stock dividends
   
19
     
     
     
(19
) (l)
   
 
Net income (loss) allocable to common shareholders
   
(25,885
)
   
(1,768
)
   
40,197
     
5,498
     
18,042
 
 
                                       
Earnings (loss) per common share, basic and diluted
 
$
(2.12
)
 
$
(0.14 )
 
$
3.29    
$
0.45    
$
1.48
 
 
                                       
Weighted average common shares outstanding, basic and diluted
   
12,220,511
     
12,220,551
     
12,220,551
     
12,220,551
     
12,220,511
 


Conifer Holdings, Inc.
Notes to Pro Forma Consolidated Financial Statements (unaudited)

(a)
Reflects the disposition of assets and liabilities of the disposed CIS business as if the CIS Sale occurred on June 30, 2024.*
(b)
Reflects the aggregate purchase price at the closing of the CIS Sale of approximately $43.4 million in cash, which was comprised of a base purchase price of $45.0 million, adjusted for cash on hand, required minimum net working capital and deal expenses and estimated $250,000 of unpaid deal expenses are reflected in Accounts payable and accrued expenses. The purchase price is subject to a post-closing true-up mechanism which is expected to be determined within approximately 90 days from the date of the closing.
(c)
Reflects the estimated net gain on the CIS Sale of $40.4 million representing the net cash proceeds less the net asset of the disposed CIS business.*
(d)
Reflects the cash impact of other transactions that occur in concert with the CIS sale, including: A $6.4 million reduction for the Preferred Stock redemption, a $3.0 million increase in cash from Sale of SSU, and a $10.0 million decrease in cash for paying off the $9.3 million outstanding balance on the Senior Secured Note, inclusive of a call premium of $753,000.
(e)
Reflects increase in $3.5 million increase in other receivables for the installment payment owed to Company on the SSU sale and a $230,000 reduction from the write off of the book value of SSU.
(f)
Reflects the pay down of the Senior Secure Note, net of the write off of unamortized deferred issuance costs.
(g)
Reflects to redemption of the Preferred Stock
(h)
Reflects the $6.3 million estimated gain on sale of SSU, less the $803,000 write off of the unamortized deferred issuance costs from the Senior Secured Note, a $753,000 call premium from the Senior Secured Note and a $397,000 redemption premium on the Preferred Stock.
(i)
Reflects the elimination of the results of the disposed CIS business as if the CIS Sale occurred on January 1, 2023.
(j)
Reflects the assumption that the Senior Secured Notes were paid off on January 1, 2023, resulting in elimination of interest expense on those notes in 2023 and 2024.  In addition, it reflects a call premium of $1.4 million in 2023.
(k)
Reflects the assumption that SSU would have been sold on January 1, 2023, resulting in the elimination of Equity Earnings from Affiliate in 2023 or 2024.
(l)
Reflects the assumption that the preferred shares would not have been issued in 2023 and not considered outstanding in 2024.  In addition, the dividends of $19,000 and $315,000 would not have been declared in 2023 and 2024, respectively.
(m)
Reflects the estimated net gain on the CIS Sale.
(n)
Reflects the estimated net gain on the sale of SSU.
(o)
Reflects the cost of the transition services agreement established to allow both parties to share resources for a certain period of time, generally less than twelve months, in order to effectuate an orderly separation of the internal systems and operations. As this adjustment relates to a new contractual arrangement, the effects are limited in the unaudited pro forma consolidated statements of operations to the most recent full year presented.
(p)
The Other Adjustments column represents transactions that were not directly part of the CIS Sale but occurred in concert with the CIS Sale.  This included the separate sale of SSU, the payoff of the Senior Secured Notes and the redemption of the Preferred Stock.

*           For the purposes of the unaudited pro forma consolidated balance the estimate gain recognized in accumulated deficit and related net gain on sale recognized in the 2023 unaudited pro forma consolidated income statement is based on the net carrying value of CIS as of June 30, 2024, rather than as of the closing date of the transaction. As a result, the estimated gain, reflected herein may differ materially from the actual gain on the sale of CIS as of the closing because of the differences in the carrying value of assets and liabilities at the closing date.