Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate number of shares of the Registrant’s Common Stock outstanding on ~~July 29, 2020~~May 3, 2021 was ~~28,058,596~~27,965,190

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) or in documents incorporated by reference that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about (i) ~~the impact of the COVID-19 pandemic on the economy in general and on our business, results of operations and financial condition; (ii)~~ our ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments; ~~(iii)~~(ii) the adequacy of our reinsurance program and our ability to diversify risk and safeguard our financial position; ~~(iv)~~(iii) our estimates ~~and beliefs~~ with respect to tax and accounting matters including the impact on our financial ~~statements and the outcome of any tax examination, as well as the impact of the CARES Act on our financial results, effective tax rate and liquidity; (v)~~statements; (iv) future dividends, if any; ~~(vi)~~(v) our expectations related to our financing activities; ~~(vii)~~(vi) the sufficiency of our liquidity to pay our insurance company affiliates’ claims and expenses, as well as to satisfy commitments in the event of unforeseen events; ~~(viii)~~(vii) the sufficiency of our capital resources, together with cash provided from our operations, to meet currently anticipated working capital requirements, including to fund our insurance company affiliates’ claims and expenses and satisfy commitments in the event of unforeseen events such as inadequate premium rates or reserve deficiencies, notwithstanding the potential impact of the COVID-19 pandemic; (ix)requirements; (viii) the potential effects of the seasonality of our business, including effects on our reinsurance business and financial results; ~~(x)~~(ix) our intentions with respect to our credit risk investments; and ~~(xi)~~(x) the potential effects of our current legal proceedings.

These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements we make in our Form 10-Q are valid only as of the date of our Form 10-Q and may not occur in light of the risks, uncertainties and assumptions that we describe from time to time in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements is included in the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
ASSETS	(unaudited)						(unaudited)
Fixed maturities, available-for-sale, at fair value (amortized cost of $671,961 and $577,789)	$	698,277		$	587,256
Equity securities, at fair value, (cost $1,599 and $1,618)		1,599			1,618
Fixed maturities, available-for-sale, at fair value (amortized cost of $625,773 and $553,172)							$	622,923		$	561,011
Equity securities, at cost								1,415			1,599
Other investments		6,374			6,375			26,409			26,409
Total investments		706,250			595,249			650,747			589,019
Cash and cash equivalents		288,342			268,351			402,770			440,956
Restricted cash		11,849			14,657			5,427			5,427
Accrued investment income		4,833			4,377			2,872			2,737
Premiums receivable, net		66,188			63,685			84,336			77,471
Reinsurance recoverable on paid and unpaid claims, net of allowance for estimated uncollectible reinsurance of $39		374,709			428,903
Reinsurance recoverable on paid and unpaid claims, net of allowance for estimated uncollectible reinsurance of $45								326,276			355,037
Prepaid reinsurance premiums		361,256			224,102			172,223			245,818
Income taxes receivable		4,651			3,171			29,896			32,224
Deferred policy acquisition costs, net		81,590			77,211			88,876			89,265
Property and equipment, net		19,998			20,753			18,674			18,685
Intangibles, net		65,461			68,642			60,689			62,277
Goodwill		152,459			152,459			152,459			152,459
Other assets		28,804			18,110			19,549			18,004
Total Assets	$	2,166,390		$	1,939,670		$	2,014,794		$	2,089,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses	$	620,718		$	613,533		$	637,882		$	659,341
Unearned premiums		529,321			486,220			573,411			569,618
Reinsurance payable		296,606			156,351			144,206			161,918
Long-term debt, net		126,056			129,248			119,501			120,998
Deferred income tax, net		20,957			12,623			11,109			18,477
Advance premiums		30,870			16,504			21,497			18,268
Accrued compensation		11,250			5,347			8,112			9,325
Accounts payable and other liabilities		68,113			71,045			71,628			89,090
Total Liabilities	$	1,703,891		$	1,490,871		$	1,587,346		$	1,647,035

Commitments and contingencies (Note 17)
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 28,058,596 shares issued and 27,738,062 shares outstanding at June 30, 2020; 28,996,452 shares issued and 28,650,918 shares outstanding at December 31, 2019		3			3
Common stock, $0.0001 par value, 50,000,000 shares authorized, 27,965,190 shares issued and 27,904,923 shares outstanding at March 31, 2021; 27,883,873 shares issued and 27,748,606 shares outstanding at December 31, 2020								3			3
Additional paid-in capital		332,037			329,568			332,000			331,867
Accumulated other comprehensive income		20,263			7,330
Treasury stock, at cost, 9,279,839 and 8,349,483 shares, respectively		(115,365	)		(105,368	)
Accumulated other comprehensive (loss) income								(2,145	)		6,057
Treasury stock, at cost, 9,279,839 and 9,279,839 shares								(115,365	)		(115,365	)
Retained earnings		225,561			217,266			212,955			219,782
Total Stockholders' Equity		462,499			448,799			427,448			442,344
Total Liabilities and Stockholders' Equity	$	2,166,390		$	1,939,670		$	2,014,794		$	2,089,379

See accompanying notes to unaudited condensed consolidated financial statements.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2020			2019			2020			2019			2021			2020
REVENUES:
Gross premiums written	$	290,432		$	254,840		$	519,534		$	465,188		$	274,181		$	229,102
Change in gross unearned premiums		(48,640	)		(24,882	)		(43,026	)		(6,640	)		(3,770	)		5,614
Gross premiums earned		241,792			229,958			476,508			458,548			270,411			234,716
Ceded premiums		(112,735	)		(115,875	)		(221,445	)		(234,774	)		(128,212	)		(108,710	)
Net premiums earned		129,057			114,083			255,063			223,774			142,199			126,006
Net investment income		3,296			3,830			6,966			7,502			1,293			3,670
Net realized and unrealized gains (losses)		(38	)		1,303			22			2,327
Net realized gains														80			59
Other revenue		3,697			3,627			6,668			7,501			3,671			2,971
Total revenues		136,012			122,843			268,719			241,104			147,243			132,706
EXPENSES:
Losses and loss adjustment expenses		78,869			74,299			147,050			136,438			97,909			68,181
Policy acquisition costs, net of ceding commission income of $11.3 and $21.7 ⁽¹⁾		30,237			27,087			60,284			53,107
General and administrative expenses, net of ceding commission income of $3.6 and $7.1⁽¹⁾		19,943			18,384			41,661			36,988
Policy acquisition costs, net of ceding commission income ⁽¹⁾														35,366			30,047
General and administrative expenses, net of ceding commission income ⁽²⁾														19,800			21,718
Total expenses		129,049			119,770			248,995			226,533			153,075			119,946
Operating income		6,963			3,073			19,724			14,571
Operating (loss) income														(5,832	)		12,760
Interest expense, net		1,721			1,984			3,688			4,101			1,878			1,966
Other non-operating loss, net		—			—			—			48
Income before income taxes		5,242			1,089			16,036			10,422
Provision for income taxes		1,110			368			4,284			2,737
Net income	$	4,132		$	721		$	11,752		$	7,685
(Loss) income before income taxes														(7,710	)		10,794
(Benefit) provision for income taxes														(2,562	)		3,174
Net (loss) income													$	(5,148	)	$	7,620
OTHER COMPREHENSIVE INCOME
Change in net unrealized gains on investments		14,823			7,068			16,850			15,104
Reclassification adjustment for net realized investment (gains) losses		38			59			(22	)		394
Income tax expense related to items of other comprehensive income		(3,440	)		(1,304	)		(3,895	)		(3,712	)
Total comprehensive income	$	15,553		$	6,544		$	24,685		$	19,471
Change in net unrealized (losses) gains on investments														(10,597	)		2,027
Reclassification adjustment for net realized investment gains														(80	)		(59	)
Income tax expense (benefit) related to items of other comprehensive income														2,475			(456	)
Total comprehensive (loss) income													$	(13,350	)	$	9,132
Weighted average shares outstanding
Basic		27,876,801			29,346,234			28,212,735			29,442,363			27,827,804			28,548,830
Diluted		27,913,696			29,352,796			28,231,273			29,447,668			27,827,804			28,549,012
Earnings per share
(Loss) earnings per share
Basic	$	0.15		$	0.02		$	0.42		$	0.26		$	(0.19	)	$	0.27
Diluted	$	0.15		$	0.02		$	0.42		$	0.26		$	(0.19	)	$	0.27

See accompanying notes to unaudited condensed consolidated financial statements.

Common Shares

Par Value

Additional Paid-In Capital

Retained
Earnings

Treasury Shares

Accumulated Other Comprehensive Income

Total
Stockholders'
Equity

Balance at January 1, 2020

28,650,918

$
3

$
329,568

$
217,266

$
(105,368
)

$
7,330

$
448,799

Cumulative effect of adoption accounting guidance for expected credit losses, net of tax at January 1, 2020

—

—

—

(34
)

—

—

(34
)
Balance at January 1, 2020 (as adjusted for change in accounting principle)

28,650,918

3

329,568

217,232

(105,368
)

7,330

448,765

Net unrealized change in investments, net of tax

—

—

—

—

—

1,512

1,512

Shares tendered for income taxes withholding

(17,500
)

—

(233
)

—

—

—

(233
)
Restricted stock vested

25,000

—

—

—

—

—

—

Stock-based compensation on restricted stock

—

—

1,345

—

—

—

1,345

Stock buy-back

(766,900
)

—

—

—

(7,986
)

—

(7,986
)
Cash dividends declared ($0.06 per common stock)

—

—

—

(1,726
)

—

—

(1,726
)
Net income

—

—

—

7,620

—

—

7,620

Balance at March 31, 2020

27,891,518

$
3

$
330,680

$
223,126

$
(113,354
)

$
8,842

$
449,297

Net unrealized change in investments, net of tax

—

—

—

—

—

11,421

11,421

Deferred tax adjustment for credit expected losses

—

—

—

(4
)

—

—

(4
)
Restricted stock vested

10,000

—

—

—

—

—

—

Stock-based compensation on restricted stock

—

—

1,357

—

—

—

1,357

Stock buy-back

(163,456
)

—

—

—

(2,011
)

—

(2,011
)
Cash dividends declared ($0.06 per common stock)

—

—

—

(1,693
)

—

—

(1,693
)
Net income

—

—

—

4,132

—

—

4,132

Balance at June 30, 2020

27,738,062

$
3

$
332,037

$
225,561

$
(115,365
)

$
20,263

$
462,499

	Common Shares			Par Value		Additional Paid-In Capital			Retained Earnings			Treasury Shares			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity
Balance at December 31, 2020		27,748,606		$	3	$	331,867		$	219,782		$	(115,365	)	$	6,057		$	442,344
Net unrealized change in investments, net of tax		—			—		—			—			—			(8,202	)		(8,202	)
Shares tendered for income taxes withholding		(12,500	)		—		(127	)		—			—			—			(127	)
Restricted stock vested		25,000			—		—			—			—			—			—
Issued restricted stock		143,817			—		—			—			—			—			—
Stock-based compensation on restricted stock		—			—		260			—			—			—			260
Cash dividends declared ($0.06 per common stock)		—			—		—			(1,679	)		—			—			(1,679	)
Net loss		—			—		—			(5,148	)		—			—			(5,148	)
Balance at March 31, 2021		27,904,923		$	3	$	332,000		$	212,955		$	(115,365	)	$	(2,145	)	$	427,448

	Common Shares			Par Value		Additional Paid-In Capital			Retained Earnings			Treasury Shares			Accumulated Other Comprehensive Income			Total Stockholders' Equity			Common Shares			Par Value		Additional Paid-In Capital			Retained Earnings			Treasury Shares			Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance at December 31, 2018		29,477,756		$	3	$	325,292		$	195,750		$	(89,185	)	$	(6,527	)	$	425,333
Balance at December 31, 2019																						28,650,918		$	3	$	329,568		$	217,266		$	(105,368	)	$	7,330	$	448,799
Cumulative effect of adoption accounting guidance for expected credit losses, net of tax at January 1, 2020																						—			—		—			(34	)		—			—		(34	)
Balance at January 1, 2020 (as adjusted for change in accounting principle)																						28,650,918			3		329,568			217,232			(105,368	)		7,330		448,765
Net unrealized change in investments, net of tax		—			—		—			—			—			5,963			5,963			—			—		—			—			—			1,512		1,512
Shares tendered for income taxes withholding		(8,000	)		—		(118	)		—			—			—			(118	)		(17,500	)		—		(233	)		—			—			—		(233	)
Restricted stock vested		25,000			—		—			—			—			—			—			25,000			—		—			—			—			—		—
Stock-based compensation on restricted stock		—			—		1,345			—			—			—			1,345			—			—		1,345			—			—			—		1,345
Convertible Option debt extinguishment, net of tax		—			—		(1,840	)		—			—			—			(1,840	)
Stock issued on convertible note conversion		285,201			—		4,210			—			—			—			4,210
Stock buy-back		(347,740	)		—		—			—			(5,011	)		—			(5,011	)
Tax rate change		—			—		48			—			—			—			48
Cash dividends declared ($0.06 per common stock)		—			—		—			(1,807	)		—			—			(1,807	)
Net income		—			—		—			6,964			—			—			6,964
Balance at March 31, 2019		29,432,217		$	3	$	328,937		$	200,907		$	(94,196	)	$	(564	)	$	435,087
Net unrealized change in investments, net of tax		—			—		—			—			—			5,823			5,823
Stock-based compensation on restricted stock		—			—		1,344			—			—			—			1,344
Stock buy-back		(157,640	)		—		—			—			(2,333	)		—			(2,333	)		(766,900	)		—		—			—			(7,986	)		—		(7,986	)
Cash dividends declared ($0.06 per common stock)		—			—		—			(1,792	)		—			—			(1,792	)		—			—		—			(1,726	)		—			—		(1,726	)
Net income		—			—		—			721			—			—			721			—			—		—			7,620			—			—		7,620
Balance at June 30, 2019		29,274,577		$	3	$	330,281		$	199,836		$	(96,529	)	$	5,259		$	438,850
Balance at March 31, 2020																						27,891,518		$	3	$	330,680		$	223,126		$	(113,354	)	$	8,842	$	449,297

See accompanying notes to unaudited condensed consolidated financial statements.

	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2020			2019			2021			2020
OPERATING ACTIVITIES
Net income	$	11,752		$	7,685
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net (loss) income							$	(5,148	)	$	7,620
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Stock-based compensation		2,702			2,689			260			1,345
Bond amortization and accretion		2,761			2,514			917			1,359
Noncash lease expense		47			—
Amortization of original issuance discount on debt		701			730			455			349
Depreciation and amortization		4,039			5,492			2,020			2,024
Net unrealized investment gains		—			(2,721	)
Net realized (gains) losses		(22	)		394
Net (gain)/loss from repurchase of debt		—			(48	)
Allowance for bad debt								76			—
Net realized investment gains								(80	)		(59	)
Deferred income taxes		4,438			4,525			(4,893	)		(4,452	)
Changes in operating assets and liabilities:
Accrued investment income		(456	)		(81	)		(135	)		115
Premiums receivable, net		(2,503	)		(45	)		(6,941	)		771
Prepaid reinsurance premiums		(137,154	)		(98,472	)		73,595			78,073
Reinsurance recoverable on paid and unpaid claims		54,166			(12,476	)		28,761			53,880
Income taxes receivable		(1,480	)		17,855			2,328			3,171
Deferred policy acquisition costs, net		(4,379	)		(1,009	)		389			2,316
Right of use leased asset		507			—			245			110
Other assets		(11,248	)		(8,811	)		(1,790	)		(8,739	)
Unpaid losses and loss adjustment expenses		7,185			(1,947	)		(21,459	)		(6,356	)
Unearned premiums		43,101			6,805			3,793			(5,593	)
Reinsurance payable		140,255			157,859			(17,712	)		(54,391	)
Accrued interest		998			128			(666	)		(1,172	)
Accrued compensation		5,903			(4,468	)		(1,213	)		2,890
Advance premiums		14,366			4,463			3,229			12,890
Income taxes payable		(4,651	)		(14,396	)		—			8,878
Operating lease liabilities								(271	)		(264	)
Other liabilities		769			9,751			(16,533	)		(9,068	)
Net cash provided by operating activities		131,797			76,415			39,227			85,697
INVESTING ACTIVITIES
Fixed maturity securities sales, maturities and paydowns		88,150			61,290			40,470			58,462
Fixed maturity securities purchases		(185,082	)		(95,336	)		(113,890	)		(83,891	)
Equity securities sales		26			26,529			177			26
Equity securities purchases		(6	)		(4,833	)		—			(6	)
Limited partnership interest		—			(20,006	)
Proceeds from sale of assets		13			71
Cost of property and equipment acquired		(116	)		(4,487	)		(421	)		(76	)
Net cash used in investing activities		(97,015	)		(36,772	)		(73,664	)		(25,485	)
FINANCING ACTIVITIES
Repayment of term note		(3,750	)		(11,875	)		(1,875	)		(3,750	)
Mortgage loan payments		(143	)		(138	)		(77	)		(72	)
Repurchase of convertible notes		—			(2,869	)
Purchase of treasury stock		(9,997	)		(7,344	)		—			(7,986	)
Tax withholdings on share-based compensation awards		(233	)		(118	)		(127	)		(233	)
Dividends paid		(3,476	)		(3,396	)		(1,670	)		(1,750	)
Net cash used in financing activities		(17,599	)		(25,740	)		(3,749	)		(13,791	)
Increase in cash, cash equivalents, and restricted cash		17,183			13,903
(Decrease) increase in cash, cash equivalents, and restricted cash								(38,186	)		46,421
Cash, cash equivalents and restricted cash, beginning of period		283,008			262,370			446,383			283,008
Cash, cash equivalents and restricted cash, end of period	$	300,191		$	276,273		$	408,197		$	329,429
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	1,735		$	13,728		$	—		$	—
Interest paid	$	3,213		$	3,529		$	1,808		$	2,418
Issuance of shares on conversion of convertible notes	$	—		$	4,210

Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets.


	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	(In thousands)				(In thousands)
Cash and cash equivalents	$	288,342	$	268,351	$	402,770	$	440,956
Restricted cash		11,849		14,657		5,427		5,427
Total	$	300,191	$	283,008	$	408,197	$	446,383

Restricted cash primarily represents funds held to meet our contractual obligations related to the catastrophe bonds issued by Citrus Re and by the Company’s insurance subsidiaries in certain states in which such subsidiaries conduct business to meet regulatory requirements.

See accompanying notes to unaudited condensed consolidated financial statements.

The condensed consolidated financial statements include the accounts of Heritage Insurance Holdings, Inc. (together with its subsidiaries, the “Company” ~~“we”, “us” or “our”~~). These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain financial information that is normally included in annual consolidated financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. In the opinion of the Company’s management, all material intercompany transactions and balances have been eliminated and all adjustments consisting of normal recurring accruals which are necessary for a fair statement of the financial condition and results of operations for the interim periods have been reflected. The accompanying interim condensed consolidated financial statements and related footnotes should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”).

The accounting policies of the Company are set forth in Note 1 to condensed consolidated financial statements contained in the Company’s ~~2019~~2020 Form 10-K.

Certain prior year amounts have been reclassified to conform to the current year presentation.

~~In 2016,~~The Company has documented the summary of its significant accounting policies in its Notes to the Audited Consolidated Financial ~~Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”)~~ ~~Financial Instruments – Credit LossesASU No. 2016-13,~~ ~~Measurement of Credit Losses~~Statements annual report on ~~Financial Instruments, which introduces a new credit reserving model known as the Current Expected Credit Loss (“CECL”) model. Adoption of CECL required the evaluation to establish an allowance~~Form 10-K for the year ended December 31, 2020, filed on March 9, 2021. There have been no material changes to the Company’s ~~reinsurance recoverables, premium receivables and for our available-for-sale debt securities investments. The model requires consideration~~accounting policies since the filing of ~~a broader range of reasonable and supportable information and requires an entity~~that report.

No other new accounting pronouncements issued but not yet effective have had, or are expected to ~~estimate expected credit losses over the lifetime of the asset.~~ We adopted the standard on January 1, 2020, and based on the composition of our reinsurance recoverables, investment portfolio and other financial assets, current economic conditions and historical credit loss activity, the adoption of this standard did not have, a material impact on our ~~condensed consolidated~~results of operations or financial ~~statements and related disclosures.~~ While the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements, it required changes to the Company’s process to establish and estimate expected credit losses on available-for-sale investments, reinsurance recoverables and premium receivables.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement~~ (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements. Other amendments in the update did not materially impact the Company. The standard became effective for the Company on January 1, 2020 with no impact on our condensed consolidated financial statements.

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software~~ (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard clarifies the accounting for implementation costs in cloud computing arrangements. The standard was effective on January 1, 2020 with no impact on our condensed consolidated financial statements.

~~In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):~~ ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, which provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this ASU on the condensed consolidated financial statements.

For information regarding other accounting standards that the Company has not yet adopted, refer to our 2019 Form 10-K, filed on March 10, 2020, the section of Note 1 of the notes to the consolidated financial statements entitled “Accounting Pronouncement Not Yet Adopted”.position.

The ~~following table summarizes the~~ amortized cost, ~~and fair value of securities available-for-sale at June 30, 2020 and the corresponding amounts of~~ gross unrealized gains and losses, ~~recognized in accumulated other comprehensive income:~~and fair value of the Company’s debt securities available-for-sale are as follows for the periods:

June 30, 2020	Cost or Adjusted / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021									Cost or Adjusted / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities Available-for-sale	(In thousands)								(In thousands)
U.S. government and agency securities ⁽¹⁾	$	61,801	$	1,680	$	2	$	63,479	$	43,089	$	433	$	3	$	43,519
States, municipalities and political subdivisions		102,195		5,176		4		107,367		97,804		312		1,191		96,925
Special revenue		265,565		9,226		49		274,742		291,277		1,779		2,970		290,086
Hybrid securities		99		—		4		95		99		1		—		100
Industrial and miscellaneous		242,301		10,301		8		252,594		193,504		1,439		2,650		192,293
Total	$	671,961	$	26,383	$	67	$	698,277	$	625,773	$	3,964	$	6,814	$	622,923

The following table presents net realized gains (losses) on the Company’s debt securities available-for-sale for the three months ended March 31, 2021 and 2020, respectively:

The table below summarizes the Company’s fixed maturity securities at March 31, 2021 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

The following table summarizes the Company’s net investment income by major investment category for the three months ended March 31, 2021 and 2020, respectively:

The following tables present, for all debt securities available-for-sale in an unrealized loss position (including securities pledged), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position at March 31, 2021 and December 31, 2020, respectively:

	Less Than Twelve Months						Twelve Months or More
March 31, 2021	Number of Securities		Gross Unrealized Losses		Fair Value		Number of Securities		Gross Unrealized Losses		Fair Value
Debt Securities Available-for-sale
U.S. government and agency securities		4	$	3	$	361	$	—	$	—	$	—
States, municipalities and political subdivisions		66		1,191		55,427		—		—		—
Special revenue		159		2,966		127,866		10		4		101
Industrial and miscellaneous		131		2,650		102,756		—		—		—
Total fixed maturity securities		360	$	6,810	$	286,410		10	$	4	$	101

The Company’s unrealized losses on corporate bonds have not been recognized because the bonds are of high credit quality with investment grade ratings of AA- or higher, the Company does not intend to sell and it is unlikely the Company will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is deemed due to changes in interest rates and other market conditions. The bond issuers continue to make timely principal and interest payments on the bonds. ~~After taking into account these and other factors previously described,~~Further, we ~~believe these unrealized losses generally were caused by a decrease in market interest rates since the time the securities were purchased.~~

The following table summarizes the amortized cost and fair value of securities available-for-sale at December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

~~Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and six months ended, June 30, 2020 and 2019 are as follows:~~

The Company reviews credit losses and the valuation allowance for expected credit losses each quarter. When all or a portion of a debt security is identified as uncollectible and written off, the valuation allowance for expected credit losses is reduced by the same amount. In general, a security is considered uncollectible no later than when all efforts to collect contractual cash flows have been exhausted. The Company considers the following considerations when deeming a security uncollectible:

~~For the three and six months ended June 30, 2020 the Company sold 0 equity securities nor did it hold any marketable equity securities as of that date.~~

For the three months ended June 30, 2019, the Company received proceeds from the sale of marketable securities of approximately $21.9 million and recorded a gross gain of $1.3 million and a gross loss of $1.1 million from the sale of these securities. For the six months ended June 30, 2019, the Company received proceeds from the sale of its holdings in marketable equity securities of approximately $23.8 million and recorded a gross gain of $2.7 million and a gross loss of $1.4 million from the sale of these securities. As of June 30, 2019, the Company had unrealized holding gains of $292,000 recognized on nonmarketable other investments still held at reporting date.

The table below summarizes the Company’s fixed maturity securities at June 30, 2020 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

~~The following table summarizes the Company’s net investment income by major investment category for the three and six months ended June 30, 2020 and 2019, respectively:~~

The following tables summarizes debt securities available-for-sale in an unrealized loss position at June 30, 2020, aggregated by major security category and length of time in a continued unrealized loss position (in thousands):

Less Than Twelve Months

Twelve Months or More

June 30, 2020

Number of
Securities

Gross
Unrealized
Losses

Fair Value

Number of
Securities

Gross
Unrealized
Losses

Fair Value

Debt Securities Available-for-sale

U.S. government and agency securities

2

$
1

$
79

1

$
1

$
7

States, municipalities and political subdivisions

3

4

2,471

—

—

—

Special revenue

22

45

14,227

11

4

196

Hybrid securities

1

4

95

—

—

—

Industrial and miscellaneous

15

8

11,122

—

—

—

Total fixed maturity securities

43

$
62

$
27,994

12

$
5

$
203

The Company evaluates expected credit losses for available-for-sale securities (“AFS”) when fair value is below amortized cost. AFS securities are evaluated for potential credit loss on an individual security level but the evaluation may use assumptions consistent with expectations of credit losses for a group of similar securities. If the Company has the intent to sell or will be required to sell the security before recovery, the entire impairment loss will be recorded through income to net realized gains and losses. If the Company does not have the intent to sell or will not be required to sell the security before recovery, an allowance for credit losses is established and the portion of loss that relates to credit losses is recorded in income to net realized and unrealized gains (losses) and the portion of the loss that relates to the non-credit loss is recorded in Other comprehensive income. At June 30, 2020, the Company did not intend to sell the securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that it will be required to sell these securities before recovery of their amortized cost basis. Further, the Company did not believe itwe had a credit event and therefore did 0t record any credit allowance for securities that were in an unrealized loss position at ~~June 30, 2020.~~

~~The following tables summarizes debt securities available-for-sale~~March 31, 2021. We attribute the price decline and subsequent increase in anour unrealized ~~loss position at December 31, 2019, aggregated by major security category and length~~losses to interest rates rather than any sort of ~~time in a continued unrealized loss position (in thousands):~~fundamental deterioration.

													Less Than Twelve Months						Twelve Months or More
	Less Than Twelve Months						Twelve Months or More
December 31, 2019	Number of Securities		Gross Unrealized Losses		Fair Value		Number of Securities		Gross Unrealized Losses		Fair Value
December 31, 2020													Number of Securities		Gross Unrealized Losses		Fair Value		Number of Securities		Gross Unrealized Losses		Fair Value
Debt Securities Available-for-sale
U.S. government and agency securities		9	$	10	$	1,476		23	$	18	$	4,288		3	$	1	$	73		1	$	—	$	7
States, municipalities and political subdivisions		6		38		7,613		3		3		1,440		6		4		5,158		—		—		—
Special revenue		62		145		24,862		95		109		13,159		27		24		16,439		9		3		73
Industrial and miscellaneous		25		13		12,601		16		8		3,202		26		39		16,025		—		—		—
Total fixed maturity securities		102	$	206	$	46,552		137	$	138	$	22,089		62	$	68	$	37,695		10	$	3	$	80

~~Classified in other~~Non-Consolidating Variable Interest Entities (“VIEs”)

The Company makes passive investments ~~the Company has interest~~ in limited partnerships (“LPs”), ~~Partnership~~limited liability companies (“LLCs”), and a Real Estate Investment ~~Trust (REITs) and Limited Liability Companies~~Trusts (“~~LLCs”~~REITs”) ~~totaling $6.4 million at June 30, 2020 and December 31, 2019. The Company is not the primary beneficiary and does not consolidate these investments.~~. These investments are ~~carried at net asset value, which approximates fair value~~accounted for using the equity method, with ~~changes in fair value recorded~~income reported in net realized and unrealized gains ~~(losses) on~~and losses or the measurement alternative method, which is reported at cost less impairment (if any), plus or minus changes from observable price changes.

These investments are generally of a passive nature and the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. Investments in these entities are by nature less liquid and may involve more risk than other investments. The Company’s ~~consolidated statement of operations and other comprehensive income. Realized gains (losses) on sales of~~maximum exposure to loss with respect to these investments ~~are~~is limited to the investments carrying amounts reported ~~within net realized and unrealized gains (losses) on~~as “other investments” in the Company’s condensed consolidated ~~statement~~balance sheet.

In 2020, the Company entered into agreements for preferred units in the amounts of ~~operations~~$7.5 million and ~~other comprehensive income~~.$9.9 million. The preferred units are measured at amortized cost under the guidance of ASC 320 and are subject to a fixed principal and interest payment schedule with maturity dates of February 1, 2023 and April 1, 2021, respectively. For the three months ended March 31, 2021, the Company received $348,000 in interest payments from the preferred units. There is no active market for these investments.

The following table summarizes the carrying value and maximum loss exposure of the Company’s non-consolidated VIEs at March 31, 2021 and 2020:

No agreements exist requiring the Company to provide additional funding to any of the non-consolidated VIEs in excess of the Company’s initial investment.

Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:

The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs.

We did not hold any Level 3 assets or liabilities as of ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

The following table present information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy.

The table below present the balances of our invested assets measured at fair value on a recurring basis:

The carrying value of premium receivables and accounts payable, accrued expense, revolving loans and borrowings under our senior secured credit facility approximate their fair value. The rate at which revolving loans and borrowings under our senior secured credit facility bear interest resets periodically at market interest rates. All of these items are considered Level 1 assets and liabilities.

The Company has interests in LPs, REITs and LLCs. This investment categorization has the potential for higher returns but also the potential for higher degrees of risk, including less than stable rates of returns and may provide less liquidity. These investments are carried at net asset value, as reported by the managers of the funds, and are excluded from the fair value hierarchy.

~~The table below presents the balances of our invested assets measured at fair value on a recurring basis:~~

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill which are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 unobservable inputs. For the quarters ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ these non-recurring fair ~~value~~values inputs consisted of brand, agent relationships, renewal rights, customer relations, trade names, non-compete and goodwill. To evaluate such assets for a potential impairment, we determine the fair value of the goodwill and intangible assets using a combination of a discounted cash flow approach and market approaches, which contain significant unobservable inputs and therefore are considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate.

There were 0 non-recurring fair value adjustments to intangible assets and goodwill during the first ~~two~~ quarters of ~~2020~~2021 and ~~2019.~~2020. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.

The following table is a summary of other comprehensive (loss) income ~~(loss)~~ and discloses the tax impact of each component of other comprehensive (loss) income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:

For the Three Months Ended June 30,

2020

2019

Pre-tax

Tax

After-tax

Pre-tax

Tax

After-tax

(in thousands)

Other comprehensive income

Change in unrealized losses on investments, net

$
14,823

$
(3,431
)

$
11,392

$
7,068

$
(1,293
)

$
5,775

Reclassification adjustment of realized losses (gains) included in net income

38

(9
)

29

59

(11
)

48

Effect on other comprehensive income

$
14,861

$
(3,440
)

$
11,421

$
7,127

$
(1,304
)

$
5,823

	For the Three Months Ended March 31,
	2021								2020
	Pre-tax			Tax		After-tax			Pre-tax			Tax			After-tax
	(in thousands)
Other comprehensive (loss) income
Change in unrealized (losses) gains on investments, net	$	(10,597	)	$	2,457	$	(8,140	)	$	2,027		$	(469	)	$	1,558
Reclassification adjustment of realized gains included in net income		(80	)		18		(62	)		(59	)		13			(46	)
Effect on other comprehensive (loss) income	$	(10,677	)	$	2,475	$	(8,202	)	$	1,968		$	(456	)	$	1,512

The Company has entered into operating and financing leases primarily for real estate and vehicles. The Company will determine whether an arrangement is a lease at inception of the agreement. The operating leases have terms of one to ten years, and often include one or more options to renew. These renewal terms can extend the lease term from two to ten years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. The Company considers these options in determining the lease term used in establishing our right-of-use assets and lease obligations. ~~The Company~~Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Because the rate implicit in each operating lease is not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leases.

Components of ~~the Company’s~~our lease costs for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019 are~~were as follows (in thousands):

	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019		Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Amortization of ROU assets - Finance leases	$	43	$	38	$	37	$	22
Interest on lease liabilities - Finance leases		11		14		9		6
Variable lease cost (cost excluded from lease payments)		256		221		121		130
Operating lease cost (cost resulting from lease payments)		685		588		340		343
Total lease cost	$	995	$	861	$	507	$	501

Supplemental cash flow information and non-cash activity related to our operating and financing leases ~~as of June 30, 2020 and 2019 are~~were as follows (in thousands):

	June 30, 2020		June 30, 2019		Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Finance lease - Operating cash flows	$	11	$	16	$	9	$	6
Finance lease - Financing cash flows	$	36	$	47	$	30	$	18

Operating lease - Operating cash flows (fixed payments)	$	720	$	341	$	367	$	368
Operating lease - Operating cash flows (liability reduction)	$	507	$	276	$	271	$	264

Supplemental balance sheet information related to our operating and financing leases as of ~~June 30, 2020 are~~March 31, 2021 were as follows (in thousands):

		Balance Sheet Classification	June 30, 2020				Balance Sheet Classification	March 31, 2021
Right-of-use assets - operating		Other assets	$	6,377			Other assets	$	5,747
Right-of-use assets - finance		Other assets	$	259			Other assets	$	469
Lease Liability ⁽¹⁾ - operating		Accounts payable and other liabilities	$	(8,083	)
Lease Liability - finance		Accounts payable and other liabilities	$	(288	)
Lease liability - operating ⁽¹⁾							Accounts payable and other liabilities	$	7,371
Lease liability - finance							Accounts payable and other liabilities	$	515

(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.	(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.					(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.

Weighted-average remaining lease term and discount rate for our operating and financing leases ~~as of June 30, 2020 are~~were as follows:

Maturities of lease liabilities by fiscal year for our operating and financing leases ~~as of June 30, 2020 are~~were as follows (in thousands):

	June 30, 2020			March 31, 2021
2020 remaining	$	765
2021		1,548
2021 remaining				$	1,242
2022		1,566			1,660
2023		1,487			1,550
2024		1,112			1,183
2025					885
Thereafter		3,694			2,906
Total lease payments		10,172			9,426
Less: imputed interest		(1,801	)		(1,540	)
Present value of lease liabilities	$	8,371		$	7,886

Property and equipment, net consisted of the following at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	(In thousands)						(In thousands)
Land	$	2,582		$	2,582		$	2,582		$	2,582
Building		11,390			11,390			10,141			10,141
Computer hardware and software		5,725			5,712			6,680			6,358
Office furniture and equipment		2,007			2,007			2,034			2,027
Tenant and leasehold improvements		8,133			8,105			8,225			8,133
Vehicle fleet		850			789			850			850
Total, at cost		30,687			30,585			30,512			30,091
Less: accumulated depreciation and amortization		(10,689	)		(9,832	)		(11,838	)		(11,406	)
Property and equipment, net	$	19,998		$	20,753		$	18,674		$	18,685

Depreciation and amortization expense for property and equipment was ~~$425,000~~$432,300 and ~~$1.0 million~~$432,000 for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively and $857,000 and $1.6 million for the six months ended June 30, 2020 and 2019,~~ respectively. The Company’s real estate consists of 15 acres of land and 5 buildings with a gross area of ~~229,000~~191,200 square feet and a parking garage. Approximately 75% of the building in Clearwater is leased to unaffiliated tenants. Following our planned relocation to our new Tampa headquarters, which is expected to occur in the second half of 2021, we intend to sublease the remaining available space at the Clearwater location to unaffiliated tenants.

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 goodwill was $152.5 million and intangible assets were ~~$65.5~~$60.7 million and ~~$68.6~~$62.3 million, respectively. The Company has determined the useful life of the other intangible assets to range between 2.5-15 years. The Company has recorded $1.3 million relating to insurance licenses and has classified the licenses as an indefinite lived intangible ~~asset~~ which is subject to annual impairment testing concurrent with goodwill.

	Goodwill		Goodwill
	(in thousands)		(in thousands)
Balance as of December 31, 2019	$	152,459
Balance as of December 31, 2020			$	152,459
Goodwill acquired	—		—
Impairment	—		—
Balance as of June 30, 2020	$	152,459
Balance as of March 31, 2021			$	152,459

Our annual goodwill impairment analysis was performed as of October 1, 2019. Management had determined that an impairment review was appropriate for the first quarter of 2020 given the potential impact of the COVID-19 pandemic. We qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived assets were impaired as of March 31, 2020. For the second quarter of 2020 there had been no change in the Company’s qualitative assessment results for its goodwill assessment, and based on that assessment management determined that our goodwill and indefinite-lived assets are not impaired for the period ended June 30, 2020.

Our intangible assets consist of brand, agent relationships, renewal rights, customer relations, trade names, non-competes and insurance licenses. ~~Finite-lived intangibles assets are amortized over their useful lives from 2.5 to fifteen years.~~

Amortization expense of our intangible assets was $1.6 million and ~~$2.1~~$1.6 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $3.2 million and $4.2 million for the six months ended June 30, 2020 and 2019,~~ respectively. NaN impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three months ended ~~June 30, 2020~~March 31, 2021 or ~~2019.~~2020.

Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year	Amount⁽¹⁾		Amount⁽¹⁾
2020 - remaining	$	3,183
2021	$	6,351
2021 - remaining			$	4,763
2022	$	6,351	$	6,351
2023	$	6,351	$	6,351
2024	$	6,351	$	6,351
2025			$	6,315
Thereafter	$	35,559	$	29,243
Total	$	64,146	$	59,374

~~The following table summarizes the Company’s other assets for the periods indicated:~~

Recorded in other amounts receivable are 2 Secured Promissory Notes (“Notes”) that a single debtor made in January 2020 in favor of the Company, in the amount of $3.75 million each. The Notes mature on February 1, 2023 and bear an 8% interest rate per annum, with principal payments in equal installments of $300,000 due on the first day of each month commencing on June 1, 2021. Interest payments commenced on March 1, 2020. A Security Agreement that collateralizes the Notes was entered into at the time of issuance. The debtor has the right to prepay the note in part or whole after the 27^th ~~month of current payments of principal and interest without penalties or fees.~~

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods indicated.

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Basic earnings per share:

Net income attributable to common stockholders (000's)

$
4,132

$
721

$
11,752

$
7,685

Weighted average shares outstanding

27,876,801

29,346,234

28,212,735

29,442,363

Basic earnings per share:

$
0.15

$
0.02

$
0.42

$
0.26

Diluted earnings per share:

Net income attributable to common stockholders (000's)

$
4,132

$
721

$
11,752

$
7,685

Weighted average shares outstanding

27,876,801

29,346,234

28,212,735

29,442,363

Weighted average dilutive shares

36,895

6,562

18,539

5,305

Total weighted average dilutive shares

27,913,696

29,352,796

28,231,273

29,447,668

Diluted earnings per share:

$
0.15

$
0.02

$
0.42

$
0.26

	Three Months Ended March 31,
	2021			2020
Basic (loss) earnings per share:
Net (loss) income attributable to common stockholders (000's)	$	(5,148	)	$	7,620
Weighted average shares outstanding		27,827,804			28,548,830
Basic (loss) earnings per share:	$	(0.19	)	$	0.27

Diluted (loss) earnings per share:
Net (loss) income attributable to common stockholders (000's)	$	(5,148	)	$	7,620
Weighted average shares outstanding		27,827,804			28,548,830
Weighted average dilutive shares		—			182
Total weighted average dilutive shares		27,827,804			28,549,012
Diluted (loss) earnings per share:	$	(0.19	)	$	0.27

Due to the net loss for the three months ended March 31, 2021, the number of dilutive shares is the same as the number of basic shares due to the antidilutive impact of the convertible debt and restricted stock under the if-converted method. The convertible notes were excluded from the computations because the conversion price on these notes was greater than the average market price of our common shares during each of the respective periods, and therefore, would be anti-dilutive to earnings per share under the treasury method. The Company had 1,629,503 and 1,889,770 antidilutive shares as of March 31, 2021 and 2020, respectively.

The Company defers reinsurance ceding commission income, which is amortized over the effective period of the related insurance policies. For the ~~quarter~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company allocated ceding commission income of $11.3 million and ~~$12.1~~$10.4 million to policy acquisition costs and ~~$3.6~~$3.7 million and $4.0 million to general and administrative expense, respectively. For the six months ended June 30, 2020 and 2019, the Company allocated ceding commission income of $21.7 million and $25.0 million to policy acquisition costs and $7.1 million and $8.3$3.5 million to general and administrative expense, respectively.

The table below depicts the activity with regard to deferred reinsurance ceding commission during the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~

	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2020			2019			2020			2019				2021			2020
	(In thousands)												(In thousands)
Beginning balance of deferred ceding commission income	$	34,380		$	40,474		$	37,464		$	44,996			$	39,995		$	37,464
Ceding commission deferred		15,074			10,389			25,919			23,036				13,029			10,845
Less: ceding commission earned		(14,892	)		(16,158	)		(28,821	)		(33,327	)			(15,033	)		(13,929	)
Ending balance of deferred ceding commission income	$	34,562		$	34,705		$	34,562		$	34,705			$	37,991		$	34,380

The Company incurs incremental policy acquisition costs that vary with, and are directly related to, the production of new business. Policy acquisition costs consist of the following four items: (i) commissions paid to outside agents at the time of policy issuance; (ii) policy administration fees paid to a third-party administrator at the time of policy issuance; (iii) premium taxes; and (iv) inspection fees. The Company capitalizes incremental policy acquisition costs that are directly related to the successful efforts of acquiring new or renewed insurance contracts to the extent recoverable, then the Company amortizes those costs over the contract period of the related policy. The Company defers ~~the incurred incremental policy acquisition~~certain costs ~~commonly referred to as~~in connection with written policies, called deferred policy acquisition costs (“DPAC”), which are amortized over the effective period of the related insurance policies.

The Company anticipates that its DPAC ~~costs~~ will be fully recoverable in the near term. The table below depicts the activity with regard to DPAC ~~during~~for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2020			2019			2020			2019				2021			2020
	(In thousands)												(In thousands)
Beginning Balance	$	74,895		$	69,883		$	77,211		$	73,055			$	89,265		$	77,211
Policy acquisition costs deferred		48,173			35,271			86,304			73,901				46,675			38,131
Amortization		(41,478	)		(31,090	)		(81,925	)		(72,892	)			(47,064	)		(40,447	)
Ending Balance	$	81,590		$	74,064		$	81,590		$	74,064			$	88,876		$	74,895

For the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recorded ~~$1.1~~an income tax benefit of $(2.6) million and ~~$0.4 million, respectively, of~~an income tax expense of $3.2 million, respectively, which corresponds to effective tax rates of ~~21.2%~~33.2% and 33.8%, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded $4.3 million and $2.7 million, respectively, of income tax expense which corresponds to effective tax rates of 26.7% and 26.3%29.4%, respectively. Effective tax rates are dependent upon components of pre-tax earnings and the related tax effects. The effective tax ~~rates~~rate for ~~calendar years 2020 and 2019 were~~each three month period was affected by various permanent tax differences, predominately disallowed executive compensation deductions which were further limited in 2018 and future years upon the enactment of H.R.1, commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). Additionally, the state effective income tax rate ~~fluctuated~~can also fluctuate as a result of changes in the geographic dispersion of our ~~business and a state income tax refund received in the second quarter.~~business. The effective tax rate can fluctuate throughout the year as estimates used in the tax provision for each quarter are updated as more information becomes available throughout the year.

The table below summarizes the significant components of our net deferred tax ~~liability for the periods indicated:~~liability:


	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Deferred tax assets:	(In thousands)						(In thousands)
Unearned premiums	$	8,274		$	12,585		$	19,271		$	15,303
Unearned commission		8,000			8,671			8,807			9,272
Net operating loss								1,484			1,885
Tax-related discount on loss reserve		2,668			2,716			3,426			3,322
Stock-based compensation		527			297			114			113
Accrued expenses		1,987			757			1,110			982
Leases		334			331			379			394
Unrealized losses								661			—
Other		1,908			1,890			358			343
Total deferred tax asset		23,698			27,247			35,610			31,614
Deferred tax liabilities:
Deferred acquisition costs		18,885			17,871			20,604			20,694
Prepaid expenses		268			153			202			236
Unrealized gains		6,090			2,195			—			1,814
Property and equipment		1,176			1,029			1,605			1,669
Note discount		404			478			286			326
Basis in purchased investments		76			100			48			53
Basis in purchased intangibles		16,286			16,977			15,346			15,693
Internal revenue code 481(a)-Accounting method change								7,505			8,577
Other		1,470			1,067			1,123			1,029
Total deferred tax liabilities		44,655			39,870			46,719			50,091
Net deferred tax liability	$	(20,957	)	$	(12,623	)	$	(11,109	)	$	(18,477	)

The statute of limitations related to our federal and state income tax returns remains open from our filings for 2018 through 2020. In April 2019, the Company was notified by the tax authority that the federal income tax returns for the years 2015, 2016 and 2017 would be examined. In August 2020, the Company received a notice from the tax authority for the examined tax years, reporting that the returns were accepted as final. No further action will be ~~examined. The Company does not believe the examination results will have an adverse impact on the condensed consolidated financial statements.~~required and no other tax years are under examination.

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had 0 significant uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we are deferring to future periods. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity. We will continue to monitor and assess the impact the CARES Act and similar legislation may have on our business and financial results.

The Company’s reinsurance program is designed, utilizing the Company’s risk management methodology, to address its exposure to catastrophes or large non-catastrophic losses. The Company’s program provides reinsurance protection for catastrophes including hurricanes, tropical storms, tornadoes and winter storms. The Company’s reinsurance agreements are part of its catastrophe management strategy, which is intended to provide its stockholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings, while providing protection to the Company’s policyholders.

In order to limit ~~our~~the Company’s potential exposure to individual risks and catastrophic events, we purchase significant reinsurance from third party reinsurers. Purchasing reinsurance is an important part of our risk strategy, and premiums ceded to reinsurers is one of our largest costs. The Company has strong relationships with reinsurers, which it attributes to its management’s industry experience, disciplined underwriting, and claims management capabilities. For each of the twelve months beginning June 1, 2019 and 2020, the Company purchased reinsurance from the following sources: (i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) for Florida policies only, (ii) private reinsurers, all of which were rated “A-” or higher by A.M. Best Company, Inc. (“A.M. Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) the Company’s wholly-owned reinsurance ~~may be on an~~subsidiary, Osprey Re Ltd. (“Osprey”). In addition to purchasing excess of loss orcatastrophe reinsurance, the Company also purchased quota share, ~~basis. We also purchase reinsurance for~~property per risk and facultative reinsurance. The Company’s quota share program limits its exposure on catastrophe and non-catastrophe losses onand provides ceding commission income. The Company’s per

risk programs limit its net exposure in the event of a ~~quota share,~~severe non-catastrophe loss impacting a single location or risk. The Company also utilizes facultative reinsurance to supplement its per risk ~~or facultative basis.~~ reinsurance program where the Company capacity needs dictate.

Purchasing a sufficient amount of reinsurance to cover catastrophic losses from single or multiple events or significant non-catastrophe losses is an important part of our risk ~~strategy, and premiums ceded to reinsurers is one of our largest costs.~~strategy. Reinsurance involves transferring, or “ceding”, a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.

~~Our~~The Company’s reinsurance agreements are prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements. ~~We amortize our~~The Company generally amortizes its catastrophe reinsurance premiums ratably over the 12-month contract period, which ~~generally begins on~~is June 1 ~~on a straight-line basis. Our~~through May 31. Its quota share reinsurance is amortized over the 12-month contract period and ~~is currently~~may be purchased on a calendar or fiscal year basis.

In the event that ~~we incur~~the Company incurs losses and loss adjustment expenses recoverable under ~~our~~its reinsurance program, ~~we record~~the Company records amounts recoverable from ~~our~~its reinsurers on paid losses plus an estimate of amounts recoverable on unpaid losses. The estimate of amounts recoverable on unpaid losses is a function of ~~our~~its liability for unpaid losses associated with the reinsured policies; therefore, the amount changes in conjunction with any changes to ~~our~~its estimate of unpaid losses. As a result, a reasonable possibility exists that an estimated recovery may change significantly in the near term from the amounts included in ~~our~~the Company’s condensed consolidated financial statements.

~~Our~~The Company’s insurance regulators ~~and rating agency~~ require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event. ~~Our 2020-2021~~The Company’s reinsurance program provides reinsurance in excess of ~~our~~its state regulator ~~and rating agency requirements.~~requirements, which are based on the probable maximum loss that it would incur from an individual catastrophic event estimated to occur once in every 100 years based on its portfolio of insured risks. The nature, severity and location of the event giving rise to such a probable maximum loss differs for each insurer depending on the insurer’s portfolio of insured risks, including, among other things, the geographic concentration of insured value within such portfolio. As a result, a particular catastrophic event could be a one-in-100-year loss event for one insurance company while having a greater or lesser probability of occurrence for another insurance company. WeThe Company also ~~purchase~~purchases reinsurance coverage to protect against the potential for multiple catastrophic events occurring in the same year. ~~We share~~The Company shares portions of ~~our~~its reinsurance program coverage among ~~our~~its insurance company affiliates.

~~Catastrophe Excess~~For a detailed discussion of ~~Loss~~our 2020-2021 Reinsurance

Effective June 1, 2020, we entered into catastrophe excess of loss reinsurance agreements covering Heritage Property & Casualty Insurance Company (“Heritage P&C”), Zephyr Insurance Company (“Zephyr”) Program please Refer to Part II, Item 8, “Financial Statements and Narragansett Bay Insurance Company (“NBIC”). The catastrophe reinsurance programs are allocated amongst traditional reinsurers, the Florida Hurricane Catastrophe Fund (“FHCF”) and Osprey Re Ltd (“Osprey”),Supplementary Data” further “Note 12. Reinsurance” in our captive reinsurer. The FHCF covers Florida risks only and we elected to participate at 90%. Our third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk.

The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2020-2021 reinsurance program provides first event coverage up to $1.35 billion for Heritage P&C, first event coverage up to $965.0 million for NBIC, and first event coverage up to $690.0 million for Zephyr. Our first event retention in a 1 in 100 year event would include retentionAnnual Report on Form 10-K for the ~~respective insurance company as well as any retention by Osprey. The first event maximum retention up to a 1 in 100~~ year event for each insurance company subsidiary is as follows: Heritage P&C – $20.0 million; Zephyr – $20.0 million; NBIC – $13.3 million. In a 1 to 100 year event and including Osprey’s retention, the range of loss depending upon the geographic region affected would be between an additional $22.1 million to $41.8 million above the amounts noted for the insurance company retentions.

~~The majority of our program was placed on a cascading basis which provides greater horizontal protection in a multiple small events scenario and features additional coverage enhancements.~~

We are responsible for all losses and loss adjustment expenses in excess of our reinsurance program. For second or subsequent catastrophic events, our total available coverage depends on the magnitude of the first event, as we may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $2.6 billion of limit purchased in 2020 includes reinstatement through the purchase of reinstatement premium protection. In total, we have purchased $2.6 billion of potential reinsurance coverage, including our retention, for multiple catastrophic events. The amount of coverage, however, will be subject to the severity and frequency of such events.

~~The Company's estimated net cost for the 2020-2021 catastrophe reinsurance programs is approximately $272.1 million.~~

NBIC did not enter into a gross quota share reinsurance program for the contract term beginning June 1, 2019, nor was a gross quota share reinsurance program entered into in 2020. For the 2018 contract term, NBIC purchased an 8% gross quota share reinsurance treaty effective June 1, 2018 through May 31, 2019 which provided ground up loss recoveries of up to $1.0 billion.

Our Net Quota Share coverage is proportional reinsurance, which applies to business underwritten by NBIC, for which certain of our other reinsurance (property catastrophe excess of loss and the second layer of the general excess of loss) inures to the quota share program. An occurrence limit of $20.0 million for catastrophe losses is in effect on the quota share program, subject to certain aggregate loss limits that vary by reinsurer. The amount and rate of ceding commissions slide, within a prescribed minimum and maximum, depending on loss performance. The Net Quota Share program was renewed onended December 31, ~~2019 ceding 56% of~~2020, which was filed with the ~~net premiums and losses and 5% of the prior year quota share is in run off.~~

~~$976.0 million of limit is structured~~SEC on an aggregate basis (Top and Aggregate, Layer 1, Layer 2, Layer 3, Layer 4, Multi-Zonal and northeast only). To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention for second and subsequent events where underlying coverage has been previously exhausted. The Company purchased reinstatement premium protection for $621.0 million of this coverage, which can be reinstated one time. Layers (with exception to FHCF) are “net” of a $40.0 million attachment point. Layers inure to the subsequent layers if the aggregate limit of the preceding layer(s) is exhausted, and a portion of the subsequent layer cascades down in its place.

~~Additionally, for business underwritten by NBIC, we placed 42.5% of an aggregate contract to cover, all catastrophe losses excluding named storms from December 1, 2019 to~~ March ~~31, 2020. The limit on the contract was $20.0 million, with a retention of $20.0 million and franchise deductible of $1.0 million. This program was not replaced.~~

We placed 100% of an occurrence contract for our business underwritten by NBIC which covers all catastrophe losses excluding named storms, on December 31, 2019, expiring December 31, 2020. The limit on the contract is $20.0 million with a retention of $20.0 million and has 1 reinstatement available.

For losses arising from business underwritten by Heritage P&C and losses arising from commercial residential business underwritten by NBIC, excluding losses from named storms, the Company purchased property per risk coverage for losses and loss adjustment expenses in excess of $1.0 million per claim. The limit recovered for an individual loss is $9.0 million and total limit for all losses is $27.0 million. There are 2 reinstatements available with additional premium due based on the amount of the layer exhausted. For losses arising from commercial residential business underwritten by NBIC, the Company purchased property per risk coverage for losses and loss adjustments expenses in excess of $750,000 per claim. The limit recovered for an individual loss is $250,000 and total limit for all losses is $750,000. There are 2 reinstatements available with additional premium due based on the amount of the layer exhausted.

In addition, the Company purchased facultative reinsurance for losses in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. This coverage applies to losses arising from business underwritten by Heritage P&C and losses arising commercial residential business underwritten by NBIC, excluding losses from named storms.

Our general excess of loss reinsurance protects business underwritten by NBIC and Zephyr multi-peril policies from single risk losses. The coverage is in 2 layers in excess of our retention of the first $400,000 of loss. The first layer is $350,000 excess $400,000 for property and casualty and the second layer for property is $2.75 million excess $750,000. The second layer for casualty is $1.25 million excess $750,000. This coverage was in place from July 1, 2019 through June 30, 2020.

~~In addition, we purchased facultative reinsurance for losses underwritten by NBIC in excess of $3.5 million.~~9, 2021.

The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated statement of income for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020			2019			2020			2019			2021			2020
	(In thousands)						(In thousands)						(In thousands)
Premium written:
Direct	$	290,432		$	254,840		$	519,534		$	465,188		$	274,181		$	229,102
Ceded		(327,962	)		(312,600	)		(358,599	)		(359,442	)		(54,617	)		(30,637	)
Net	$	(37,530	)	$	(57,760	)	$	160,935		$	105,746		$	219,564		$	198,465
Premiums earned:
Direct	$	241,792		$	229,958		$	476,508		$	458,548		$	270,411		$	234,716
Ceded		(112,735	)		(115,875	)		(221,445	)		(234,774	)		(128,212	)		(108,710	)
Net	$	129,057		$	114,083		$	255,063		$	223,774		$	142,199		$	126,006
Loss and Loss Adjustment Expenses
Direct	$	139,311		$	162,390		$	246,676		$	274,566		$	125,495		$	107,365
Ceded		(60,442	)		(88,091	)		(99,626	)		(138,128	)		(27,585	)		(39,184	)
Net	$	78,869		$	74,299		$	147,050		$	136,438		$	97,909		$	68,181

The Company determines the reserve for unpaid losses ~~and loss adjustment expenses (“LAE”)~~ on an individual-case basis for all incidents reported. The liability also includes amounts which are commonly referred to as incurred but not reported, or “IBNR”, claims as of the balance sheet date. We estimate our IBNR reserves by projecting our ultimate losses using industry accepted actuarial methods and then deducting actual loss payments and case reserves from the projected ultimate losses.

The table below summarizes the activity related to the Company’s reserve for unpaid ~~losses and LAE:~~losses:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020			2019			2020			2019			2021			2020
	(In thousands)												(In thousands)
Balance, beginning of period	$	607,177		$	404,484		$	613,533		$	432,359		$	659,341		$	613,533
Less: reinsurance recoverable on unpaid losses		387,637			214,471			393,630			250,507			397,688			393,630
Net balance, beginning of period		219,540			190,013			219,903			181,852			261,653			219,903
Incurred related to:
Current year		83,822			75,623			156,153			138,348			99,504			72,331
Prior years		(4,953	)		(1,324	)		(9,103	)		(1,910	)		(1,595	)		(4,150	)
Total incurred		78,869			74,299			147,050			136,438			97,909			68,181
Paid related to:
Current year		55,372			34,793			76,608			43,155			25,826			21,236
Prior years		26,689			22,130			73,997			67,746			62,266			47,308
Total paid		82,061			56,923			150,605			110,901			88,092			68,544
Net balance, end of period		216,348			207,389			216,348			207,389			271,470			219,540
Plus: reinsurance recoverable on unpaid losses		404,370			223,023			404,370			223,023			366,412			387,637
Balance, end of period	$	620,718		$	430,412		$	620,718		$	430,412		$	637,882		$	607,177

As of ~~June 30, 2020,~~March 31, 2021, the Company reported ~~$216.3~~$271.5 million in unpaid losses and loss adjustment expenses, net of reinsurance which included ~~$160.2~~$205.0 million attributable to IBNR net of reinsurance recoverable, or ~~74.1%~~75.5% of net reserves for unpaid losses and loss adjustment expenses.

In August 2017 and September 2017, the Company issued in aggregate $136.8 million of 5.875% Convertible Senior Notes (“Convertible Notes”) maturing on August 1, 2037, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears, on February 1, and August 1 of each year, commencing in 2018.

As of ~~June 30, 2020,~~March 31, 2021, the Company had ~~$21.7~~$22.3 million of the Convertible Notes outstanding, net of issuance and debt discount costs in aggregate of approximately, ~~$1.7~~$1.1 million. For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company made ~~in aggregate~~ interest payments, net of affiliated Convertible Notes of approximately ~~$1.4 million~~$687,800 and ~~$1.5 million~~$687,800 respectively on the Convertible Notes.

On February 19, 2019, the Company reacquired $5.8 million of its outstanding Convertible Notes for approximately $2.9 million, which was paid in cash and the issuance of 285,201 shares of the Company’s common stock valued at $4.2 million. The repurchase resulted in a $48,000 non-operating loss.

In December 2018, the Company entered into a five-year, $125.0 million credit agreement ~~(as amended to date, the~~(the “Credit Agreement”) with a syndicate of lenders consisting of a $75.0 million senior secured term loan facility (the “Term Loan Facility”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”).

Term Loan Facility: The principal amount of the Term Loan Facility amortizes in quarterly installments, beginning with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, with the remaining balance payable at maturity. As of December 31, ~~2019,~~2020, there was ~~$69.4~~$60.0 million in aggregate principal outstanding on the Term Loan Facility. ~~The December 31, 2019 quarterly principal payment in the amount of $1.9 million was processed by the lender on January 2, 2020.~~ As of ~~June 30, 2020,~~March 31, 2021, the balance of the term loan was ~~$65.6~~$58.1 million. For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company made interest payments of approximately ~~$1.6 million~~$706,800 and ~~$1.8~~$1.2 million on the term loan, respectively. ~~The June 30, 2020 quarterly principal payment in the amount of $1.9 million was processed by the lender on July 1, 2020.~~

Revolving Credit Facility: The Revolving Credit Facility allows for borrowings of up to $50.0 million inclusive of a $5.0 million sublimit for the issuance of letters of credit and a $10.0 million sublimit for swingline loans. As of ~~June 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, the Company had $10.0 million of borrowings and 0 letters of credit outstanding under the Revolving Credit Facility. For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company made interest payments of ~~$331,928~~approximately $116,805 and ~~$350,729~~$265,900 under the revolving credit facility, respectively.

At March 31, 2021, the Company’s, effective interest rate for the Term Loan and for the Revolving Credit Facility was 3.38%. The Company monitors the rates prior to the reset date which allows it to establish if the payment is monthly or quarterly based on the most beneficial rate used to calculate the interest payment.

At March 31, 2021, the Company closed the July 1, 2020 standby letter of credit in the amount of $31.5 million that was issued by Regions Bank.

and collateral agent. The Third Amendment modified the Credit Agreement to increase the letter of credit sublimit from $5 million to $40 million and to make related modifications to certain of the negative covenants in the Credit Agreement.

On April 27, 2020, the Company amended ~~its~~the Credit Agreement by entering into the Second Amendment to Credit Agreement (the “Second Amendment”) with the lenders from time to time party to the Credit Agreement, and Regions Bank, as administrative agent and collateral agent. The Second Amendment modified the negative covenants in the Credit Agreement to permit the Company to make acquisitions and investments if, after giving effect to the acquisition or investment, either (1) the Company has an aggregate of $25.0 million in cash and availability under the revolving credit facility or (2) the consolidated leverage ratio under the Credit Agreement is at least a quarter turn less than the required ratio for the trailing four quarters. The amendment gives the Company more flexibility to make acquisitions and investments in the future. All other material terms of the Credit Agreement remain unchanged.

On June 1, 2020, the Company amended the Credit Agreement by entering into the Third Amendment to Credit Agreement (the “Third Amendment”) with the lenders from time to time party to the Credit Agreement, and Regions Bank, as administrative agent and collateral agent. The Third Amendment modified the Credit Agreement to increase the letter of credit sublimit from $5 million to $40 million and to make related modifications to certain of the negative covenants in the Credit Agreement.

At June 30, 2020, the Company’s effective interest rate for the Term Loan Facility was 4.10% and 4.36% for the Revolving Credit Facility, respectively. The Company monitors the rates prior to the reset date which allows it to establish if the payment is monthly or quarterly based on the most beneficial rate used to calculate the interest payment.

In October 2017, the Company and its subsidiary, Skye Lane Properties LLC, jointly obtained a commercial real estate mortgage loan in the amount of $12.7 million, bearing interest of 4.95% per annum and maturing on October 30, 2027. On October 30, 2022, the interest rate shall adjust to an interest rate equal to the annualized interest rate of the United States 5-year Treasury Notes as reported by Federal Reserve on a weekly average basis plus 3.10%. The Company makes monthly principal and interest payments towards the loan. For each of the respective ~~six month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company made principal and interest payments of approximately ~~$446,000~~$223,200 on the mortgage loan.

In December 2018, a subsidiary of the Company received a 3.094% fixed interest rate cash loan of $19.2 million from the Federal Home Loan Bank (“FHLB”) Atlanta. In connection with the loan agreement, the subsidiary became a member of FHLB. Membership in the FHLB required an investment in FHLB’s common stock which was purchased in December 2018 and valued at $1.4 million. Additionally, the transaction required the acquired FHLB common stock and certain other investments to be pledged as collateral. ~~For the six months ended June 30, 2020,~~As of March 31, 2021, the fair value of the collateralized securities was ~~$19.4~~$22.2 million and the equity investment in FHLB common stock was ~~$1.4~~$1.2 million. ~~For the six months ended June 30,~~As of March 31, 2021, and 2020, ~~and 2019,~~ the Company made quarterly interest payments as per the terms of the loan agreement of ~~$301,975~~approximately $150,160 and ~~$300,325,~~$150,000, respectively. As of ~~June 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, the Company also holds other common stock from FHLB Des Moines, and FHLB Boston valued at ~~$146,300~~$139,300 and $76,600, respectively.

The following table summarizes the Company’s debt and credit facilities as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	(in thousands)				(in thousands)
Convertible debt	$	23,413	$	23,413	$	23,413	$	23,413
Mortgage loan		11,974		12,117		11,750		11,827
Term loan facility		65,625		69,375		58,125		60,000
Revolving credit facility		10,000		10,000		10,000		10,000
FHLB loan agreement		19,200		19,200		19,200		19,200
Total principal amount	$	130,212	$	134,105	$	122,488	$	124,440
Less: unamortized discount and issuance costs	$	4,156	$	4,857	$	2,987	$	3,442
Total long-term debt	$	126,056	$	129,248	$	119,501	$	120,998

As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Agreement, Convertible Notes indenture, cash borrowings and other loans. Our ability to secure future debt financing depends, in part, on our ability to remain in such compliance. Provided there is no default or an event of default, we are permitted to payout dividends in an aggregate amount not to exceed $10.0 million in any fiscal year.

The covenants and other requirements under the revolving agreement represent the most restrictive provisions that we are subject to with respect to our long-term debt.

The schedule of principal payments on long-term debt as of ~~June 30, 2020~~March 31, 2021 is as follows:

Year	Amount		Amount
	(In thousands)		(In thousands)
2020 remaining	$	5,772
2021		7,806
2021 remaining			$	5,855
2022		7,822		7,822
2023		74,539		74,539
2024		354		354
2025				374
Thereafter		33,919		33,544
Total	$	130,212	$	122,488

Accounts payable and other liabilities consist of the following as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

Description	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	(In thousands)				(In thousands)
Deferred ceding commission	$	34,562	$	37,464	$	37,991	$	39,995
Outstanding claim checks						—		10,864
Accounts payable and other payables		7,767		7,225		7,951		9,248
Lease obligations		8,371		8,369		7,886		8,155
Accrued interest and issuance costs		829		1,052		167		833
Accrued dividends		1,693		1,750		1,678		1,670
Premium tax						1,886		—
Other liabilities		183		387		676		80
Commission payables		14,708		14,798		13,395		18,245
Total other liabilities	$	68,113	$	71,045	$	71,628	$	89,090

State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers’ ability to pay dividends, restrict the allowable investment types and investment mixes, and subject the Company’s insurers to assessments.

The Company’s insurance subsidiaries Heritage Property & Casualty Insurance Company (“Heritage P~~&C, NBIC,~~&C)”, Narragansett Bay Insurance Company (“NBIC”), Zephyr Insurance Company (“Zephyr”), and ~~PIC~~Pawtucket Insurance Company (“PIC”) must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. Heritage P&C is required to maintain capital and surplus equal to the greater of $15 million or 10% of their respective liabilities. Zephyr is required to maintain a deposit of $750,000 in a federally insured financial institution. NBIC is required to maintain capital and surplus of $3.0 million. The combined statutory surplus for Heritage P&C, Zephyr, NBIC and PIC was ~~$338.7~~$305.6 million at ~~June 30, 2020~~March 31, 2021 and ~~$351.8~~$333.3 million at December 31, ~~2019.~~2020. State law also requires the Company’s insurance subsidiaries to adhere to prescribed premium-to-capital surplus ratios, and risk-based capital requirements with which the Company is in compliance. At ~~June 30, 2020,~~March 31, 2021, our insurance subsidiaries met the financial and regulatory requirements of each of the states in which they conduct business.

The Company is involved in claims-related legal actions arising in the ordinary course of business. The Company accrues amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that it determines an unfavorable outcome becomes probable and it can estimate the amounts. Management makes revisions to its estimates based on its analysis of subsequent information that the Company receives regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.

In July 2020, the Company entered into a ten year, non-cancellable operating lease agreement for approximately 88,600 square feet of office space located in Tampa, Florida. The Company anticipates relocating from the Clearwater Corporate office to the new location during the second half of 2021. The anticipated principal contractual commitments based on the terms and conditions of the agreement is approximately $29.7 million through 2031.

~~The~~From time to time the Company has been party to various related party transactions involving certain of its officers, directors and significant stockholders, including as set forth below. The Company has entered into each of these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

The Company provides a 401(k) plan for substantially all employees. The Company provides a matching contribution of 100% on the first 3% of employees’ contribution and 50% on the next 2% of the employees’ contribution to the plan. The maximum match is 4%. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the contributions made to the plan on behalf of the participating employees were approximately ~~$293,182~~$322,200 and ~~$632,500 and $292,500 and $548,200,~~$339,300, respectively.

The Company provides its employees with a partially self-insured healthcare plan and benefits. For the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ incurred medical premium costs amounted to an aggregate of ~~$1.1 million~~$990,100 and ~~$958,700, respectively. For the six months ended June 30, 2020 and 2019, incurred medical premium costs amounted to an aggregate of $2.0 million and $1.8 million,~~$910,000, respectively. An additional liability of approximately $1.8 million and $1.4 million is recorded for unpaid claims as of ~~June 30, 2020.~~March 31, 2021 and December 31, 2020, respectively. A stop loss reinsurance policy caps the maximum loss that could be incurred by the Company under the self-insured plan. The Company’s stop loss coverage per employee is ~~$150,000~~$125,000 for which any excess cost would be covered by the reinsurer subject to an aggregate limit for losses in excess of $1.5 million which would provide up to $1.0 million of coverage. Any excess of the coverage limits would be borne by the Company. The aggregate stop loss commences once our expenses exceed ~~125%~~120% of the annual aggregate expected claims.

The total amount of authorized capital stock consists of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of ~~June 30, 2020,~~March 31, 2021, the Company had ~~27,738,062~~27,904,923 shares of common stock outstanding, 9,279,839 treasury shares of common stock and ~~330,534~~219,084 unvested shares of restricted common stock issued reflecting total paid-in capital of $332.0 million as of such date.

As more fully disclosed in our audited consolidated financial statements for the year ended December 31, ~~2019,~~2020, there were, ~~28,650,918~~27,748,606 shares of common stock outstanding, ~~8,349,483~~9,279,839 treasury shares of common stock and ~~345,534~~100,267 unvested shares of restricted common stock, representing ~~$329.6~~$331.9 million of additional paid-in capital.

Holders of common stock are entitled to one vote for each share held on all matters subject to a vote of stockholders, subject to the rights of holders of any outstanding preferred stock. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of common stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to receive ratably its net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company’s capital stock are fully paid and non-assessable.

On August 1, ~~2018,~~2019, the Company announced that its Board of Directors ~~authorized~~ratified a stock repurchase program authorizing the Company to repurchase up to $50.0 million of its common stock ~~through~~which had expired on December 31, 2020. ~~For the three months ended June 30,~~As of December 31, 2020, the Company ~~purchased 163,456~~repurchased in aggregate 2,065,042 shares of its common stock since authorizing the stock repurchase program for ~~$2.0~~$26.2 million. ~~For~~ On November 2, 2020, the ~~six~~Board of Directors extended our existing share repurchase program from December 31, 2020 to December 31, 2021 and increased the authorization under the program from the $23.8 million remaining to $50.0 million, which repurchases may be made under our current Rule 10b5-1 trading plan, which allows the Company to purchase shares below a predetermined price per share, or otherwise. NaN shares were repurchased during the three months ended ~~June 30, 2020,~~March 31, 2021 under the ~~Company purchased 930,356 shares of its common stock for $10.0 million.~~share repurchase program.

At ~~June 30, 2020,~~March 31, 2021 the Company has the capacity to repurchase ~~$23.8~~$50 million of its common shares until December ~~2020~~. In addition, the Company acquired 17,500 shares for approximately $233,000 for the six months ended June 30, 2020, respectively, that were not part of the publicly announced share repurchase authorization. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock awards.31, 2021.

On ~~February 27, 2020,~~March 3, 2021, the Company’s Board of Directors declared a $0.06 per share quarterly dividend payable on April ~~3, 2020,~~6, 2021, to stockholders of record as of March ~~16, 2020.~~ ~~On May 4, 2020, the Board of Directors declared a $0.06 per share quarterly dividend payable on July 6, 2020 to stockholders of record as of June~~ 15, ~~2020.~~2021.

The declaration and payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on a variety of factors including the Company’s financial condition and results of operations.

The Company has adopted the Heritage Insurance Holdings, Inc., Omnibus Incentive Plan (the “Plan”) effective on May 22, 2014. The Plan authorized 2,981,737 shares of common stock for issuance under the Plan for future grants. Our plan allows for a variety of equity awards including stock options, restricted stock awards and performance-based awards.

At ~~June 30, 2020~~March 31, 2021 there were ~~1,558,518~~981,709 shares available for grant under the Plan. The Company recognizes compensation expense under ASC 718 for its stock-based payments based on the fair value of the awards.

~~In April 2020,~~During the ~~Company entered into~~quarter ended March 31, 2021, the Board of Directors awarded to its Chief Executive Officer 95,878 performance-based restricted shares with a ~~Restricted Stock Award Agreement granting 10,000~~market value at the time of grant of $10.43 per share. The restricted shares ~~of restricted stock (“stock award”) to an employee~~have a three-year performance period beginning on January 1, 2021 and ending on December 31, 2023 and will vest following the end of the ~~Company.~~performance period but no later than March 5, 2024. The ~~stock award vests~~number of shares that will be earned at the end of the performance period is subject to decrease based on the results of the performance condition. In addition, the Board issued this executive 47,939 time-based restricted shares with a market value at the time of grant of $10.43 per share. The restricted shares will vest in 2three equal installments of ~~5,000 shares~~15,979 on ~~April 6,~~December 31, 2021, and 15,980 on December 31, 2022 ~~subject to continued employment. The fair market value on~~and 2023, respectively.

For awards with performance-based vesting conditions expense is not recognized until it is determined that it is probable the ~~date~~performance-based conditions will be met. When achievement of ~~grant~~a performance-based condition is probable, a catch-up of ~~the shares was $10.60 and the associated compensation~~ expense will be ~~amortized ratably~~recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis until probability of achieving the performance-based conditions changes, if applicable. For awards with only a service condition, the Company expenses stock-based compensation using the straight-line method over the ~~term of~~requisite service period for the ~~vesting period commencing on date of the grant.~~entire award.

The Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. Any options granted would typically have a maximum term of ten years from the date of grant and vest primarily in equal annual installments over a range of one to five-year periods following the date of grant for employee options. If a participant’s employment relationship ends, the participant’s vested awards would remain exercisable for the shorter of a period of 30 days or the period ending on the latest date on which such award couldThe Company has not granted any stock options since 2015 and all unexercised stock options have since been exercisable. The fair value of each option grant is separately estimated for each grant date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.forfeited.

The Company has also granted shares of its common stock subject to certain restrictions under the Plan. Restricted stock awards granted to employee’s vest in equal installments generally over a five-year period from the grant date subject to the recipient’s continued employment. The fair value of restricted stock awards is estimated by the market price at the date of grant and amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to receive dividends.

Restricted stock activity for the ~~six months~~quarter ended ~~June 30, 2020~~March 31, 2021 is as follows:

Awards are being amortized to expense over the ~~two~~one to five-year vesting period. ~~For the three months ended June 30, 2020 and 2019,~~The Company recognized ~~$1.4 million~~$260,000 and $1.3 million of compensation expense for the three months ended March 31, 2021 and 2020, respectively. For the ~~six~~three months ended June 30, 2020 and 2019, the Company recognized compensation expense of $2.7 million and $2.7 million, respectively. There was approximately $2.9 million of unrecognized compensation expense related to the unvested restricted stock at June 30, 2020. The Company expects to recognize substantially all of remaining compensation expense over the next year. For the six months ended June 30, 2020,March 31, 2021, 25,000 shares of restricted stock were vested and released, all of which had been granted to employees. Of the shares released to employees, ~~17,500~~12,500 shares were withheld by the Company to cover withholding taxes of ~~$233,000. For~~$127,000.

At March 31, 2021 and 2020 there was approximately $2.0 million and $4.2 million, representing unrecognized expense related to the ~~comparable period of 2019, 25,000 shares were vested and released.~~non-vested stock which is expected to be recognized over the remaining restriction periods as described in the table below.

Additional information regarding our outstanding non-vested restricted stock at March 31, 2021 is as follows:

The Company performed an evaluation of subsequent events through the date the condensed consolidated financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of ~~June 30, 2020.~~March 31, 2021.

On July 1, 2020, Regions issued an irrevocable standby Letter of Credit in the amount of $36.0 million under the Credit Agreement in favor of our affiliated insurance companies, Heritage P&C, NBIC and Zephyr, which letter of credit bears interest at 3.625% per annum. The letter of credit was established to provide collateral for reinsurance agreements entered into between Osprey Re and our affiliated insurance companies. Draws on the Letter of Credit are limited to covered reinsurance losses pursuant to the aforementioned reinsurance agreements.

~~On August 3, 2020,~~May 5, 2021, the Company announced that its Board of Directors declared a $0.06 per share quarterly dividend payable on ~~October 2, 2020~~July 6, 2021 to stockholders of record as of ~~September~~June 15, ~~2020.~~2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (“~~2019~~2020 Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “we”, “us”, “our”, “the Company”, “our Company”, and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries.

Heritage Insurance Holdings, Inc., is a super-regional property and casualty insurance holding company that primarily provides personal and commercial residential insurance ~~through~~products across its multi-state footprint. We provide personal residential insurance ~~company subsidiaries. We are~~in sixteen states and commercial residential insurance in three of those states, while maintaining licenses in one additional state. As a vertically integrated ~~and~~insurer, we control or manage substantially all aspects of ~~insurance~~ underwriting, customer service, actuarial analysis, distribution and claims processing and adjusting. Our financial strength ratings are important to the Company in establishing our competitive position and can impact our ability to write policies.

~~On an admitted basis,~~The discussion of our financial condition and results of operations that follows provides information that will assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements. This discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this document.

With regard to the COVID-19 pandemic, our first priority remains the health and safety of our employees and their families. Approximately 50% of our total personnel are either working from home full-time or on a hybrid schedule between office and home. Our corporate and remote offices remain operational, we ~~provide~~are practicing social distancing, and have enhanced cleaning protocols and are using personal ~~residential insurance~~protective equipment in twelve eastern states and commercial residential insurance in three of those states. We also write personal residential insurance on an admitted basis in Hawaii and in California on an excess and surplus lines basis.

Our operating subsidiaries include, but are not limited to: Heritage Property & Casualty Insurance Company (“Heritage P&C”), which provides personal and commercial residential property insurance and commercial general liability insurance; Narragansett Bay Insurance Company (“NBIC”), which provides personal and commercial residential property insurance; Zephyr Insurance Company (“Zephyr”), which provides personal residential wind-only property and multi-peril property insurance in Hawaii; Osprey Re Ltd. (“Osprey”), our captive reinsurance subsidiary that may provide a portion of the reinsurance protection purchased by our insurance company subsidiaries; Heritage MGA, LLC, our managing general agent; NBIC Service Company, which provides servicesaddition to ~~NBIC; and Contractors’ Alliance Network, LLC (“CAN”), our vendor network manager for claims and provider of restoration, emergency and recovery services.~~

We continue to monitor the ~~short- and~~short-and long-term impacts of COVID-19 virus and its variants, a global pandemic that has caused a significant slowdown in the global economy beginning in March 2020. ~~During~~For the ~~six months~~year ended ~~June 30,~~December 31, 2020, we saw ~~limited~~virtually no impact to our business. As a residential property insurer, we view our business ~~to be~~as somewhat insulated asbecause property owners and renters generally view our products as a necessity. The majority of our gross and net premiums written are from renewals of expiring policies. New business, which accounts for a smaller portion of our revenue, may be impacted if consumers are not buying as many new homes in our geographies, but this could be partially or fully offset by increased retention in our renewal portfolio. In a prolonged recessionary and social-distancing environment, we could experience disruptions to our independent agency distribution channel, which may have a negative impact on our revenues and financial condition.

Although we have not experienced a significant amount of payment delays, or non-payment, there may be delays in premium payments in geographies that might require us to grant policyholders additional time to pay their premiums and, under prolonged recessionary economic conditions, we could experience more significant delays in premium payments and possibly non-payment of premiums.

Global credit and financial markets ~~have~~ experienced extreme volatility and disruptions during the second quarter of 2020 as a result of the COVID-19 pandemic, including diminished liquidity and credit availability, declines in consumer confidence, ~~declines in economic growth,~~ increases in unemployment rates and uncertainty about economic stability. Although we were relatively unaffected by the condition of the credit markets, if the credit and financial markets again experience significant deterioration at a time when we need additional liquidity, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Notwithstanding these actual and potential impacts, we currently believe that our cash on hand, revolving credit facility and expected earnings give us sufficient liquidity to fund our operations. However, if we need additional liquidity at a time when equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive.

The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we are deferring to future periods. We do not currently expect the CARES Act to have a material impact on our liquidity or our financial results, ~~including on~~except for the benefit associated with a 5-year carryback of our ~~annual estimated effective~~2020 tax ~~rate or on our liquidity.~~net operating loss. We will continue to monitor and assess the impact the CARES Act and similar legislation may have on our business and financial results.

Comparison of the Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

	For the Three Months Ended June 30,												For the Three Months Ended March 31,
(Unaudited)	2020			2019			$ Change			% Change			2021			2020			$ Change			% Change
													(in thousands)
REVENUE:	(in thousands)
Gross premiums written	$	290,432		$	254,840		$	35,592			14	%	$	274,181		$	229,102		$	45,079			19.7	%
Change in gross unearned premiums		(48,640	)		(24,882	)		(23,758	)		95	%		(3,770	)		5,614			(9,384	)		(167.1	)%
Gross premiums earned		241,792			229,958			11,834			5	%		270,411			234,716			35,695			15.2	%
Ceded premiums		(112,735	)		(115,875	)		3,140			(3	)%		(128,212	)		(108,710	)		(19,502	)		17.9	%
Net premiums earned		129,057			114,083			14,974			13	%		142,199			126,006			16,193			12.9	%
Net investment income		3,296			3,830			(534	)		(14	)%		1,293			3,670			(2,377	)		(64.8	)%
Net realized gains		(38	)		1,303			(1,341	)	NM				80			59			21			35.9	%
Other revenue		3,697			3,627			70			2	%		3,671			2,971			700			23.6	%
Total revenue	$	136,012		$	122,843		$	13,169			11	%	$	147,243		$	132,706		$	14,537			11.0	%

Gross premiums written were ~~$290.4~~$274.2 million in ~~second~~first quarter ~~2020,~~2021, up ~~14.0%~~19.7% from ~~$254.8~~$229.1 million in the prior year quarter. The increase reflects ~~69.0% commercial residential growth, 11.3% personal residential~~21.9% growth outside Florida and ~~6.1% personal residential~~17.7% growth in Florida. Rate increases materially benefited 2021 gross premiums written growth, particularly in Florida. Growth in all states was organic, including growth via independent agents and strategic partnerships with national carriers.

Premiums-in-force were ~~$994.6 million in second~~$1.1 billion as of first quarter ~~2020,~~2021, representing a ~~15.3%~~16.0% annualized growth rate from ~~first quarter~~year-end 2020. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were ~~$241.8~~$270.4 million in ~~second~~first quarter ~~2020,~~2021, up ~~5.1%~~15.2% from ~~$230.0~~$234.7 million in the prior year quarter. The increase reflects higher gross premiums written over the past twelve months.

Ceded premiums were ~~$112.7~~$128.2 million in ~~second~~first quarter ~~2020, down 2.7%~~2021, up 17.9% from ~~$115.9~~$108.7 million in the prior year quarter. The ~~decrease~~increase is primarily attributable to ~~a reduction~~an increase in the cost of our ~~2019-2020~~ catastrophe excess of loss reinsurance program and ~~a reduction~~an increase in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe reinsurance program. The higher cost of the 2020-2021 catastrophe excess-of-loss reinsurance program was partially diluted by increased use of our captive reinsurer, Osprey Re. Our gross quota share reinsurance program was reduced from 18.75% to 8.0% effective June 1, 2018 and was eliminated effective June 1, 2019, while our net quota share reinsurance program increased from 52.0% to 56.0% effective December 31, 2019. Our excess-of-loss catastrophe reinsurance programs incept on June 1^st ~~of each year and run for twelve months.~~total insured value (“TIV”) associated with premium growth.

Net premiums earned were ~~$129.1~~$142.2 million in ~~second~~first quarter ~~2020,~~2021, up ~~13.1%~~12.9% from ~~$114.1~~$126.0 million in the prior year quarter. The increase ~~reflects~~primarily stems from higher gross premiums earned, ~~and lower~~partly offset by higher ceded premiums, ~~earned,~~ as described above.

Net investment income, inclusive of realized investment gains and unrealized gains on equity securities, was ~~$3.3~~$1.4 million in ~~second~~first quarter ~~2020,~~2021, down ~~$1.8 million from $5.1~~62.1% compared to $3.7 million in the prior year quarter. The decrease is primarily due to ~~unrealized gains on equity securities in~~lower yields associated with the ~~prior year quarter.~~continued low interest rate environment.

Other revenue ofwas $3.7 million in ~~second~~first quarter ~~2020 was relatively flat~~2021, up 23.6% million from $3.0 million in ~~comparison~~the prior year ~~over year.~~quarter. The increase relates primarily to policy fee income associated with policy count growth.

Total revenue was ~~$136.0~~$147.2 million in ~~second~~first quarter ~~2020,~~2021, up ~~10.7%~~11.0% from ~~$122.8~~$132.7 million in the prior year quarter. The increase primarily stems from higher net premiums earned, as described above.

	For the Three Months Ended June 30,									For the Three Months Ended March 31,
(Unaudited)	2020		2019		$ Change		% Change			2021		2020		$ Change			% Change
OPERATING EXPENSES:	(in thousands)									(in thousands)
Losses and loss adjustment expenses		78,869		74,299		4,570		6	%		97,909		68,181		29,728			43.6	%
Policy acquisition costs		30,237		27,087		3,150		12	%		35,366		30,047		5,319			17.7	%
General and administrative expenses		19,943		18,384		1,559		8	%		19,800		21,718		(1,918	)		(8.8	)%
Total operating expenses		129,049		119,770		9,279		8	%		153,075		119,946		33,129			27.6	%

Losses and loss adjustment expenses (“LAE”) were ~~$78.9~~$97.9 million in ~~second~~first quarter ~~2020,~~2021, up ~~6.2%~~43.6% from ~~$74.3~~$68.2 million in the prior year quarter. The increase ~~primarily~~ stems from higher ~~retained~~attritional and weather ~~losses in the current year quarter~~net loss ratios and ~~lower income~~ from ~~vertically integrated operations, partly offset by higher favorable prior year reserve development. Weather losses in the second quarters~~a larger book of ~~2020 and 2019 were higher-than-normal.~~business.

Policy acquisition costs were ~~$30.2~~$35.3 million in ~~second~~first quarter of ~~2020,~~2021, up ~~11.6%~~17.7% from ~~$27.1~~$30.0 million in the prior year quarter. The increase is primarily attributable to higher acquisition costs associated with growth in gross premiums ~~written growth and reduced ceding commission income. Ceding commissions decreased in the current year period due to a reduction to our overall quota share reinsurance program, as described above.~~written.

General and administrative expenses were ~~$19.9~~$19.8 million in ~~second~~first quarter ~~2020, up 8.5%~~2021, down 9% from ~~$18.4~~$21.7 million in the prior year quarter. The ~~increase~~decrease is primarily attributable to ~~increased headcount~~compensation associated with ~~premium growth and lower ceding commission income associated with~~executive management changes in late 2020 as well as a reduction ~~to our overall quota share reinsurance program,~~in stock compensation as ~~described above.~~larger tranches of restricted stock were fully vested in 2020.

For the Three Months Ended June 30,

(Unaudited)

2020

2019

$ Change

% Change

(in thousands, except per share and share amounts)

Operating income

6,963

3,073

3,890

127
%
Interest expense, net

1,721

1,984

(263
)

(13
)%
Other non-operating expense, net

—

—

—

NM

Income before income taxes

5,242

1,089

4,153

381
%
Provision for income taxes

1,110

368

742

202
%
Net income

$
4,132

$
721

$
3,411

473
%
Basic net income per share

$
0.15

$
0.02

$
0.13

641
%
Diluted net income per share

$
0.15

$
0.02

$
0.13

640
%

	For the Three Months Ended March 31,
(Unaudited)	2021			2020		$ Change			% Change
	(in thousands, except per share and share amounts)
Operating (loss) income		(5,832	)		12,760		(18,592	)		(145.7	)%
Interest expense, net		1,878			1,966		(88	)		(4.5	)%
(Loss) income before income taxes		(7,711	)		10,794		(18,505	)		(171.4	)%
(Benefit) provision for income taxes		(2,562	)		3,174		(5,736	)		(180.7	)%
Net (loss) income	$	(5,148	)	$	7,620	$	(12,768	)		(167.6	)%
Basic net (loss) income per share	$	(0.19	)	$	0.27	$	(0.45	)		(169.3	)%
Diluted net (loss) income per share	$	(0.19	)	$	0.27	$	(0.45	)		(169.3	)%

Net interest expense was ~~$1.7~~$1.9 million in ~~second~~first quarter ~~2020 compared to $2.0 million in the prior year quarter. The decrease is associated with a lower principal amount of long-term debt, coupled with a lower blended interest rate.~~2021, effectively flat quarter-over-quarter.

~~Provision~~(Benefit) provision for income taxes was ~~$1.1~~($2.6) million in ~~second~~first quarter ~~2020~~2021 compared to ~~$368,000~~$3.2 million in the prior year quarter. The effective tax rate was ~~21.2%~~33.2% in ~~second~~first quarter ~~2020, 12.6~~2021, 3.8 points ~~below~~above the prior year quarter’s ~~33.8%~~29.4% rate. The ~~second quarter 2020~~higher effective tax rate ~~benefitted from a $422,000 tax year 2018 state income tax refund associated with a temporary tax reduction related~~relates to 2017 federal income tax reform. The lower effective tax rate in the current year quarter also stemmed from lower pre-tax income in the prior year quarter, which had a significant adverse impact on that period’s effective tax rate due to the impact of permanent tax differences. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

~~Second~~First quarter ~~2020~~2021 net loss was $5.1 million (($0.19) per diluted share), down 167.6% from net income ~~was $4.1~~of $7.6 million ~~up from $721,000~~of net income ($0.27 per diluted share) in the prior year quarter. The ~~increase~~decrease primarily reflects a higher net ~~premiums earned, lower net~~ loss ~~and expense ratios, and a lower effective tax rate,~~ratio, partly offset by a lower ~~investment gains.~~net expense ratio.

	For the Three Months Ended June 30,						For the Three Months Ended March 31,
(Unaudited)	2020			2019			2021			2020
Ceded premium ratio		46.6	%		50.4	%		47.4	%		46.3	%

Net loss and LAE ratio		61.1	%		65.1	%		68.9	%		54.1	%
Net expense ratio		38.9	%		39.9	%		38.8	%		41.1	%
Net combined ratio		100.0	%		105.0	%		107.7	%		95.2	%

The ceded premium ratio was ~~46.6%~~47.4% in ~~second~~first quarter ~~2020, down 3.8~~2021, up 1.1 points from ~~50.4%~~46.3% in the prior year quarter. The ~~decrease~~increase is primarily attributable to ~~a reduction in the cost of~~higher costs associated with our ~~2019-2020~~ catastrophe excess-of-loss reinsurance program, ~~and a reduction in overall quota share reinsurance coverage,~~ partly offset by ~~the~~ higher ~~cost of our 2020-2021 catastrophe excess-of-loss reinsurance program.~~gross premiums earned.

The net loss ratio was ~~61.1%~~68.9% in ~~second~~first quarter ~~2020, down 4.0~~2021, up 14.7 points from ~~65.1%~~54.1% in the prior year quarter. The increase primarily stems from higher current accident year attritional and weather net loss ratios and lower favorable reserve development.

The net expense ratio was 38.8% in first quarter 2021, down 2.3 points from 41.1% in the prior year quarter. The decrease primarily stems from ~~higher favorable prior year reserve development and~~ a lower ~~ceded premium ratio, partly offset by lower income from vertically integrated operations and a higher current accident year weather net loss ratio.~~

~~The net expense ratio was 38.9% in second quarter 2020, down 1.0 point from 39.9% in the prior year quarter. The decrease primarily stems from modestly lower net PAC and~~ G&A ~~ratios, which benefited from a lower ceded premium~~expense ratio.

The net combined ratio was ~~100.0%~~107.6% in ~~second~~first quarter ~~2020, down 5.0~~2021, up 12.5 points from ~~105.0% in the prior year quarter. The decrease stems from lower net loss and expense ratios, as described above.~~

For the Six Months Ended June 30,

(Unaudited)

2020

2019

$ Change

% Change

REVENUE:

(in thousands)

Gross premiums written

$
519,534

$
465,188

$
54,346

12
%
Change in gross unearned premiums

(43,026
)

(6,640
)

(36,386
)

548
%
Gross premiums earned

476,508

458,548

17,959

4
%
Ceded premiums

(221,445
)

(234,774
)

13,329

(6
)%
Net premiums earned

255,063

223,774

31,289

14
%
Net investment income

6,966

7,502

(536
)

(7
)%
Net realized and unrealized gains (losses)

22

2,327

(2,306
)

NM

Other revenue

6,668

7,501

(833
)

(11
)%
Total revenue

$
268,719

$
241,104

$
27,614

11
%

Gross premiums written were $519.5 million for the six months ended June 30, 2020, up 11.7% from $465.2 million in the prior year period. The increase reflects 11.8% growth outside Florida and 11.5% growth in Florida, with positive growth across all states and lines of business. Commercial residential business represented 45.9% of the Florida growth.

~~Gross premiums earned were $476.5 million for the six months ended June 30, 2020, up 3.9% from $458.5 million~~95.2% in the prior year quarter. The increase ~~reflects higher gross premiums written over the past twelve months.~~

Ceded premiums earned were $221.4 million for the six months ended June 30, 2020, down 5.7% from $234.8 million in the prior year quarter. The decrease is primarily attributable to a reduction in the cost of our 2019-2020 catastrophe reinsurance program and a reduction in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe reinsurance program. The higher cost of the 2020-2021 catastrophe excess-of-loss reinsurance program was partially diluted by increased use of our captive reinsurer, Osprey Re. Our gross quota share reinsurance program was reduced from 18.75% to 8.0% effective June 1, 2018 and was eliminated effective June 1, 2019, while our net quota share reinsurance program increased from 52.0% to 56.0% effective December 31, 2019. Our excess-of-loss catastrophe reinsurance programs incept on June 1^st ~~of each year and run for twelve months.~~

Net premiums earned were $255.1 million for the six months ended June 30, 2020, up 14.0% from $223.8 million in the prior year period. The increase reflects higher gross premiums earned and lower ceded premiums earned, as described above.

Net investment income, inclusive of realized investment gains and unrealized gains on equity securities for the six months ended June 30, 2020, was $7.0 million, down from $9.8 million in the prior year period. The decrease is primarily due to unrealized gains on equity securities in the prior year period. Investment income on the fixed income portfolio declined by $536,000 due to lower interest rates.

~~Other revenue was $6.7 million for the six months ended June 30, 2020, down from $7.5 million in the prior year period. The decline~~ primarily stems from a ~~reduction in non-insurance income.~~

~~Total revenue was $268.7 million for the six months ended June 30, 2020, up 11.5% from $241.1 million in the prior year period. The increase primarily stems from~~ higher ~~net premiums earned, as described above.~~

Losses and loss adjustment expenses (“LAE”) were $147.1 million for the six months ended June 30, 2020, up $10.6 million from $136.4 million in the prior year period. The increase primarily stems from higher retained weather losses and lower cost savings from vertically integrated operations, partly offset by more favorable prior year reserve development.

Policy acquisition costs were $60.3 million for the six months ended June 30, 2020, up 13.5% from $53.1 million in the prior year period. The increase is primarily attributable to higher acquisition costs associated with gross premiums written growth and reduced ceding commission income. Ceding commissions decreased in the current year period due to a reduction to our overall quota share reinsurance program, as described above.

General and administrative expenses were $41.7 million for the six months ended June 30, 2019, up 12.6% from $37.0 million in the prior year period. The increase is primarily attributable to increased headcount associated with premium growth and lower ceding commission income associated with a reduction to our overall quota share reinsurance program, as described above.

Interest expense was $3.7 million for the six months ended June 30, 2020, down $413,000 from $4.1 million in the prior year period. The year-over-year decrease stems from a lower principal amount of outstanding debt and a lower blended interest rate.

Provision for income taxes was $4.3 million and $2.7 million for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate for the current year period was 26.7%, 0.4 points higher than the prior year’s 26.3%. The higher effective tax rate relates to permanent tax differences and a higher overall state income tax rate associated with our diversification outside Florida. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year.

Net income for the six months ended June 30, 2020 was $11.8 million ($0.42 per diluted share) compared to $7.7 million ($0.26 cents per diluted share) in the prior year period. The increase primarily reflects higher net premiums earned and a lower net loss ratio, partly offset by ~~lower investment gains and other income and a modestly higher effective tax rate.~~

The ceded premium ratio was 46.5% for the six months ended June 30, 2020, down 4.7 points from 51.2 % in the prior year period. The decrease is primarily attributable to a reduction in the cost of our 2019-2020 catastrophe reinsurance program and a reduction in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe excess-of-loss reinsurance program.

The net loss and LAE ratio was 57.7% for the six months ended June 30, 2020, down 3.3 points from 61.0% in the prior year period. The decrease primarily stems from higher favorable prior year reserve development and a lower ceded premium ratio, partly offset by lower income from vertically integrated operations and higher retained weather losses. Catastrophe and weather losses in the current six month period primarily stemmed from hail, tornado and wind events in the southeast.

~~The~~ net expense ratio, was 40.0% for the six months ended June 30, 2020, relatively flat from 40.3% in the prior year period. The decrease primarily stems from modest reductions in both the policy acquisition costs ratio and the G&A ratio resultant from the increase in net earned premiums.

~~The net combined ratio was 97.6% for six months ended June 30, 2020, down 3.7 points from 101.3% in the prior year period. The decrease stems from lower net loss and expense ratios,~~ as described above.

Our principal sources of liquidity include cash flows generated from operations, our cash, and cash equivalents, our marketable securities balances and borrowings available under our credit facilities. As of ~~June 30, 2020,~~March 31, 2021, we had ~~$288.3~~$402.8 million of cash and cash equivalents ~~which primarily consisted~~and $650.7 million in investments, compared to $441.0 million and $589.0 million, respectively, as of December 31, 2020. The decrease in cash and ~~money market accounts.~~ cash equivalents was due primarily to the decrease in investment of funds held in cash at December 31, 2020, which was partly offset by cash provided by operating activities.

We generally hold substantial cash balances to meet seasonal liquidity needs including amounts to pay quarterly reinsurance installments as well as meet the collateral requirements of Osprey, ~~Re Ltd. (“Osprey”),~~ our captive reinsurance company. In addition, we have $11.8 million in restricted cash primarily related our contractual obligations related to the catastrophe bonds issued by Citrus Re Ltd. as well as state insurance department depository requirements.

~~Osprey~~company, which is required to maintain a collateral trust account equal to the risk that it assumes from our insurance company affiliates. ~~At June 30, 2020, approximately $20.0 million was held in Osprey’s trust account.~~

~~Although we can provide no assurances, we~~We believe that ~~we maintain sufficient liquidity to pay~~ our ~~insurance company affiliates’ claims and expenses, as well as to satisfy commitments in the event~~sources of ~~unforeseen events such as inadequate premium rates or reserve deficiencies. We believe our current capital resources, including funds available under our revolving credit facility, together with~~ cash ~~provided from our operations, will be sufficient~~are adequate to meet ~~currently anticipated working capital~~our cash requirements for at least the next twelve months.

We ~~maintain a comprehensive reinsurance program at levels management considers adequate~~may continue to ~~diversify risk~~pursue the acquisition of complementary businesses and ~~safeguard~~make strategic investments. We may increase capital expenditures consistent with our ~~financial position.~~investment plans and anticipated growth strategy. Cash and cash equivalents may not be sufficient to fund such expenditures. As such, in addition to the use of our existing Credit Facilities, we may need to utilize additional debt to secure funds for such purposes.

	For the Six Months Ended June 30,									For the Three Months Ended March 31,
	2020			2019			Change			2021			2020			Change
	(in thousands)									(in thousands)
Net cash provided by (used in):
Operating activities	$	131,797		$	76,415		$	55,382		$	39,227		$	85,697		$	(46,470	)
Investing activities		(97,015	)		(36,772	)		(60,243	)		(73,664	)		(25,485	)		(48,179	)
Financing activities		(17,599	)		(25,740	)		8,141			(3,749	)		(13,791	)		10,042
Net increase in cash and cash equivalents	$	17,183		$	13,903		$	3,280
Net (decrease) increase in cash and cash equivalents										$	(38,186	)	$	46,421		$	(84,607	)

Net cash provided by operating activities was ~~$131.8~~$39.2 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to net cash provided of ~~$76.4~~$85.7 million for the comparable period in ~~2019.~~2020. The ~~increase~~decrease in cash from operating activities relates primarily to timing of cash flows associated with ~~gross written premium,~~ claim payments and reinsurance reimbursements during the first ~~six~~three months of ~~2020~~2021 compared to the first ~~six~~three months of ~~2019.~~2020.

Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$97.0~~$73.7 million as compared to net cash used of ~~$36.8~~$25.5 million for the comparable period in ~~2019.~~2020. The change in cash used for investing activities relates primarily to investment of proceeds from fixed income securities sold during 2020 as well as the timing of allocations of funds for investment.

Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$17.6~~$3.7 million, as compared to cash used in financing activities of ~~$25.7~~$13.8 million for the comparable period in ~~2019. More funds were available for investment in the current year over the prior year.~~2020. The reduction in cash used in financing activities ~~relates~~is due primarily to ~~payment of our term note~~the decrease in the ~~first six months~~amount of ~~2019, partially offset by~~stock repurchased under the ~~increase in~~ stock ~~repurchases period over period.~~repurchase program.

On December 14, 2018, the Company ~~as borrower,~~ entered into a credit agreement (as amended from time to time, the “Credit Agreement”) by and among the Company, as borrower, certain subsidiaries of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto (the “Lenders”), Regions Bank, as Administrative Agent and Collateral Agent, BMO Harris Bank N.A., as Syndication Agent, Hancock Whitney Bank and Canadian Imperial Bank of Commerce, as Co-Documentation Agents, and Regions Capital Markets and BMO Capital Markets Corp., as Joint Lead Arrangers and Joint Bookrunners.

Pursuant to the Credit Agreement, the participating Lenders agreed to provide (1) a five-year senior secured term loan facility in an aggregate principal amount of $75 million (the “Term Loan Facility”) and (2) a five-year senior secured revolving credit facility in an aggregate principal amount of $50 million (inclusive of a $5 million sublimit for the issuance of letters of credit and a $10 million sublimit for swingline loans) (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”). As of ~~June 30,~~December 31, 2020, the Company had in aggregate ~~$65.6~~$60.0 million principal outstanding under the Term Loan Facility and $10.0 million of borrowings outstanding under the Revolving Credit Facility.

At our option, borrowings under the Credit Facilities bear interest at rates equal to either (1) a rate determined by reference to LIBOR (based on one, two, three or six-month interest periods), adjusted for statutory reserve requirements, plus an applicable margin or (2) a base rate determined by reference to the greatest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50%, and (c) the LIBOR index rate applicable for an interest period of one month plus 1.00%, plus an applicable margin.

The applicable margin for loans under the Credit Facilities varies from 3.25% per annum to 3.75% per annum (for LIBOR loans) and 2.25% to 2.75% per annum (for base rate loans) based on our consolidated leverage ratio. Interest payments with respect to the Credit Facilities are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months. As of ~~June 30, 2020,~~March 31, 2021, the ~~Company’s effective~~borrowing under our Credit Facilities were accruing interest at a rate ~~for the Term Loan Facility was 4.10%~~of 3.38% per ~~annum and 4.36% per annum for the Revolving Credit Facility.~~annum.

In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined ~~based on~~by our consolidated leverage ratio.

Each of the Revolving Credit Facility and the Term Loan Facility mature on December 14, 2023. The principal amount of the Term Loan Facility amortizes in quarterly installments, which began with the close of the fiscal quarter ended March 31, 2019, in an amount equal to $1,875,000 per quarter, payable monthly or quarterly, with the balance payable at maturity.

The Company may prepay the loans under the Credit Facilities, in whole or in part, at any time without premium or penalty, subject to certain conditions including minimum amounts and reimbursement of certain costs in the case of prepayments of LIBOR loans. In addition, the Company is required to prepay the loan under the Term Loan Facility with the proceeds from certain financing transactions, involuntary dispositions or asset sales (subject, in the case of asset sales, to reinvestment rights).

All obligations under the Credit Facilities are or will be guaranteed by each existing and future direct and indirect wholly owned domestic subsidiary of the Company, other than all of the Company’s current and future regulated insurance subsidiaries (collectively, the “Guarantors”).

The Company and the Guarantors entered into a Pledge and Security Agreement, on December 14, 2018 (the “Security Agreement”), in favor of Regions Bank, as collateral agent. Pursuant to the Security Agreement, amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future assets of the Company and each Guarantor (subject to certain exceptions), including all of the capital stock of the Company’s domestic subsidiaries, other than its regulated insurance subsidiaries.

The Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for facilities of this type. The Company is required to maintain, as of each fiscal quarter (1) a maximum consolidated leverage ratio of ~~3.25~~2.75 to 1.00 for each fiscal quarter ~~ending on or before December 31, 2019,~~in 2021, stepping down ~~on each of the three anniversaries~~to 2.50 to 1.00 in 2022 and thereafter; (2) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 and (3) a minimum consolidated net worth for the Company and its subsidiaries. Events of default include, among other events, (i) nonpayment of principal, interest, fees or other amounts; (ii) failure to perform or observe certain covenants set forth in the Credit Agreement; (iii) breach of any representation or warranty; (iv) cross-default to other indebtedness; (v) bankruptcy and insolvency defaults; (vi) monetary judgment defaults and material nonmonetary judgment defaults; (vii) customary ERISA defaults; (viii) a change of control of the Company; and (ix) failure to maintain specified catastrophe retentions in each of the Company’s regulated insurance subsidiaries.

On August 10, 2017, the Company and Heritage MGA, LLC (the ~~“Guarantor”~~“Notes Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with Citigroup Global Markets Inc., as the initial purchaser (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $125.0 million aggregate principal amount of the Company’s 5.875% Convertible Senior Notes due 2037 (the “Convertible Notes”) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the “Securities Act”) ~~(the “Offering”)~~. The Purchase Agreement contained customary representations, warranties and agreements of the Company and the Notes Guarantor and customary conditions to closing, indemnification rights and obligations of the parties and termination provisions. The net proceeds from the ~~Offering,~~offering of the Convertible Notes, after deducting discounts and commissions and estimated offering expenses payable by the Company, were approximately $120.5 million. The ~~Offering~~offering of the Convertible Notes was completed on August 16, 2017.

The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, and Wilmington Trust, National Association, as trustee (the “Trustee”).

The Convertible Notes bear interest at a rate of 5.875% per year. Interest ~~began accruing on August 16, 2017 and~~ is payable semi-annually in arrears, on February 1 and August 1 of each ~~year, starting on February 1, 2018.~~year. The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Company’s subsidiaries other than the Notes Guarantor, which fully and unconditionally guarantee the Convertible Notes on a senior unsecured basis.

The Convertible Notes mature on August 1, 2037, unless earlier repurchased, redeemed or converted.

Holders may convert their Convertible Notes at any time prior to the close of business on the business day immediately preceding February 1, 2037, other than during the period from, and including, February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2017, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Convertible Notes in effect on each applicable trading day; (2) during the ten consecutive business-day period following any five consecutive trading-day period in which the trading price for the Convertible Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.

During the period from and including February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, and on or after February 1, 2037 until the close of business on the second business day immediately preceding August 1, 2037, holders may surrender their Convertible Notes for conversion at any time, regardless of the foregoing circumstances.

The conversion rate for the Convertible Notes was initially 67.0264 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $14.92 per share of common stock). The conversion rate is subject to adjustment in certain circumstances and is subject to increase for holders that elect to convert their Convertible Notes in connection with certain corporate transactions (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)) that occur prior to August 5, 2022.

Upon the occurrence of a fundamental change (as defined in the Convertible Note Indenture) (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture), holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Except as described below, the Company may not redeem the Convertible Notes prior to August 5, 2022. On or after August 5, 2022 but prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically. Holders of the Convertible Notes are able to cause the Company to repurchase their Convertible Notes for cash on any of August 1, 2022, August 1, 2027 and August 1, 2032, in each case at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.

The Convertible Note Indenture contains customary terms and covenants and events of default. If an Event of Default (as defined in the Convertible Note Indenture) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding by notice to the Company and the Trustee, may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Convertible Note Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if any, on, the Notes automatically become immediately due and payable.

In the second quarter of 2018, the Company repurchased $10.6 million principal amount of Convertible Notes for cash. In the fourth quarter of 2018 and first quarter of 2019, the Company repurchased Convertible Notes in the aggregate principal amount of $81.6 million for a combination of cash and the issuance of an aggregate of 3,880,653 shares of the Company’s common stock, valued at $53.0 million, leaving $23.4 million in aggregate principal amount outstanding. There were no repurchases of Convertible Notes ~~in the third and fourth quarters of 2019 or in~~subsequent to the first ~~or second quarters~~quarter of ~~2020.~~2019.

In December 2018, a subsidiary of the Company pledged U.S. government and agency fixed maturity securities with an estimated fair value of $31.0 million as collateral and received $19.2 million in a cash loan under an advance agreement with the ~~Federal Home Loan Bank (“FHLB”)~~FHLB Atlanta. The loan originated on December 12, 2018 and bears a fixed interest rate of 3.094% with interest payments due quarterly commencing in March 2019. The principal balance on the loan has a maturity date of December 13, 2023. In connection with the agreement, the subsidiary became a member of FHLB. Membership in the FHLB required an investment in FHLB’s common stock which was purchased on December 31, 2018 and valued at $1.4 million. The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary. The proceeds from the loan was used to prepay the Company’s Senior Secured Notes due 2023 ~~(“Senior Notes”)~~ in 2018.

When we prepare our condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (GAAP), we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three months ended ~~June 30, 2020,~~March 31, 2021, we reassessed our critical accounting policies and estimates as disclosed within our ~~2019~~2020 Annual Report on Form 10-K. ~~As disclosed in Note 1 to the condensed consolidated financial statements under the caption “Basis of Presentation and Significant Accounting Policies” we adopted on January 1, 2020, ASU 2016-13,~~ ~~Financial Instruments – Credit Losses, and we have made no further material changes or additions with regard to such policies and estimates.~~

~~The following table represents our~~As of March 31, 2021, there have been no material changes to the contractual obligations ~~for which cash flows are fixed or determinable as~~table disclosed in Item 7. “Management’s Discussion and Analysis of ~~June 30, 2020:~~Financial Condition and Results of Operations” of our 2020 Annual Report on Form 10-K.

Our insurance business is ~~seasonal as~~seasonal; hurricanes typically occur during the period from June 1 through November 30 ~~each year~~ and winter storms generally impact the first and fourth quarters of each year. With our catastrophe reinsurance program effective on June 1 each year, any variation in the cost of our reinsurance, whether due to changes to reinsurance rates or changes in the total insured value of our policy base will occur and be reflected in our financial results beginning June 1 of each year, subject to certain adjustments.

We do not have transactions with unconsolidated entities, such as entities often referred to as structured financial or special purpose entities, whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financial, liquidity, market risk, or credit risk support to us.

The information set forth under Note 1 to the condensed consolidated financial statements under the caption “Basis of Presentation and Significant Accounting Policies” is incorporated herein by reference. We do not expect any recently issued accounting pronouncements to have a material effect on our condensed consolidated financial statements.

~~Our investment portfolios at June 30, 2020 included fixed maturity and equity securities,~~The duration of the ~~purposes of which~~financial instruments held in our portfolio that are not for trading or speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet policyholder obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities’ prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Investment securities are managed by a group of nationally recognized asset managers and are overseen by the investment committee appointed by our board of directors. Our investment portfolios are primarily exposedsubject to interest rate risk was 3.744 years at March 31, 2021, 3.137 years at March 31, 2020, and 3.615 years at December 31, 2020. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit ~~risk and equity price risk. We classify our~~quality fixed maturity securities ~~as available-for-sale and report any unrealized gains or losses, net~~portfolio. As of ~~deferred income taxes, as a component~~March 31, 2021, the estimated weighted-average credit quality rating of ~~other comprehensive income within our stockholders’ equity. We evaluate our available-for-sale securities for future expected credit losses and report any allowance in~~ the income statement. We classify our equity securities as available-for-sale and report any unrealized gains or losses in the income statement. As such, any material temporary changes in the fair value of such securities can adversely impact the carrying value of our stockholders’ equity.

~~Our~~ fixed maturity securities ~~are sensitive to potential losses resulting from unfavorable changes in interest rates.~~ portfolio was A+, at fair value, consistent with the average rating at December 31, 2020.

We ~~manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.~~

~~The following table illustrates the~~have not experienced a material impact ~~of hypothetical changes in interest rates~~when compared to the ~~fair value~~tabular presentations of our ~~fixed maturity securities at June 30, 2020 (in thousands):~~

~~In addition, we have variable~~ interest rate ~~indebtedness under~~and market risk sensitive instruments in our ~~Credit Facilities which bears interest at a rate that references LIBOR. As of June 30,~~ 2020 ~~we had in aggregate $65.6 million principal outstanding under~~Annual Report on Form 10-K for the Term Loan Facility bearing interest at 4.10% per annum and $10.0 million of borrowings outstanding under the Revolving Credit Facility bearing interest at 4.36% per annum. There is currently uncertainty about whether LIBOR will continue to exist after 2021. The discontinuation of LIBOR after 2021 and the replacement with an alternative reference rate may adversely impact interest rates and our interest expense could increaseyear ended

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed maturities. We mitigate this risk by investing in fixed maturities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector. A majority of the securities in an unrealized gain position as of June 30, 2020 held an A rating or better. We do not intend to sell these investments until recovery of their amortized cost basis or maturity, and further believe that it is not more-likely-than-not that we will be required to sell these investments prior to that time.

~~The following table presents the composition of our fixed maturity portfolio by rating at June 30, 2020 (in thousands):~~

Our equity investment portfolio at June 30, 2020 consists of $1.6 million of Federal Home Loan Bank common stock, the investment is recorded at cost and adjusted, if and when subsequent price changes are provided by the institution. Such changes in the basis of the equity investment are recognized in net realized and unrealized gains and losses on the Company’s consolidated statements of operations. As of June 30, 2020, the Company recorded in aggregate $46,300 in dividends and reduced its membership stock holdings by $25,700.

Due to the COVID-19 pandemic, a portion of our employees continue to work from home or are on a hybrid schedule working both at our offices and from home. Established business continuity plans have been activated in order to continue business operations while mitigating any adverse impact to our control environment, operating procedures, data and internal controls. The design of our processes and controls allow for remote execution with accessibility to secure data.

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2020.~~March 31, 2021.

There has been no change in our internal controls over financial reporting during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes to our internal control over financial reporting for the period ending ~~June 30, 2020.~~March 31, 2021.

The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our condensed consolidated financial position results of operations or cash flow.

The Company documented its risk factors ~~disclosed~~ in ~~the section entitled “Risk Factors” in our 2019~~Item 1A of Part I of its annual report on Form 10-K ~~set forth information relating~~for the year ended December 31, 2020 filed on March 9, 2021. There have been no material changes to ~~various risks and uncertainties that could materially adversely affect our business, financial condition, and operating results. Those~~the Company’s risk factors ~~continue to be relevant to an understanding~~since the filing of ~~our business, financial condition, and operating results.~~

~~The coronavirus (COVID-19) global pandemic may adversely affect our business, including revenues, profitability, results of operations, and/or cash flows, in a manner and to a degree~~ that ~~cannot be predicted but could be material.~~report.

~~Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy and our results of operations.~~ ~~The cumulative effects of COVID-19 on the Company, and the effect of any other epidemic, pandemic or public health outbreak, cannot be predicted at this time, but could include, without limitation:~~

The situation surrounding COVID-19 remains fluid. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future, and the potential for a material impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and globally. For this reason, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

During the three months ended March 31, 2021, the Company acquired 12,500 shares of its stock for a total cost of $127,000 that were not part of the publicly announced share repurchase program authorization. These shares were delivered to the Company by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards.

A summary of our common stock repurchases during the three months ended ~~June 30, 2020~~March 31, 2021 is set forth in the table below (in thousands, except shares):

On June 1, 2020, the Company amended its Credit Agreement dated as of December 14, 2018 (as amended to date, the “Credit Agreement”) by entering into the Third Amendment to Credit Agreement (the “Third Amendment”) with the lenders from time to time party to the Credit Agreement, and Regions Bank, as administrative agent and collateral agent.

The Third Amendment amend the Credit Agreement to increase the letter of credit sublimit under the Credit Agreement from $5 million to $40 million and to make related modifications to certain of the negative covenants in the Credit Agreement.

The above summary description of the Third Amendment does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Third Amendment, a copy of which is filed herewith as Exhibit 10.1 and incorporated herein by reference herein.

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Quarterly Report on Form 10-Q.

Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	HRTG	New York Stock Exchange

		Page
PART I – FINANCIAL INFORMATION
Item 1 Unaudited Financial Statements
Condensed Consolidated Balance Sheets: ~~June 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020		2
Condensed Consolidated Statements of Operations and Other Comprehensive Income: Three ~~and Six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)		3
Condensed Consolidated Statements of Stockholders’ Equity: Three ~~and Six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)		4
Condensed Consolidated Statements of Cash Flows: ~~Six~~Three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)		65
Notes to Unaudited Condensed Consolidated Financial Statements		87
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		2723
Item 3 Quantitative and Qualitative Disclosures about Market Risk		3730
Item 4 Controls and Procedures		3830
PART II – OTHER INFORMATION
Item 1 Legal Proceedings		4031
Item 1A Risk Factors		4031
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		41
~~Item 4 Mine Safety Disclosures~~		41
~~Item 5 Other Information~~		4131
Item 6 Exhibits		4231
Signatures		4333

	Proceeds		Gross Realized Gains		Gross Realized Losses
	(In thousands)
Six months ended June 30, 2020	$	46,860	$	135	$	113
Six months ended June 30, 2019	$	45,216	$	968	$	204

	~~June 30, 2020~~
~~Weighted average lease term - Finance leases~~	~~3.18 yrs.~~
~~Weighted average lease term - Operating leases~~	~~7.41 yrs.~~
~~Weighted average discount rate - Finance leases~~		~~7.1~~	%
~~Weighted average discount rate - Operating leases~~		~~5.3~~	%

	March 31, 2021			March 31, 2020
Weighted average lease term - Finance leases	3.54 yrs.			3.42 yrs.
Weighted average lease term - Operating leases	6.78 yrs.			7.68 yrs.
Weighted average discount rate - Finance leases		6.9	%		7.1	%
Weighted average discount rate - Operating leases		5.3	%		5.3	%

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

	At March 31, 2021
	Cost or Amortized Cost		Percent of Total			Fair Value		Percent of Total
Maturity dates:						(In thousands)
Due in one year or less	$	78,937		13	%	$	79,291		13	%
Due after one year through five years		177,382		28	%		178,603		29	%
Due after five years through ten years		204,746		33	%		200,886		32	%
Due after ten years		164,708		26	%		164,143		26	%
Total	$	625,773		100	%	$	622,923		100	%

	At June 30, 2020
	Cost or Amortized Cost		Percent of Total			Fair Value		Percent of Total
Maturity dates:	(In thousands)					(In thousands)
Due in one year or less	$	80,565		12	%	$	81,143		12	%
Due after one year through five years		242,984		36	%		251,414		36	%
Due after five years through ten years		137,887		21	%		147,093		21	%
Due after ten years		210,525		31	%		218,627		31	%
Total	$	671,961		100	%	$	698,277		100	%

March 31, 2021	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Invested Assets:	(in thousands)
Debt Securities Available-for-sale
U.S. government and agency securities	$	43,519	$	370	$	43,149	$	—
States, municipalities and political subdivisions		96,925		—		96,925		—
Special revenue		290,086		—		290,086		—
Hybrid securities		100		—		100		—
Industrial and miscellaneous		192,293		—		192,293		—
Total investments	$	622,923	$	370	$	622,553	$	—

June 30, 2020	Total		Level 1		Level 2		Level 3
Invested Assets:	(in thousands)
Debt Securities Available-for-sale
U.S. government and agency securities	$	63,479	$	374	$	63,105	$	—
States, municipalities and political subdivisions		107,367		—		107,367		—
Special revenue		274,742		—		274,742		—
Hybrid securities		95		—		95		—
Industrial and miscellaneous		252,594		—		252,594		—
Total debt securities		698,277		374		697,903		—
Investments reported at NAV⁽¹⁾		7,973		—		—		—
Total investments	$	706,250	$	374	$	697,903	$	—

	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019
Amortization of ROU assets - Finance leases	$	21	$	18
Interest on lease liabilities - Finance leases		5		7
Variable lease cost (cost excluded from lease payments)		125		111
Operating lease cost (cost resulting from lease payments)		338		328
Total lease cost	$	489	$	464

				Weighted-Average
				Grant-Date Fair
	Number of shares			Value per Share
Non-vested, at December 31, 2019		345,534		$	19.56
Granted		10,000			10.35
Vested		(7,500	)		13.25
Canceled and surrendered		(17,500	)		13.25
Non-vested, at June 30, 2020		330,534		$	19.76

Grant date	Restricted shares unvested		Share Value at Grant Date Per Share		Remaining Restriction Period (Years)
February 12, 2018		50,000	$	16.35		2.00
September 3, 2018		10,267	$	15.08		0.80
April 24, 2020		10,000	$	10.60		1.50
September 21, 2020		5,000	$	10.83		0.80
January 4, 2021		143,817	$	10.43		3.00
		219,084

	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In thousands)
Convertible debt	$	38,429	$	1,261	$	2,751	$	2,751	$	31,666
Note Payable ⁽¹⁾		84,181		7,135		19,893		57,153		—
Mortgage loan		20,164		446		1,786		1,786		16,145
FHLB agreement		21,339		332		1,205		19,802		—
Lease obligations		10,172		765		3,114		2,599		3,694
Total Contractual Obligations	$	174,284	$	9,939	$	28,750	$	84,091	$	51,505

Hypothetical Change in Interest rates	Estimated Fair Value After Change		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value
300 basis point increase	$	632,167	$	(66,110	)		-9.468	%
200 basis point increase	$	654,291	$	(43,985	)		-6.3	%
100 basis point increase	$	676,328	$	(21,949	)		-3.1	%
100 basis point decrease	$	717,136	$	18,859			2.7	%
200 basis point decrease	$	726,524	$	28,248			4.0	%
300 basis point decrease	$	728,369	$	30,093			4.3	%

	Amortized Cost		% of Total Amortized Cost			Estimated Fair Value		% of total Estimated Fair Value
AAA	$	180,069		26.8	%	$	186,771		26.7	%
AA+, AA, AA-	$	262,632		39.1	%	$	272,706		39.1	%
A+, A, A-1+	$	157,523		23.4	%	$	164,453		23.6	%
BBB+, BBB, BBB-	$	71,570		10.7	%	$	74,177		10.6	%
Not rated	$	167		0.0	%	$	170		0.0	%
Total	$	671,961		100	%	$	698,277		100	%

	Total Number of Shares Purchased	Average Price Paid Per Share ⁽¹⁾	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Apr 1 - Apr 30, 2020	—	—	—	$25,830
May 1 - May 31, 2020	—	—	—	$25,830
June 1 - June 30, 2020	163,456	$12.28	163,456	$23,818
Total	163,456		163,456

	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1 - January 31, 2021	12,500	$16.35	—	$50,000
February 1 - February 29, 2021	—	$ —	—	$50,000
March 1 - March 31, 2021	—	$ —	—	$50,000
Total	12,500		—

Exhibit Number		Description

3.1		Certificate of Incorporation of Heritage Insurance Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2014)
3.2		By-laws of Heritage Insurance Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2014)
4		Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-195409) filed on May 13, 2014)
4.1		Form of 5.875% Convertible Senior Notes due 2037 (included in Exhibit 4.1), incorporated by reference to 1.1 to our Form 8-K filed on August 16, 2017
4.2		Indenture, date as of August 16, 2017, by and among the Company. Heritage MGA, LLC as guarantor, and Wilmington Trust, National Association, as trustee, incorporated by reference to Exhibit 4.1 to our Form 8-K filed on August 16, 2017
~~10.1~~10.18		~~Third~~Employment Agreement dated January 5, 2021 between Heritage Insurance Holdings, Inc. and Ernie Garateix, (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on January 6, 2021)
10.19		Employment Agreement dated April 13, 2021 between Heritage Insurance Holdings, Inc. and Kirk Lusk, (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on April 14, 2021)
10.20*		Employment Agreement dated January 1, 2015 between Heritage Insurance Holdings, Inc. and Sharon Binnun
10.21*		Employment Agreement dated April 2, 2018 between Zephyr Insurance Company, Inc. and Tim Johns

10.22*		Form of Restricted Stock Award Agreement (Time-Based and Performance-Based Vesting)
10.23*		Fourth Amendment to Credit Agreement, dated ~~June 1, 2020,~~March 24, 2021, among Heritage Insurance Holdings, Inc., certain subsidiaries of Heritage Insurance Holdings, Inc. from time to time party as guarantors, the lenders from time to time party, and Regions Bank, as Administrative Agent and Collateral ~~Agent.~~Agent
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101~~101.INS*		~~The following financial information from the Quarterly Report on Form 10-Q of Heritage Insurance Holdings, Inc. for the quarter ended June 30, 2020, filed electronically herewith, and formatted in~~ Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet; (ii) Condensed Consolidated Income Statement; (iii) Condensed Consolidated Cash Flow Statement; (iv) Condensed Consolidated Statement of Stockholders' Equity; and (v) Notes toInstance Document (the Instance Document does not appear in the ~~Condensed Consolidated Financial Statements~~Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Data Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL ~~for the cover page from the Quarterly Report on Form 10-Q of Heritage Insurance Holdings, Inc. for the quarter ended June 30, 2020, files electronically herewith, included~~and contained in ~~the~~ Exhibit ~~(101) inline XBRL Document Set.~~
		101)

	HERITAGE INSURANCE HOLDINGS, INC.

Date: ~~August 4, 2020~~May 7, 2021	By:	/s/ ~~BRUCE LUCAS~~ERNESTO GARATEIX
		~~Bruce Lucas~~Ernesto Garateix
		~~Chairman and~~ Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: ~~August 4, 2020~~May 7, 2021	By:	/s/ KIRK LUSK
		Kirk Lusk
		Chief Financial Officer (Principal Financial and Accounting Officer)