TIG Trean Insurance Group Inc

Trean Insurance Group, Inc. (Nasdaq: TIG) (“Trean” or the “Company”), a leading provider of products and services to the specialty insurance market, today reported results for the second quarter ended June 30, 2021.

“We have firmly established ourselves as a ‘growth company’,” stated Andrew M. O’Brien, Chief Executive Officer of Trean. “We have developed a unique business model within the multi-billion dollar specialty insurance market, bolstered by a strong management team, which has provided us with a clear runway to expand organically, as well as a strong pipeline of attractive new opportunities to add to our first-class roster of programs. Importantly, we are rapidly growing while still responsibly managing our risk profile. By remaining disciplined with respect to our underwriting, our premiums will ultimately flow to our bottom line, creating long-term sustainable and profitable bottom line expansion. We are positioned strongly to continue outperforming, and believe we are well on pace to achieve our long-term goal of $1 billion in gross written premiums within the next five years.”

“For the second quarter and first half of 2021, we performed superbly from a growth standpoint, including a high double-digit year-over-year increase in gross written premium, as we continue to strengthen the foundation to create additional long-term value for our shareholders,” added Mr. O’Brien. “We also delivered another quarter of significant net earned and unearned premium growth – accumulating future potential earnings that should contribute to and drive substantial increases in our longer-term net income. In addition, we further expanded our non-workers’ compensation business and diversified our overall business to reduce our concentration risk, while maintaining disciplined underwriting standards.”

Second Quarter 2021 Highlights

• Gross written premiums increased 42.8% to $156.6 million, compared to $109.6 million in the second quarter of 2020
• Net earned premiums more than doubled to $47.9 million, compared to $21.4 million in the second quarter of 2020
• Loss ratio of 62.0%, compared to 57.0% in the second quarter of 2020
• Expense ratio of 31.8%, a 700 basis point improvement compared to 38.8% in the second quarter of 2020
• Combined ratio of 93.8%, a 200 basis point improvement versus 95.8% in the prior-year period
• Net income was $2.1 million and diluted earnings per share was $0.04
• Adjusted net income(1) was $4.3 million, and adjusted diluted earnings per share was $0.08
• Underwriting income(1) was $3.0 million, compared to $0.9 million in the second quarter of 2020
• Return on equity of 2.0%; Adjusted return on equity(1) of 4.2%; Adjusted return on tangible equity was 8.6%(1)(1)   Adjusted net income, adjusted diluted earnings per share, adjusted return on equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See discussion of “Key Metrics” below.

Underwriting Results

Gross written premiums increased 42.8% to $156.6 million for the second quarter of 2021, compared to $109.6 million for the second quarter of 2020, primarily attributable to growth in Trean’s existing program partner business, the addition of new program partners, and the acquisition of 7710 Insurance Company in the fourth quarter of 2020.

Increase in gross unearned premiums was $17.9 million in the second quarter of 2021, compared to $9.3 million in the prior-year period. As of June 30, 2021, the Company had net unearned premiums reflected on its balance sheet of $73.4 million, an increase of $7.2 million compared to March 31, 2021 and an increase of $23.4 million compared to year-end 2020. This continued growth in net unearned premium represents significant deferred premium revenue and, assuming stable loss ratios, future net income to be recognized over subsequent quarters as these net premiums are earned.

Net earned premiums of $47.9 million grew 124.3% compared to the prior year’s second quarter, driven by the increase in gross written and gross earned premiums, partially offset by an increase in ceded earned premiums compared to the prior-year period.

Underwriting income was $3.0 million, resulting in a combined ratio of 93.8% for the second quarter of 2021, compared to underwriting income of $0.9 million and a combined ratio of 95.8% for the prior-year period. Losses and loss adjustment expenses for the second quarter of 2021 were $29.7 million, which resulted in a 62.0% loss ratio, compared to 57.0% in the prior-year period. The increase in the loss ratio during the second quarter of 2021 versus the prior-year period was primarily attributable to a number of unusually large losses experienced in the first half of 2021.

General and administrative expenses were $15.3 million for the second quarter of 2021, compared to $8.3 million for the prior-year period. The increase was due to a rise in net commissions driven by an increase in the Company’s retention rate from 21.3% to 34.6% year-over-year, increased salaries and benefits resulting primarily from acquisitions made in 2020 and an expanded workforce, as well as an increase in business insurance and insurance-related expenses, rent and office-related expenses. The Company’s expense ratio was 31.8% for the second quarter of 2021, a 700 basis point improvement compared to 38.8% for the prior-year period. The improvement in the expense ratio was primarily due to the year-over-year increase in net earned premiums more than offsetting the impact of the increase in general and administrative expenses.

Net income was $2.1 million for the second quarter of 2021, compared to net income of $1.4 million for the prior-year period. Diluted earnings per share for the second quarter of 2021 was $0.04. The second quarter of 2021 included intangible asset amortization related to acquisitions, noncash stock compensation and unrealized losses on embedded derivatives, while the second quarter of 2020 included certain non-recurring expenses related to the Company’s initial public offering. Adjusted net income(1), which excludes these items and their related tax impact, was $4.3 million for the second quarter of 2021, compared to adjusted net income of $4.8 million for the prior-year period. Adjusted diluted earnings per share for the second quarter of 2021 was $0.08.

Investment Results

Net investment income was $2.1 million for the second quarter of 2021, compared to $2.5 million in the prior-year period. Cash and invested assets consist of fixed maturities, equity securities and cash equivalents. The majority of the Company’s investment portfolio at June 30, 2021 was comprised of $424.9 million of fixed maturity securities. Also included in investments at June 30, 2021 were $3.0 million of equity securities and $101.4 million of cash and cash equivalents. The Company’s fixed maturities portfolio had an average rating of “AA” at both June 30, 2021 and December 31, 2020.

Other

Other revenue was $1.2 million for the second quarter of 2021, compared to $1.5 million for the prior-year period, largely driven by a reduction in management fees due to the expiration of a management contract at the end of the first quarter 2021.

During the second quarter of 2021, the Company determined that its funds held agreements with reinsurers contain embedded derivatives relating to a total return swap on the underlying investments. As a result, the Company will now report gains and losses on the embedded derivatives, along with related investment earnings, in operations. While the correction was not material to the previously reported condensed consolidated and condensed combined financial statements, the prior period amounts have been restated for comparability.

Stockholders’ Equity and Returns

Total stockholders’ equity was $417.3 million at June 30, 2021, compared to $410.1 million at December 31, 2020. Return on equity was 2.0% for the second quarter of 2021, compared to 3.8% for the prior-year period, and adjusted return on equity(1) was 4.2% for the second quarter of 2021, compared to 13.2% for the prior-year period. The change in return on equity reflected a significant increase in the Company’s stockholders’ equity, primarily resulting from the increases in additional paid-in capital related to the IPO and retained earnings since June 2020. Return on tangible equity was 4.2% for the second quarter of 2021, compared to 3.8% for the prior-year period and adjusted return on tangible equity was 8.6% for the second quarter of 2021, compared to 13.6% for the prior-year period.

Full Year 2021 Gross Written Premium Outlook

The Company is initiating its outlook for gross written premiums for the full year 2021 to be between $605 million and $615 million. This implies year-over-year growth of 25% on the lower end and 27% on the upper end.

Webcast and Conference Call

A webcast and conference call to discuss the Company’s results will be held today beginning at 5:00 p.m. (Eastern Time). The audio webcast is accessible through the investor relations section of the Company’s website at https://investors.trean.com.

The dial-in number for the conference call is (877) 300-8521 (toll-free) or (412) 317-6026 (international), conference ID# 10159264. Any person interested in listening to the call should dial in or access the website at least 10 minutes before the call.

A replay of the call will be available at https://investors.trean.com for one year following the call.

Key Metrics

The Company discusses certain key financial and operating metrics, described below, which provide useful information about its business and the operational factors underlying its financial performance.

Underwriting income is a non-GAAP financial measure defined as income before taxes excluding net investment income, investment revaluation gains, net realized capital gains or losses, IPO-related expenses, intangible asset amortization, noncash stock compensation, losses on embedded derivatives, interest expense, other revenue and other income and expenses. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of underwriting income to income before taxes in accordance with GAAP.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of various certain items, including the consummation of the reorganization transactions in connection with our IPO, noncash intangible asset amortization and stock compensation, unrealized losses on embedded derivatives, other expenses and gains or losses that the Company does not believe reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of the Company’s results across periods. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted net income to net income in accordance with GAAP.

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of general and administrative expenses to net earned premiums.

Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Adjusted return on equity is a non-GAAP financial measured defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted return on equity to return on equity in accordance with GAAP.

Tangible stockholders’ equity is defined as stockholders’ equity less goodwill and other intangible assets.

Return on tangible equity is a non-GAAP financial measure defined as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period.

Adjusted return on tangible equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted return on tangible equity to return on equity in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are not historical or current facts. These statements may discuss the Company’s net income, cash flow, financial condition, impairments, expenditures, growth, strategies, plans, achievements, capital structure, organizational structure, market opportunities and general market and industry conditions. Such forward-looking statements can be identified by words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “believe,” “seek,” “outlook,” “future,” “will,” “would,” “should,” “could,” “may,” “can have,” “likely” and similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events. These statements are only predictions and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements if the underlying assumptions prove to be incorrect or as a result of risks, uncertainties, and other factors, including the impact of the COVID-19 pandemic on the business and operations of the Company, our program partners and other business relations. Other factors that may cause such differences include the risks described in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. These forward-looking statements speak only as of the date on which they are made. Except as required by applicable securities laws, the Company disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, changes in assumptions or otherwise. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this press release or in other filings and public statements of the Company.

About Trean Insurance Group, Inc.

Trean Insurance Group, Inc. (Nasdaq: TIG) provides products and services to the specialty insurance market. Trean underwrites specialty casualty insurance products both through its program partners and its own managing general agencies. Trean also provides its program partners with a variety of services including issuing carrier services, claims administration and reinsurance brokerage. Trean is licensed to write business across 49 states and the District of Columbia. For more information, please visit www.trean.com.

Contacts

Investor Relationsinvestor.relations@trean.com(952) 974-2260

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Operations

(in thousands, except for percentages, share and per share amounts)

(unaudited)

	Three Months Ended June 30,											Percentage			Six Months Ended June 30,											Percentage
		2021				2020			Change			Change (1)				2021				2020			Change			Change (1)
Revenues
Gross written premiums	$	156,551			$	109,612			46,939			42.8	%		$	303,281			$	217,471			85,810			39.5	%
Increase in gross unearned premiums		(17,927	)			(9,265	)		(8,662	)		93.5	%			(36,358	)			(16,638	)		(19,720	)		118.5	%
Gross earned premiums		138,624				100,347			38,277			38.1	%			266,923				200,833			66,090			32.9	%
Ceded earned premiums		(90,681	)			(78,968	)		(11,713	)		14.8	%			(177,846	)			(156,995	)		(20,851	)		13.3	%
Net earned premiums		47,943				21,379			26,564			124.3	%			89,077				43,838			45,239			103.2	%
Net investment income		2,103				2,525			(422	)		(16.7	)%			4,375				6,770			(2,395	)		(35.4	)%
Net realized capital gains		10				(4	)		14			NM				23				3,230			(3,207	)		(99.3	)%
Other revenue		1,229				1,530			(301	)		(19.7	)%			5,884				5,922			(38	)		(0.6	)%
Total revenue		51,285				25,430			25,855			101.7	%			99,359				59,760			39,599			66.3	%
Expenses
Losses and loss adjustment expenses		29,725				12,183			17,542			144.0	%			54,606				25,117			29,489			117.4	%
General and administrative expenses		15,267				8,293			6,974			84.1	%			27,158				16,442			10,716			65.2	%
Other expenses		845				-			845			NM				845				-			845			NM
Intangible asset amortization		1,413				23			1,390			NM				2,827				34			2,793			NM
Noncash stock compensation		419				-			419			NM				630				-			630			NM
Interest expense		425				501			(76	)		(15.2	)%			852				962			(110	)		(11.4	)%
Total expenses		48,094				21,000			27,094			129.0	%			86,918				42,555			44,363			104.2	%
Losses on embedded derivatives		(686	)			(3,991	)		3,305			(82.8	)%			1,990				(5,180	)		7,170			(138.4	)%
Other income		35				40			(5	)		(12.5	)%			156				54			102			188.9	%
Income before taxes		2,540				479			2,061			NM				14,587				12,079			2,508			20.8	%
Income tax expense		414				351			63			17.9	%			3,019				3,218			(199	)		(6.2	)%
Equity earnings in affiliates, net of tax		-				1,230			(1,230	)		(100.0	)%			-				1,932			(1,932	)		(100.0	)%
Net income	$	2,126			$	1,358			768			56.6	%		$	11,568			$	10,793			775			7.2	%
Earnings per share:
Basic	$	0.04			$	0.04									$	0.23			$	0.29
Diluted	$	0.04			$	0.04									$	0.23			$	0.29
Weighted average shares outstanding:
Basic		51,152,979				37,386,394										51,150,881				37,386,394
Diluted		51,166,587				37,386,394										51,173,204				37,386,394
(1) The Company defines increases or decreases greater than 200% as “NM” or not meaningful.

Key Metrics

	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2021				2020				2021				2020
Key metrics:
Underwriting income (1)	$	2,951			$	903			$	7,313			$	2,279
Adjusted net income (1)	$	4,316			$	4,789			$	12,425			$	11,122
Loss ratio		62.0%				57.0%				61.3%				57.3%
Expense ratio		31.8%				38.8%				30.5%				37.5%
Combined ratio		93.8%				95.8%				91.8%				94.8%
Return on equity		2.0%				3.8%				5.6%				15.4%
Adjusted return on equity (1)		4.2%				13.2%				6.0%				15.8%
Return on tangible equity (1)		4.2%				3.8%				11.6%				15.8%
Adjusted return on tangible equity (1)		8.6%				13.6%				12.5%				16.2%
(1) Adjusted net income, adjusted return on equity, return on tangible equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation to the applicable GAAP measure.

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

	June 30, 2021			December 31, 2020
Assets	(unaudited)
Fixed maturities, available for sale	$	424,943		$	405,604
Preferred stock, at fair value		235			240
Common stock, at fair value		2,741			3,534
Equity method investments		-			232
Total investments		427,919			409,610
Cash and cash equivalents		101,361			153,149
Restricted cash		12,469			4,085
Accrued investment income		2,329			2,458
Premiums and other receivables		131,930			109,217
Income taxes receivable		5,113			1,322
Reinsurance recoverable		361,943			343,213
Prepaid reinsurance premiums		121,004			107,971
Deferred policy acquisition cost, net		6,424			1,332
Property and equipment, net		7,780			8,254
Right of use asset		5,378			6,338
Goodwill		140,640			140,640
Intangible assets, net		72,489			75,316
Other assets		8,410			6,878
Total assets	$	1,405,189		$	1,369,783
Liabilities
Unpaid loss and loss adjustment expenses	$	502,560		$	457,817
Unearned premiums		194,388			157,987
Funds held under reinsurance agreements		161,013			174,704
Reinsurance premiums payable		51,681			57,069
Accounts payable and accrued expenses		31,017			61,240
Lease liability		5,855			6,893
Deferred tax liability		10,229			12,329
Debt		31,103			31,637
Total liabilities		987,846			959,676
Commitments and contingencies
Stockholders' Equity
Common stock		511			511
Additional paid-in capital		287,734			287,110
Retained earnings		120,628			109,060
Accumulated other comprehensive income		8,470			13,426
Total stockholders' equity		417,343			410,107
Total liabilities and stockholders' equity	$	1,405,189		$	1,369,783

Supplemental Table of Net G&A Components

		Three Months Ended June 30,								Six Months Ended June 30,
			2021				2020				2021				2020
G&A Expenses
Direct Commissions		$	27,602			$	21,463			$	50,710			$	43,938
Ceding Commission Income			(29,684	)			(26,052	)			(57,892	)			(52,761	)
Net Commissions			(2,082	)			(4,589	)			(7,182	)			(8,823	)
Insurance-Related Expense*			5,149				3,624				9,425				7,561
G&A Operating Expenses			12,200				9,258				24,915				17,704
Total G&A Expense		$	15,267			$	8,293			$	27,158			$	16,442
G&A Operating Expense - % of GWP			7.8	%			8.4	%			8.2	%			8.1	%
Retention Percentage			34.6	%			21.3	%			33.4	%			21.8	%
Direct Commission rate			19.9	%			20.7	%			19.0	%			21.4	%
Ceding Commission rate			32.7	%			31.8	%			32.6	%			33.1	%
* Primarily premium taxes and other state assessments and fees.

Reconciliation of Non-GAAP Financial Measures

Underwriting income

The Company defines underwriting income as income before taxes excluding net investment income, investment revaluation gains, net realized capital gains or losses, IPO-related expenses, intangible asset amortization, noncash stock compensation, losses on embedded derivatives, interest expense, other revenue and other income and expenses. Underwriting income represents the pre-tax profitability of the Company’s underwriting operations and allows management to evaluate the Company’s underwriting performance without regard to investment income, IPO-related expenses, intangible asset amortization, noncash stock compensation, interest expense, other revenue and other income and expenses. The Company uses this metric because the Company believes it gives management and other users of the Company’s financial information useful insight into the Company’s underwriting business performance by adjusting for these expenses and sources of income. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.

	Three Months Ended June 30,								Percentage			Six Months Ended June 30,								Percentage
(in thousands, except percentages)		2021				2020			Change (1)				2021				2020			Change (1)
Net income	$	2,126			$	1,358			56.6	%		$	11,568			$	10,793			7.2	%
Income tax expense		414				351			17.9	%			3,019				3,218			(6.2	)%
Equity earnings in affiliates, net of tax		-				(1,230	)		(100.0	)%			-				(1,932	)		(100.0	)%
Income before taxes		2,540				479			NM				14,587				12,079			20.8	%
Other revenue		(1,229	)			(1,530	)		(19.7	)%			(5,884	)			(5,922	)		(0.6	)%
Losses on embedded derivatives		686				3,991			(82.8	)%			(1,990	)			5,180			(138.4	)%
Net investment income		(2,103	)			(2,525	)		(16.7	)%			(4,375	)			(6,770	)		(35.4	)%
Net realized capital gains (losses)		(10	)			4			NM				(23	)			(3,230	)		(99.3	)%
Other expenses		845				-			NM				845				-			NM
Interest expense		425				501			(15.2	)%			852				962			(11.4	)%
Intangible asset amortization		1,413				23			NM				2,827				34			NM
Noncash stock compensation		419				-			NM				630				-			NM
Other income		(35	)			(40	)		(12.5	)%			(156	)			(54	)		188.9	%
Underwriting income	$	2,951			$	903			NM			$	7,313			$	2,279			NM
(1) The Company defines increases or decreases greater than 200% as “NM” or not meaningful.

Adjusted net income

The Company defines adjusted net income as net income excluding the impact of certain items, including the consummation of the reorganization transactions in connection with the IPO, noncash intangible asset amortization and stock compensation, unrealized losses on embedded derivatives, other expenses and gains or losses that the Company believes do not reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability the Company’s results across periods. The Company calculates the tax impact only on adjustments that would be included in calculating the Company’s income tax expense using the effective tax rate at the end of each period. The Company uses adjusted net income as an internal performance measure in the management of its operations because the Company believes it gives its management and other users of its financial information useful insight into the Company’s results of operations and underlying business performance by eliminating the effects of these items. Adjusted net income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define adjusted net income differently.

	Three Months Ended June 30,								Percentage
(in thousands, except percentages)		2021				2020			Change (1)
Net income	$	2,126			$	1,358			56.6	%
Intangible asset amortization		1,413				23			NM
Noncash stock compensation		419				-			NM
Unrealized losses on embedded derivatives		167				2,990			(94.4	)%
Other expenses		845				-			NM
Expenses associated with Altaris management fee, including cash bonuses paid to unitholders		-				442			(100.0	)%
Expenses associated with IPO and other one-time legal and consulting expenses		-				788			(100.0	)%
Expenses related to debt issuance costs		-				135			(100.0	)%
Total adjustments		2,844				4,378			(35.0	)%
Tax impact of adjustments		(654	)			(947	)		(30.9	)%
Adjusted net income	$	4,316			$	4,789			(9.9	)%
(1) The Company defines increases or decreases greater than 200% as “NM” or not meaningful.
	Six Months Ended June 30,								Percentage
(in thousands, except percentages)		2021				2020			Change (1)
Net income	$	11,568			$	10,793			7.2	%
Intangible asset amortization		2,827				34			NM
Noncash stock compensation		630				-			NM
Unrealized losses on embedded derivatives		(3,189	)			3,206			(199.5	)%
Other expenses		845				-			NM
Expenses associated with Altaris management fee, including cash bonuses paid to unitholders		-				883			(100.0	)%
Expenses associated with IPO and other one-time legal and consulting expenses		-				1,200			(100.0	)%
Expenses related to debt issuance costs		-				135			(100.0	)%
FMV adjustment of remaining investment in subsidiary		-				(2,000	)		(100.0	)%
Net gain on purchase & disposal of subsidiaries		-				(3,115	)		(100.0	)%
Total adjustments		1,113				343			NM
Tax impact of adjustments		(256	)			(14	)		NM
Adjusted net income	$	12,425			$	11,122			11.7	%
(1) The Company defines increases or decreases greater than 200% as “NM” or not meaningful.

Adjusted return on equity

The Company defines adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. The Company uses adjusted return on equity as an internal performance measure in the management of its operations because the Company believes it gives management and other users of the Company’s financial information useful insight into the Company’s results of operations and underlying business performance by adjusting for items that the Company believes do not reflect its core operating performance and that may diminish comparability across periods. Adjusted return on equity should not be viewed as a substitute for return on equity calculated in accordance with GAAP, and other companies may define adjusted return on equity differently.

	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2021				2020				2021				2020
Adjusted return on equity calculation:
Numerator: adjusted net income	$	4,316			$	4,789			$	12,425			$	11,122
Denominator: average stockholders' equity		415,159				144,733				413,725				140,450
Adjusted return on equity		4.2	%			13.2	%			6.0	%			15.8	%
Return on equity		2.0	%			3.8	%			5.6	%			15.4	%

Return on tangible equity and adjusted return on tangible equity

The Company defines tangible stockholders’ equity as stockholders’ equity less goodwill and other intangible assets. The Company defines return on tangible equity as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. The Company defines adjusted return on tangible equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period. The Company regularly evaluates acquisition opportunities and have historically made acquisitions that affect stockholders’ equity. The Company uses return on tangible equity and adjusted return on tangible equity as internal performance measures in the management of the Company’s operations because the Company believes they give management and other users of its financial information useful insight into the Company’s results of operations and underlying business performance by adjusting for the effects of acquisitions on the Company’s stockholders’ equity and, in the case of adjusted return on tangible equity, by adjusting for items that the Company believes do not reflect its core operating performance and that may diminish comparability across periods.   Return on tangible equity and adjusted return on tangible equity should not be viewed as substitutes for return on equity calculated in accordance with GAAP, and other companies may define return on tangible equity and adjusted return on tangible equity differently.

	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2021				2020				2021				2020
Return on tangible equity calculation:
Numerator: net income	$	2,126			$	1,358			$	11,568			$	10,793
Denominator:
Average stockholders' equity		415,159				144,733				413,725				140,450
Less: Average goodwill and other intangible assets		213,836				3,453				214,543				3,459
Average tangible stockholders' equity		201,323				141,280				199,182				136,991
Return on tangible equity		4.2	%			3.8	%			11.6	%			15.8	%
Return on equity		2.0	%			3.8	%			5.6	%			15.4	%
	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2021				2020				2021				2020
Adjusted return on tangible equity calculation:
Numerator: adjusted net income	$	4,316			$	4,789			$	12,425			$	11,122
Denominator: average tangible stockholders' equity		201,323				141,280				199,182				136,991
Adjusted return on tangible equity		8.6	%			13.6	%			12.5	%			16.2	%
Return on equity		2.0	%			3.8	%			5.6	%			15.4	%