##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 000-51530
 North Pointe Holdings Corporation
  Michigan
    
    38-3615047(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)28819 Franklin Road, Southfield, MI
    
    48034(Address of Principal Executive Offices)
    
    (Zip Code)
 (248) 358-1171(Registrants Telephone Number, Including Area Code)
  o þ
  o þ
  o þ




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NORTH POINTE HOLDINGS CORPORATION
FORM 10-Q
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Form of Stock Option AwardForm of Restricted Stock AwardCertification of Chief Executive Officer to Rule 13a-14(a)Certification of Chief Financial Officer to Rule 13a-14(a)Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 North Pointe Holdings Corporation and Subsidiaries
 Consolidated Balance Sheets
September 30, 2005 (Unaudited) and December 31, 2004
 2005
    
    
    2004(Dollars
in thousands,except share data)ASSETSInvestmentsDebt securities, available for sale, at fair value
    
    $
    100,323
    
    
    $
    76,068Common stocks, at fair value
    
    
    9,878
    
    
    
    9,280Total investments
    
    
    110,201
    
    
    
    85,348Cash and cash equivalents
    
    
    35,548
    
    
    
    29,678Restricted cash
    
    
    3,581
    
    
    
    200Accrued investment income
    
    
    838
    
    
    
    575Premiums and agent balances receivable, net
    
    
    15,992
    
    
    
    16,491Reinsurance recoverables onPaid losses
    
    
    7,318
    
    
    
    8,214Unpaid losses
    
    
    24,710
    
    
    
    36,544Prepaid reinsurance premiums
    
    
    6,482
    
    
    
    5,551Deferred policy acquisition costs
    
    
    9,553
    
    
    
    9,793Federal income tax recoverable
    
    
    316
    
    
    
    Deferred federal income taxes, net
    
    
    6,092
    
    
    
    5,865Building and
Land
    
    
    3,965
    
    
    
    Prepaid expenses and other assets
    
    
    3,358
    
    
    
    4,493Total assets
    
    $
    227,954
    
    
    $
    202,752LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS EQUITYLiabilitiesLosses and loss adjustment expenses
    
    $
    84,810
    
    
    $
    96,561Unearned premiums
    
    
    46,841
    
    
    
    42,251Debt
    
    
    5,047
    
    
    
    20,062Amounts due to reinsurers
    
    
    638
    
    
    
    1,221Accounts payable and accrued expenses
    
    
    6,841
    
    
    
    5,551Federal income tax payable
    
    
    
    
    
    
    1,332Other liabilities
    
    
    1,293
    
    
    
    1,082Total liabilities
    
    
    145,470
    
    
    
    168,060Commitments and ContingenciesRedeemable cumulative convertible preferred stock no par value; 0 and 60,000
shares authorized in 2005 and 2004, respectively; 0 shares issued and
outstanding in 2004
    
    
    
    
    
    
    Shareholders equityCommon stock, no par value; 50,000,000 shares authorized; 8,891,687 and 4,889,187
issued and outstanding in 2005 and 2004, respectively
    
    
    47,496
    
    
    
    5,880Preferred stock, no par value; 5,000,000 shares authorized; 0 shares
issued and outstanding in 2005
    
    
    
    
    
    
    Unearned stock compensation
    
    
    (30
    )
    
    
    Retained earnings
    
    
    35,449
    
    
    
    28,803Accumulated other comprehensive incomeNet
unrealized (losses) gains on investments, net of deferred federal income
tax benefit (expense) of $223 and ($3), respectively
    
    
    (431
    )
    
    
    9Total shareholders equity
    
    
    82,484
    
    
    
    34,692Total liabilities, redeemable preferred stock and shareholders
equity
    
    $
    227,954
    
    
    $
    202,752
  1




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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Consolidated Statements of Income
For the Three Months Ended September 30, 2005 and 2004
 Three Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands,except share data)RevenuesDirect premiums written
    
    $
    18,443
    
    
    $
    22,223Assumed premiums written
    
    
    (10
    )
    
    
    119Premiums ceded
    
    
    (5,854
    )
    
    
    (5,301
    )Net premiums written
    
    
    12,579
    
    
    
    17,041Decrease in unearned premiums
    
    
    9,073
    
    
    
    1,640Net premiums earned
    
    
    21,652
    
    
    
    18,681Investment income, net of investment expenses
    
    
    1,067
    
    
    
    613Net realized
capital gains (losses)
    
    
    75
    
    
    
    (4
    )Installment fees and other income
    
    
    695
    
    
    
    568Gain on sale of business
    
    
    
    
    
    
    285Total revenues
    
    
    23,489
    
    
    
    20,143ExpensesLosses and loss adjustment expenses
    
    
    11,991
    
    
    
    13,116Policy acquisition costs
    
    
    5,844
    
    
    
    4,648Other underwriting and operating expenses
    
    
    4,686
    
    
    
    3,193Interest expense
    
    
    390
    
    
    
    232Total expenses
    
    
    22,911
    
    
    
    21,189Income
(loss) before federal income tax expense (benefit)
    
    
    578
    
    
    
    (1,046
    )Federal income tax expense (benefit)
    
    
    67
    
    
    
    (840
    )Net income (loss)
    
    $
    511
    
    
    $
    (206
    )Earnings
(Loss) Per ShareBasic and diluted
    
    $
    0.10
    
    
    $
    (0.04
    )Weighted average number of sharesBasic
    
    
    5,237,013
    
    
    
    4,889,187Diluted
    
    
    5,237,015
    
    
    
    4,889,187
  2




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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Consolidated Statements of Income
For the Nine Months Ended September 30, 2005 and 2004
 Nine Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands,except share data)RevenuesDirect premiums written
    
    $
    86,078
    
    
    $
    70,013Assumed premiums written
    
    
    613
    
    
    
    1,457Premiums ceded
    
    
    (14,548
    )
    
    
    (12,363
    )Net premiums written
    
    
    72,143
    
    
    
    59,107Increase in unearned premiums
    
    
    (5,299
    )
    
    
    (2,068
    )Net premiums earned
    
    
    66,844
    
    
    
    57,039Investment income, net of investment expenses
    
    
    2,755
    
    
    
    1,676Net realized
capital (losses) gains
    
    
    (155
    )
    
    
    59Installment fees and other income
    
    
    1,474
    
    
    
    1,779Gain on sale of business
    
    
    
    
    
    
    285Total revenues
    
    
    70,918
    
    
    
    60,838ExpensesLosses and loss adjustment expenses
    
    
    30,356
    
    
    
    31,917Policy acquisition costs
    
    
    17,109
    
    
    
    14,105Other underwriting and operating expenses
    
    
    12,379
    
    
    
    9,938Interest expense
    
    
    884
    
    
    
    518Total expenses
    
    
    60,728
    
    
    
    56,478Income before federal income tax expense
and extraordinary item
    
    
    10,190
    
    
    
    4,360Federal income tax expense
    
    
    3,544
    
    
    
    1,006Income before extraordinary item
    
    
    6,646
    
    
    
    3,354Extraordinary item
    
    
    
    
    
    
    2,905Net income
    
    $
    6,646
    
    
    $
    6,259Earnings Per ShareBasic and DilutedIncome before extraordinary item
    
    $
    1.33
    
    
    $
    0.47Extraordinary item
    
    
    
    
    
    
    0.57Net income
    
    $
    1.33
    
    
    $
    1.04Weighted average number of sharesBasic
    
    
    5,006,403
    
    
    
    5,106,896Diluted
    
    
    5,006,404
    
    
    
    5,106,896
  3




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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Consolidated Statements of Shareholders Equity and Comprehensive Income
For the Three Months Ended September 30, 2005 and 2004
 AccumulatedOtherCommon
    
    
    
    
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Other
    
    
    Earnings
    
    

Income
(Loss)
    
    
    Total(Dollars in thousands)Balances, July 1, 2004
    
    $
    5,880
    
    
    $
    
    
    
    $
    23,835
    
    
    $
    (409
    )
    
    $
    29,306Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    
    
    
    
    (206
    )Unrealized gains on investments, net of
deferred federal income tax expense of $298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578
    
    
    
    578Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372Balances, September 30, 2004
    
    $
    5,880
    
    
    $
    
    
    
    $
    23,629
    
    
    $
    169
    
    
    $
    29,678Balances, July 1, 2005
    
    $
    5,880
    
    
    $
    
    
    
    $
    34,938
    
    
    $
    385
    
    
    $
    41,203Issuance of
common stock
    
    
    41,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,616Unearned stock compensation
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    (30
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    511
    
    
    
    
    
    
    
    511Unrealized losses on investments, net of
deferred federal income tax benefit of $419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (816
    )
    
    
    (816
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305
    )Balances, September 30, 2005
    
    $
    47,496
    
    
    $
    (30
    )
    
    $
    35,449
    
    
    $
    (431
    )
    
    $
    82,484
  4




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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Consolidated Statements of Shareholders Equity and Comprehensive Income
For the Nine Months Ended September 30, 2005 and 2004
 AccumulatedOtherCommon
    
    
    
    
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Other
    
    
    Earnings
    
    

Income
(Loss)
    
    
    Total(Dollars in thousands)Balances, January 1, 2004
    
    $
    6,185
    
    
    $
    
    
    
    $
    19,538
    
    
    $
    370
    
    
    $
    26,093Issuance of common stock
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95Purchase and retirement of common stock
    
    
    (400
    )
    
    
    
    
    
    
    (1,200
    )
    
    
    
    
    
    
    (1,600
    )Purchase and retirement of preferred stock
    
    
    
    
    
    
    
    
    
    
    (888
    )
    
    
    
    
    
    
    (888
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    (80
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    6,259
    
    
    
    
    
    
    
    6,259Unrealized losses on investments, net of
deferred federal income tax benefit of $104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    (201
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,058Balances, September 30, 2004
    
    $
    5,880
    
    
    $
    
    
    
    $
    23,629
    
    
    $
    169
    
    
    $
    29,678Balances, January 1, 2005
    
    $
    5,880
    
    
    $
    
    
    
    $
    28,803
    
    
    $
    9
    
    
    $
    34,692Issuance of
common stock
    
    
    41,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,616Unearned stock compensation
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    (30
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    6,646
    
    
    
    
    
    
    
    6,646Unrealized losses on investments, net of
deferred federal income tax benefit of $226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (440
    )
    
    
    (440
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,206Balances, September 30, 2005
    
    $
    47,496
    
    
    $
    (30
    )
    
    $
    35,449
    
    
    $
    (431
    )
    
    $
    82,484
  5




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North Pointe Holdings Corporation and Subsidiaries
 Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2005 and 2004
 2005
    
    
    2004(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    6,646
    
    
    $
    6,259Adjustments to reconcile net income to cash provided by operating activitiesExtraordinary item
    
    
    
    
    
    
    (2,905
    )Depreciation and amortization
    
    
    465
    
    
    
    348Net loss (gain) on sales and other dispositions of
investments
    
    
    155
    
    
    
    (59
    )Net gain on sale of business
    
    
    
    
    
    
    (285
    )Deferred federal income tax expense
    
    
    (1
    )
    
    
    555Change in assets and liabilitiesRestricted cash
    
    
    (3,381
    )
    
    
    1,116Premiums and agents balances receivable, net
    
    
    499
    
    
    
    1,291Accrued investment income
    
    
    (263
    )
    
    
    (70
    )Reinsurance recoverable, net
    
    
    12,147
    
    
    
    (8,486
    )Prepaid reinsurance premiums
    
    
    (931
    )
    
    
    (244
    )Deferred policy acquisition costs
    
    
    240
    
    
    
    (2,006
    )Prepaid expenses and other assets
    
    
    1,488
    
    
    
    (1,088
    )Losses and loss adjustment expenses
    
    
    (11,751
    )
    
    
    9,362Unearned premiums
    
    
    4,590
    
    
    
    2,312Unearned services fees
    
    
    521
    
    
    
    Federal income tax payable
    
    
    (1,648
    )
    
    
    (1,286
    )Other liabilities
    
    
    1,081
    
    
    
    1,418Net cash provided by operating activities
    
    
    9,857
    
    
    
    6,232Cash flows from investing activitiesProceeds from maturities of debt securities
    
    
    5,098
    
    
    
    24,955Proceeds from sales of debt securities
    
    
    30,484
    
    
    
    2,056Proceeds from sales of equity securities
    
    
    3,218
    
    
    
    564Proceeds from sale of business
    
    
    
    
    
    
    285Purchase of debt securities
    
    
    (61,562
    )
    
    
    (23,545
    )Purchase of equity securities
    
    
    (3,227
    )
    
    
    (2,225
    )Purchase of subsidiaries, net of cash acquired of
$168 and $14,376 in 2005 and 2004, respectively
    
    
    (1,386
    )
    
    
    3,256Purchase of fixed assets
    
    
    (519
    )
    
    
    (535
    )Net cash (used in) provided by investing activities
    
    
    (27,894
    )
    
    
    4,811Cash flows from financing activitiesProceeds from issuance of common stock, net
    
    
    41,586
    
    
    
    95Purchase and retirement of common stock
    
    
    
    
    
    
    (1,600
    )Purchase and retirement of preferred stock
    
    
    
    
    
    
    (2,888
    )Borrowings from banks
    
    
    37,337
    
    
    
    19,928Repayment of borrowings from banks
    
    
    (55,016
    )
    
    
    (10,329
    )Preferred dividends paid
    
    
    
    
    
    
    (80
    )Net cash provided by financing activities
    
    
    23,907
    
    
    
    5,126Increase in cash and cash equivalents
    
    
    5,870
    
    
    
    16,169Cash and cash equivalentsBeginning of period
    
    
    29,678
    
    
    
    20,621End of period
    
    $
    35,548
    
    
    $
    36,790Supplemental
cash flow information  cash paid during the period forInterest
    
    $
    1,033
    
    
    $
    397Federal income taxes
    
    
    5,194
    
    
    
    2,100Supplemental disclosure of noncash investing activitiesLiabilities assumed in purchase of subsidiaries
    
    
    2,663
    
    
    
    
  6




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North Pointe Holdings Corporation And Subsidiaries
 Notes To Consolidated Financial Statements
 1. Basis of Financial Presentation and Principles of Consolidation
       2. Public Offering and Use of Proceeds
  7




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##### Table of Contents



3. Summary of Significant Accounting Policies
 Restricted
Cash
  Stock-Based Compensation
  4. Effects of New Accounting Pronouncements
 Accounting Changes and Error Corrections, a replacement of
Accounting Principles Board (APB) No. 20, Accounting Changes and FASB Statement No. 3.
 8




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##### Table of Contents



5. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except share data)Net income
(loss) (used for diluted EPS)
    
    $
    511
    
    
    $
    (206
    )
    
    $
    6,646
    
    
    $
    6,259Purchase price of preferred stock in
excess of face value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (888
    )Preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )Income
(loss) used for basic EPS
    
    $
    511
    
    
    $
    (206
    )
    
    $
    6,646
    
    
    $
    5,291Weighted average shares outstanding
    
    
    5,237,095
    
    
    
    4,889,187
    
    
    
    5,006,431
    
    
    
    5,106,896Nonvested restricted stock
    
    
    (82
    )
    
    
    
    
    
    
    (28
    )
    
    
    Weighted average shares outstanding
used for basic EPS
    
    
    5,237,013
    
    
    
    4,889,187
    
    
    
    5,006,403
    
    
    
    5,106,896Effect of dilutive securitiesRedeemable cumulative convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    899,872Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,974Restricted stock
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    Diluted weighted average shares outstanding
    
    
    5,237,015
    
    
    
    4,889,187
    
    
    
    5,006,404
    
    
    
    6,186,742Basic
earnings (loss) per share
    
    $
    0.10
    
    
    $
    (0.04
    )
    
    $
    1.33
    
    
    $
    1.04Diluted
earnings (loss) per share
    
    $
    0.10
    
    
    $
    (0.04
    )
    
    $
    1.33
    
    
    $
    1.04
  6. Stock-Based Compensation
 Stock Options
  9




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##### Table of Contents



Fair value of the underlying common stock
    
    $12.00/shareWeight average life of options
    
    5.00 yearsRisk-free interest rate
    
    
    4.13
    %Dividend yield
    
    
    0.00
    %Weighted average volatility assumption
    
    
    30.20
    %
   Restricted Stock
  7. Income Taxes
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Current
(benefit) expense
    
    $
    (84
    )
    
    $
    (860
    )
    
    $
    3,545
    
    
    $
    451Deferred expense (benefit) relating toNOL carryforwards
    
    
    
    
    
    
    (198
    )
    
    
    401
    
    
    
    194Other deferred tax balances
    
    
    151
    
    
    
    218
    
    
    
    (402
    )
    
    
    361Total
    
    $
    67
    
    
    $
    (840
    )
    
    $
    3,544
    
    
    $
    1,006
  10




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Tax provision at statutory rate 34%
    
    $
    197
    
    
    $
    (356
    )
    
    $
    3,465
    
    
    $
    1,482Tax effect ofDividend received deduction
    
    
    (8
    )
    
    
    (27
    )
    
    
    (22
    )
    
    
    (51
    )Adjustment of acquired NOLs
    
    
    
    
    
    
    (273
    )
    
    
    262
    
    
    
    (273
    )Provision to return variance
    
    
    (124
    )
    
    
    43
    
    
    
    (223
    )
    
    
    (211
    )Other, net
    
    
    2
    
    
    
    (227
    )
    
    
    62
    
    
    
    59$
    67
    
    
    $
    (840
    )
    
    $
    3,544
    
    
    $
    1,006
   September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Deferred federal income tax assetsLoss and loss adjustment expenses
    
    $
    2,646
    
    
    $
    2,496Unearned premiums
    
    
    2,856
    
    
    
    2,531Net operating loss carryforwards
    
    
    2,630
    
    
    
    3,293Premium receivable
    
    
    188
    
    
    
    109Lease obligation
    
    
    177
    
    
    
    211Intangible asset
    
    
    349
    
    
    
    374Net unrealized losses on
investments
    
    
    223
    
    
    
    Other
    
    
    343
    
    
    
    256Total deferred tax assets
    
    
    9,412
    
    
    
    9,270Deferred federal income tax liabilitiesDeferred policy acquisition costs
    
    
    3,248
    
    
    
    3,329Net unrealized gains on
investments
    
    
    
    
    
    
    3Other
    
    
    72
    
    
    
    73Total deferred tax
liabilities
    
    
    3,320
    
    
    
    3,405Net deferred federal income taxes
    
    $
    6,092
    
    
    $
    5,865
 8. Preferred Stock
  11




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##### Table of Contents



9. Outstanding Debt
      (Dollars inYear
    
    thousand)2005
    
    $
    212006
    
    
    892007
    
    
    2,4952008
    
    
    1032009
    
    
    1102010 and thereafter
    
    
    2,080$
    4,898
  10. Acquisition Activity
   12




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##### Table of Contents



(Dollars inthousands)Cash
    
    $
    168Prepaid expenses
    
    
    76Building and land
    
    
    3,972Total assets
    
    
    4,216Mortgage loan
    
    
    2,663Net assets acquired
    
    $
    1,553Purchase price and acquisition costs
    
    
    1,553Net assets in excess of purchase price and
acquisition costs
    
    $
    
  11. Subsequent Events
 Exercise of Over-allotment Option
 $189,000.
 Hurricane Wilma
  12.
Related-Party Transaction
  13.      Contingencies
  14. Segment Reporting
   13




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Total RevenuesCommercial lines productsLiability
    
    $
    6,019
    
    
    $
    5,625
    
    
    $
    17,918
    
    
    $
    15,899Property
    
    
    1,756
    
    
    
    1,517
    
    
    
    5,587
    
    
    
    5,183Commercial multi-peril
    
    
    5,873
    
    
    
    4,022
    
    
    
    17,065
    
    
    
    13,509Commercial automobile
    
    
    1,563
    
    
    
    1,358
    
    
    
    4,668
    
    
    
    3,958Other
    
    
    602
    
    
    
    569
    
    
    
    2,051
    
    
    
    1,571Total commercial lines
    
    
    15,813
    
    
    
    13,091
    
    
    
    47,289
    
    
    
    40,120Personal lines productsPersonal automobile
    
    
    74
    
    
    
    4,064
    
    
    
    1,460
    
    
    
    11,984Homeowners
    
    
    5,765
    
    
    
    1,527
    
    
    
    18,095
    
    
    
    4,935Total personal lines
    
    
    5,839
    
    
    
    5,591
    
    
    
    19,555
    
    
    
    16,919Administrative servicesAffiliated companies
    
    
    7,024
    
    
    
    5,938
    
    
    
    24,271
    
    
    
    18,853Non-affiliated companies
    
    
    695
    
    
    
    567
    
    
    
    1,474
    
    
    
    1,7797,719
    
    
    
    6,505
    
    
    
    25,745
    
    
    
    20,632Corporate and eliminationsInvestment activity
    
    
    1,142
    
    
    
    609
    
    
    
    2,600
    
    
    
    1,735Gain on sale of business
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    285Eliminations
    
    
    (7,024
    )
    
    
    (5,938
    )
    
    
    (24,271
    )
    
    
    (18,853
    )Total revenues
    
    $
    23,489
    
    
    $
    20,143
    
    
    $
    70,918
    
    
    $
    60,838Income (loss) before federal income tax
expense and extraordinary itemCommercial lines productsLiability
    
    $
    1,088
    
    
    $
    1,505
    
    
    $
    1,602
    
    
    $
    2,784Property
    
    
    (355
    )
    
    
    (710
    )
    
    
    (450
    )
    
    
    (129
    )Commercial multi-peril
    
    
    456
    
    
    
    (4,110
    )
    
    
    2,744
    
    
    
    (1,528
    )Commercial automobile
    
    
    545
    
    
    
    1,328
    
    
    
    (11
    )
    
    
    1,189Other
    
    
    451
    
    
    
    (795
    )
    
    
    622
    
    
    
    (877
    )Total commercial lines
    
    
    2,185
    
    
    
    (2,782
    )
    
    
    4,507
    
    
    
    1,439Personal lines productsPersonal automobile
    
    
    216
    
    
    
    (627
    )
    
    
    (257
    )
    
    
    (2,727
    )Homeowners
    
    
    (3,268
    )
    
    
    310
    
    
    
    (442
    )
    
    
    161Total personal lines
    
    
    (3,052
    )
    
    
    (317
    )
    
    
    (699
    )
    
    
    (2,566
    )Administrative services
    
    
    1,171
    
    
    
    1,592
    
    
    
    5,429
    
    
    
    4,919Corporate and eliminationsInvestment activity
    
    
    1,142
    
    
    
    609
    
    
    
    2,600
    
    
    
    1,735Other expense, net
    
    
    (868
    )
    
    
    (148
    )
    
    
    (1,647
    )
    
    
    (1,167
    )Income (loss) before federal income
taxes and extraordinary item
    
    $
    578
    
    
    $
    (1,046
    )
    
    $
    10,190
    
    
    $
    4,360
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The discussion and analysis of our financial condition and results of operations contained
herein should be read in conjunction with our consolidated financial statements and accompanying
notes which appear elsewhere in this report. It contains forward-looking statements that involve
risks and uncertainties. Please see Note on Forward-Looking Statements for more information.
Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and elsewhere in this
report.
 Note on Forward-Looking Statements
  
    
    our ability to accurately price the risks it underwrites;
    
    the establishment of adequate loss and loss adjustment expense reserves;
    
    retention and recruiting of independent agents and the potential loss of key personnel;
    
    failure to pay claims accurately;
    
    risks associated with high concentration of our business in certain geographic markets;
    
    inability to implement our growth strategies;
    
    possible assessments for guaranty funds, other insurance-related assessments and
mandatory reinsurance arrangements and our ability to recover such assessments through
future surcharges or other rate changes;
    
    the occurrence of severe weather conditions and other catastrophes;
    
    the cyclical and seasonal nature of the industries within which we operate;
    
    intense competition with other insurance companies;
    
    our ability to obtain and retain trade association endorsements;
    
    performance of our various operating subsidiaries and restrictions that may limit the
ability of our subsidiaries to pay dividends to North Pointe Holdings;
    
    existing and future regulations by the local, state and federal governments;
    
    the compliance of our insurance company subsidiaries with minimum capital and surplus
requirements;
    
    ratings of our insurance company subsidiaries by A.M. Best;
    
    the availability and pricing of reinsurance and the potential for non-payment or delay
in payment by reinsurers;
 15




---



##### Table of Contents




    
    the outcome of current industry investigations and potential regulation limiting the use
of undisclosed contingent commission arrangements with independent agents;
    
    adverse market conditions that could negatively impact our investment portfolio;
    
    reliance on information technology and telecommunication systems;
    
    our limited history writing homeowners insurance policies to homeowners in Florida;
    
    changes in insurance-related laws and regulations;
    
    our ability to implement and maintain adequate internal controls in our business;
    
    managements ability to effectively manage a public company; and
    
    other risks that we identify in past and future filings with the Securities and Exchange
Commission, including without limitation the risks described under the caption Risk
Factors in the Prospectus constituting part of our Registration Statement on Form S-1
(Reg. No. 333-122220) and subsequent filings on Forms 10-K, 10-Q and 8-K.
  Description of Business
   Critical Accounting Estimates
  16




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##### Table of Contents



Results of Operations for the Three Months and Nine Months Ended September 30, 2005 and 2004
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Gross premiums written:Commercial lines
    
    $
    17,295
    
    
    $
    15,945
    
    
    $
    55,261
    
    
    $
    50,800Personal lines
    
    
    1,138
    
    
    
    6,397
    
    
    
    31,430
    
    
    
    20,670Total gross premiums written
    
    
    18,433
    
    
    
    22,342
    
    
    
    86,691
    
    
    
    71,470Net premiums written:Commercial lines
    
    
    14,082
    
    
    
    11,922
    
    
    
    46,284
    
    
    
    42,130Personal lines
    
    
    (1,503
    )
    
    
    5,119
    
    
    
    25,859
    
    
    
    16,977Total net premiums written
    
    
    12,579
    
    
    
    17,041
    
    
    
    72,143
    
    
    
    59,107Revenues:Net premiums earned
    
    
    21,652
    
    
    
    18,681
    
    
    
    66,844
    
    
    
    57,039Investment income, net
    
    
    1,067
    
    
    
    613
    
    
    
    2,755
    
    
    
    1,676Net realized capital gains (losses)
    
    
    75
    
    
    
    (4
    )
    
    
    (155
    )
    
    
    59Installment fees and other income
    
    
    695
    
    
    
    568
    
    
    
    1,474
    
    
    
    1,779Gain on sale of business
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    285Total revenues
    
    
    23,489
    
    
    
    20,143
    
    
    
    70,918
    
    
    
    60,838Expenses:Losses and loss adjustment expenses
    
    
    11,991
    
    
    
    13,116
    
    
    
    30,356
    
    
    
    31,917Policy acquisition costs
    
    
    5,844
    
    
    
    4,648
    
    
    
    17,109
    
    
    
    14,105Other underwriting and operating expenses
    
    
    4,686
    
    
    
    3,193
    
    
    
    12,379
    
    
    
    9,938Interest expense
    
    
    390
    
    
    
    232
    
    
    
    884
    
    
    
    518Total expenses
    
    
    22,911
    
    
    
    21,189
    
    
    
    60,728
    
    
    
    56,478Income (loss) before federal income tax expense
(benefit) and extraordinary item
    
    
    578
    
    
    
    (1,046
    )
    
    
    10,190
    
    
    
    4,360Federal income tax expense (benefit)
    
    
    67
    
    
    
    (840
    )
    
    
    3,544
    
    
    
    1,006Income
(loss) before extraordinary item
    
    
    511
    
    
    
    (206
    )
    
    
    6,646
    
    
    
    3,354Extraordinary (loss) item
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,905Net income
(loss)
    
    $
    511
    
    
    $
    (206
    )
    
    $
    6,646
    
    
    $
    6,259Loss Ratio:Commercial lines
    
    
    39.3
    %
    
    
    77.7
    %
    
    
    40.5
    %
    
    
    52.4
    %Personal lines
    
    
    98.8
    %
    
    
    52.7
    %
    
    
    57.3
    %
    
    
    64.3
    %Consolidated
    
    
    53.7
    %
    
    
    68.1
    %
    
    
    44.4
    %
    
    
    54.3
    %Expense Ratio
    
    
    47.1
    %
    
    
    40.7
    %
    
    
    43.2
    %
    
    
    40.9
    %Combined Ratio
    
    
    100.8
    %
    
    
    108.8
    %
    
    
    87.6
    %
    
    
    95.2
    %
 17




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##### Table of Contents



Gross Premiums Written
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
   Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
  18




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##### Table of Contents



Net Premiums Written
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
  Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
  19




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##### Table of Contents



Net Premiums Earned
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 Net Investment Income
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
     20




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Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
  Net Realized (Losses) Gains on Investments
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 Installment Fees and Other Income
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 21




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##### Table of Contents



Losses and Loss Adjustment Expenses
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
     22




---



##### Table of Contents



Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
   23




---



##### Table of Contents



Policy Acquisition Costs
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 24




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##### Table of Contents



Other Underwriting and Operating Expenses
  Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
   Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 25




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##### Table of Contents



Interest Expense
 Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 Federal Income Tax Expense
 Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 Net Income
 Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004.
 26




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##### Table of Contents



Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004.
 Liquidity and Capital Resources
 Sources and Uses of Funds
     27




---



##### Table of Contents



Cash Flows
      28




---



##### Table of Contents



Contractual Obligations and Commitments
  2010 and2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    thereafter
    
    
    Total(Dollars in thousands)Senior debt
    
    $
    41
    
    
    $
    162
    
    
    $
    2,441
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,644Mortgage loan on
building
    
    
    67
    
    
    
    267
    
    
    
    267
    
    
    
    267
    
    
    
    267
    
    
    
    2,299
    
    
    
    3,434Operating leases
    
    
    570
    
    
    
    583
    
    
    
    595
    
    
    
    608
    
    
    
    486
    
    
    
    
    
    
    
    2,842Total
    
    $
    678
    
    
    $
    1,012
    
    
    $
    3,303
    
    
    $
    875
    
    
    $
    753
    
    
    $
    2,299
    
    
    $
    8,920
  Investments
  29




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##### Table of Contents



As of September 30, 2005
    
    
    As of December 31, 2004Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    portfolio
    
    
    Amount
    
    
    portfolio(Dollars in thousands)Fixed Income:U.S. governmental and agency securities
    
    $
    23,498
    
    
    
    15.7
    %
    
    $
    33,146
    
    
    
    28.8
    %Foreign governmental
    
    
    568
    
    
    
    0.4
    %
    
    
    
    
    
    
    Corporate securities
    
    
    30,129
    
    
    
    20.2
    %
    
    
    19,795
    
    
    
    17.2
    %Mortgage-backed securities
    
    
    33,882
    
    
    
    22.7
    %
    
    
    23,127
    
    
    
    20.1
    %Asset-backed
    
    
    12,246
    
    
    
    8.2
    %
    
    
    
    
    
    
    Total fixed-income
    
    
    100,323
    
    
    
    67.2
    %
    
    
    76,068
    
    
    
    66.0
    %Cash and cash equivalents
    
    
    39,129
    
    
    
    26.2
    %
    
    
    29,878
    
    
    
    25.9
    %Equity securities:Common shares
    
    
    9,878
    
    
    
    6.6
    %
    
    
    9,280
    
    
    
    8.1
    %Total equity
securities
    
    
    9,878
    
    
    
    6.6
    %
    
    
    9,280
    
    
    
    8.1
    %Total
    
    $
    149,330
    
    
    
    100.0
    %
    
    $
    115,226
    
    
    
    100.0
    %
   As of September 30, 2005Less than 12 months
    
    
    12 months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(Dollars in thousands)U.S. governmental and agency securities
    
    $
    16,812
    
    
    $
    241
    
    
    $
    4,871
    
    
    $
    135
    
    
    $
    21,683
    
    
    $
    376Foreign governmental
    
    
    310
    
    
    
    3
    
    
    
    258
    
    
    
    11
    
    
    
    568
    
    
    
    14Corporate securities
    
    
    23,288
    
    
    
    422
    
    
    
    6396
    
    
    
    223
    
    
    
    29,684
    
    
    
    645Mortgage-backed securities
    
    
    13,473
    
    
    
    195
    
    
    
    9187
    
    
    
    345
    
    
    
    22,660
    
    
    
    540Asset-backed
    
    
    20,319
    
    
    
    295
    
    
    
    0
    
    
    
    
    
    
    
    20,319
    
    
    
    295Total debt
securities
    
    $
    74,202
    
    
    $
    1,156
    
    
    $
    20,712
    
    
    $
    714
    
    
    $
    94,914
    
    
    $
    1,870Equity securities
    
    $
    2,084
    
    
    $
    184
    
    
    $
    
    
    
    $
    
    
    
    $
    2,084
    
    
    $
    184
 30




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##### Table of Contents



Unpaid Losses and Loss Adjustment Expenses
  Net Reserves at September 30, 2005Personal
    
    
    CommercialLines
    
    
    LinesSegment
    
    
    Segment
    
    
    Total(Dollars in thousands)Low end of range
    
    $
    9,839
    
    
    $
    46,836
    
    
    $
    56,675Carried reserves
    
    
    10,028
    
    
    
    50,072
    
    
    
    60,100High end of range
    
    
    10,728
    
    
    
    52,115
    
    
    
    62,843
    31




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##### Table of Contents



Net Reserves at September 30, 2005Personal
    
    
    CommercialLines
    
    
    LinesSegment
    
    
    Segment
    
    
    Total(Dollars in thousands)Low end of range
    
    $
    8,107
    
    
    $
    47,287
    
    
    $
    55,394Carried reserves
    
    
    10,028
    
    
    
    50,072
    
    
    
    60,100High end of range
    
    
    13,315
    
    
    
    50,747
    
    
    
    64,062
  32




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##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Case:Commercial lines productsLiability
    
    $
    14,216
    
    
    $
    11,679Property
    
    
    3,714
    
    
    
    7,482Commercial multi-peril
    
    
    11,654
    
    
    
    15,507Commercial automobile
    
    
    4,976
    
    
    
    5,132Other
    
    
    735
    
    
    
    764Total commercial lines
    
    
    35,295
    
    
    
    40,564Personal lines productsPersonal automobile
    
    
    7,356
    
    
    
    9,830Homeowners
    
    
    3,898
    
    
    
    1,40011,254
    
    
    
    11,230Total
    
    $
    46,549
    
    
    $
    51,794IBNR:Commercial lines productsLiability
    
    $
    16,030
    
    
    $
    15,380Property
    
    
    787
    
    
    
    825Commercial multi-peril
    
    
    9,678
    
    
    
    10,600Commercial automobile
    
    
    2,312
    
    
    
    3,117Other
    
    
    538
    
    
    
    2,082Total commercial lines
    
    
    29,345
    
    
    
    32,004Personal lines productsPersonal automobile
    
    
    6,638
    
    
    
    12,115Homeowners
    
    
    2,278
    
    
    
    6488,916
    
    
    
    12,763Total
    
    $
    38,261
    
    
    $
    44,767Total:Commercial lines productsLiability
    
    $
    30,246
    
    
    $
    27,059Property
    
    
    4,501
    
    
    
    8,307Commercial multi-peril
    
    
    21,332
    
    
    
    26,107Commercial automobile
    
    
    7,288
    
    
    
    8,249Other
    
    
    1,273
    
    
    
    2,846Total commercial lines
    
    
    64,640
    
    
    
    72,568Personal lines productsPersonal automobile
    
    
    13,994
    
    
    
    21,945Homeowners
    
    
    6,176
    
    
    
    2,04820,170
    
    
    
    23,993Total
    
    $
    84,810
    
    
    $
    96,561
  33




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##### Table of Contents



Contingencies
 Citizens
Property Insurance Company
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk
   Hypothetical PercentageIncrease (Decrease) inEstimatedHypothetical Change in Interest Rates
    
    Estimated
    
    
    Change in
    
    
    
    
    
    
    ShareholdersAs of September 30, 2005
    
    Fair Value
    
    
    Fair Value
    
    
    Fair Value
    
    
    Equity(Dollars in thousands)200 basis point increase
    
    $
    93,329
    
    
    $
    (6,994
    )
    
    
    (7.0
    )%
    
    
    (5.6
    )%100 basis point increase
    
    
    96,772
    
    
    
    (3,551
    )
    
    
    (3.5
    )
    
    
    (2.8
    )No Change
    
    
    100,323
    
    
    
    
    
    
    
    
    
    
    
    100 basis point increase
    
    
    103,789
    
    
    
    3,466
    
    
    
    3.5
    
    
    
    2.8200 basis point increase
    
    
    106,619
    
    
    
    6,296
    
    
    
    6.3
    
    
    
    5.0
 34




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##### Table of Contents



Credit Risk
    Effects of Inflation
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Identification
of Material Weaknesses
   Remediation
Plan for Material Weaknesses
  Changes in Internal Controls over Financial Reporting
  35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    36




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  (1)
    
    Our Second Amended and Restated Articles of Incorporation, effective as soon as
practicable following the effectiveness of our Registration Statement on Form S-1 (Reg.
No. 333-122220);(2)
    
    Our Second Amended and Restated Bylaws, effective as soon as practicable following
the effectiveness of our Registration Statement on Form S-1 (Reg. No. 333-122220);(3)
    
    The election of Julius A. Otten and Joseph D. Sarafa to our Board of Directors,
effective upon the closing of our initial public offering of common stock; and(4)
    
    Our Equity Incentive Plan.
 
 Item
5. Other Information.
 Related-Party
Transaction
  A.M.
Best Rating Upgrade
  
 Item 6. Exhibits.
 ExhibitNumber
    
    Exhibit10.1
    *
    Form of stock option award.10.2
    *
    Form of restricted stock award.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and
Rule 13a-14(b) under the Securities Exchange Act of 1934.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350 and
Rule 13a-14(b) under the Securities Exchange Act of 1934.
 *
    Compensatory plan or arrangement
 37




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##### Table of Contents



SIGNATURES
  NORTH POINTE HOLDINGS CORPORATIONDate:      November 14, 2005
    By:

/s/
James G. PetcoffJames G. PetcoffChief Executive Officer, President &
Chairman of the BoardDate:      November 14, 2005
    By:

/s/
John H. BerryJohn H. BerryChief Financial Officer & Treasurer
(Principal Accounting Officer)Date:      November 14, 2005
    By:

/s/
Harold J. MelocheHarold J. MelocheVice President  Compliance 38




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit10.1*
    
    Form of stock option award.10.2*
    
    Form of restricted stock award.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and
Rule 13a-14(b) under the Securities Exchange Act of 1934.32.2
    
    Certification of Chief Financial
Officer pursuant to 18 U.S.C Section 1350 and Rule 13a-14(b) under the
Securities Exchange Act of 1934.
 *
    Compensatory plan or arrangement
 E-1