Interest expense: Interest expense consists primarily of interest paid on (i) our term loan facility and (ii) the preferred capital securities issued by the Trust (See "Financial Condition, Liquidity and Capital Resources - Debt and Credit Agreements").
Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items, including the consummation of the reorganization transactions in connection with our IPO, litigation settlements, noncash intangible asset amortization and stock compensation, other expenses or gains or losses that we believe do not reflect our core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of our results across periods. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted net income to net income in accordance with GAAP.
Adjusted return on 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 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.
Other revenue: Other revenue increased $2,979, or 32.6%, to $12,104 for the year ended December 31, 2020, compared to $9,125 for the year ended December 31, 2019. The increase is primarily driven by an increase in brokerage revenue of $3,166 due to the addition of new Program Partners and increases in actual and estimated premiums on reinsurance contracts.
The maximum amount of dividends the insurance subsidiaries can pay us during 2020 without regulatory approval is $23.9 million. Insurance regulators have broad powers to ensure that statutory surplus remains at adequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted. In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by the insurance subsidiaries may adopt statutory provisions more restrictive than those currently in effect.
Financing Activities: Net cash provided by financing activities for the year ended December 31, 2020 was $51,400 compared to net cash used of $8,125 for the same period in 2019. The increase in cash provided by financing activities of $59,525 is driven by $99,643 of net cash proceeds received from the Company's IPO. This increase is partially offset by distributions paid to members prior to the Company's IPO of $18,675, cash paid for deferred offering costs of $5,839, cash used in the buyback of redeemable preferred stock $3,200 and principal payments on the Company's debt, net of incremental principal received in the refinance of debt, of $12,443.
The consolidated financial statements included in this annual report include amounts based on the use of estimates and judgments of management. The Company's accounting policies are described in the Notes to the Consolidated and Combined Financial Statements. We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant.
In order to limit the Company's maximum losses and diversify its exposure, we cede a portion of our obligations for losses and LAE through reinsurance treaties with third party reinsurers. The amount of reinsurance that will be recoverable on our losses and LAE includes both the reinsurance recoverables on our excess of loss reinsurance contracts as well as reinsurance recoverables under our quota share contracts.
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU
resulted in accelerated revenue recognition versus the previous revenue recognition patterns. The 2018 comparative period information was not restated and will continue to be reported under the legacy accounting standards that were in effect for those periods.
The impact of adopting ASC Topic 606 on the Company's consolidated balance sheet is summarized as follows:
The Company earns ceding commissions on certain reinsurance contracts, which reduces operating expenses. Ceding commissions are amortized over the contract period consistent with deferred policy acquisition costs.
Subsequent to the acquisition date, 7710 Insurance Company, 7710 Service Company and Creekwood Insurance Agency recorded total revenue of $1,183, of which $1,131 is intercompany related and is eliminated in consolidation, and contributed net income totaling $186 to consolidated net income on the consolidated statement of operations.
(losses) on the combined statements of operations. The Company’s losses for the years ended December 31, 2019 and 2018 were approximately $6 and $2, respectively.
Scheduled maturities of debt, excluding deferred financing costs, are as follows:
The income tax expense differs from the expected income tax expense computed by applying the applicable federal statutory tax rates to pretax income as a result of the following:
Supplemental balance sheet information, the weighted average remaining lease term and weighted average discount rate related to leases were as follows:
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares outstanding during reported periods. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods and is calculated using the treasury stock method. As a result of the Company's third quarter IPO and corporate reorganization, the number of shares used to compute earnings per share for pre-reorganization 2019 periods presented was retrospectively adjusted to reflect the recapitalization in a manner akin to a split-like situation.
Compensation expense is recognized for all stock compensation arrangements by the Company. Stock compensation expense related to stock option awards was $61 for the year ended December 31, 2020.