STATE NATIONAL COMPANIES INC BEDFORD, Texas, Aug. 8, 2017 /PRNewswire/ -- State National Companies, Inc. (NASDAQ: SNC), a leading specialty provider of property and casualty insurance services, today reported its financial results for the second quarter ended June 30, 2017.
Key Highlights - Second Quarter 2017 Financials Compared to the Second Quarter 2016:
-- Total revenues were $58.6 million, up 20%
-- Premiums earned were $33.9 million, an increase of 17%
-- Ceding fees were $21.0 million, up 24%
-- Net income was $13.2 million, an increase of 33%
-- EPS of $0.31, up from $0.24
-- EBITDA was $22.1 million, up 29%
Commenting on the results, State National's Chairman and Chief Executive Officer, Terry Ledbetter, said, "We are pleased with the continued growth in both Lender and Program Services in the second quarter that generated significant earnings growth compared to the same quarter last year. We believe that the favorable industry trends in both business segments position the company well for future growth and profitability."
Total revenues in the second quarter of 2017 were $58.6 million, up 20% from $49.0 million in the second quarter of 2016. Net income was $13.2 million, or $0.31 per diluted share, in the second quarter of 2017, compared to net income of $10.0 million, or $0.24 per diluted share, for the same period in 2016. Realized investment gains were $0.5 million in the second quarter of 2017, up from $0.3 million in the second quarter of 2016. The impact of the realized net investment gains and losses (net of tax) for the second quarter of 2017 was $0.01 per diluted share.
Program Services Segment
The Program Services segment provides fronting to general agents and insurance carriers to leverage State National's "A" (Excellent) A.M. Best rating with its expansive licenses and trusted reputation to provide access to the U.S. property and casualty insurance market in exchange for ceding fees. State National issues the policy, and the reinsurer assumes the risk.
In the second quarter of 2017, total revenues from the Program Services segment were $21.0 million, an increase of $4.1 million, or 24%, from the second quarter of 2016. The growth in revenues was driven by increased ceding fees from both new and existing client programs.
Lender Services Segment
In Lender Services, the collateral protection business is fully vertically integrated as State National manages all aspects of these product offerings for its clients, including policy issuance and administration, underwriting and claims, which we believe is a competitive advantage in the marketplace. Additionally, the Company differentiates itself from competitors by establishing long-term relationships with clients and providing high-quality service and advanced technology.
In the second quarter of 2017, net premiums written from the Lender Services segment were $32.8 million, an increase of $2.9 million, or 10%, from the second quarter of 2016. Net premiums earned were $33.9 million in the second quarter of 2017, an increase of $5.0 million, or 17%, from the second quarter of 2016. Contributing to this increase in Lender Services premiums are sales of new accounts and loan portfolio growth from existing accounts driven by continued high levels of automobile sales, rising average automobile loan sizes and an aging U.S. automobile fleet.
Losses and loss adjustment expenses were $16.1 million in the second quarter of 2017, compared to $13.3 million in the same period last year. The loss ratio increased slightly to 47% in the second quarter from 46% in the second quarter last year, due to increased claim frequency and severity. The net expense ratio decreased to 40% in the second quarter 2017 from 43% in the second quarter 2016 due to our ability to effectively leverage fixed costs. The overall result is an improved combined ratio for the quarter of 87% compared to 89% in the same period of 2016.
General and Administrative Expenses
General and administrative expenses in the second quarter of 2017 increased to $18.6 million from $17.1 million in the second quarter of 2016, reflecting investment in strategic growth and increased professional fees.
Balance Sheet
State National's balance sheet reflects low financial leverage with only $43.8 million of debt. This debt has limited covenant requirements and is interest-only until the early to mid-2030s.
State National's investment portfolio has a short duration and consists primarily of fixed income securities, the majority of which have investment grade ratings. The portfolio is laddered to allow for reinvestment of funds as rates change.
Approximately $2.6 billion of State National's assets are comprised of reinsurance recoverables that are primarily related to the Program Services segment. Offsetting these recoverables are unpaid losses, loss adjustment expenses and unearned premium liabilities for the same segment. Recoverables of approximately $1.7 billion are secured by collateral held in trust funds for our benefit or letters of credit. The remainder is ceded to highly rated, well capitalized reinsurers.
Recent Developments
On July 26, 2017, State National and Markel Corporation entered into a definitive agreement under which Markel Corporation will acquire State National. The transaction, which is subject to the approval of a majority of State National shareholders, approvals by relevant state insurance regulators and other customary closing conditions, is expected to close in the fourth quarter of 2017. State National will not be updating its outlook for fiscal 2017 and will not be holding a conference call to discuss its second quarter 2017 results.
Non-GAAP Reconciliation
The last page of this press release provides a reconciliation of EBITDA, a non-GAAP financial measure, to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP.
About State National Companies, Inc.
State National Companies, Inc. (NASDAQ: SNC) is a leading specialty provider of property and casualty insurance services operating in two niche markets across the United States. In its Lender Services segment, the Company specializes in providing portfolio protection solutions which insures personal automobiles and other vehicles held as collateral for loans made by credit unions, banks and specialty finance companies. In its Program Services segment, the Company leverages its "A" (Excellent) A.M. Best rating, expansive licenses and reputation to provide access to the U.S. property and casualty insurance market in exchange for ceding fees. To learn more, please visit www.statenational.com. State National routinely posts important Company information on its website.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Various statements contained in this press release are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally, but not always, accompanied by words such as "estimate," "believe," "expect," "will," "plan," "target," "could" or other words that convey the uncertainty of future events or outcomes.
There can be no assurance that actual developments will be those anticipated by us. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, our ability to recover from our capacity providers, the cost and availability of reinsurance coverage, challenges to our use of issuing carrier or fronting arrangements by regulators or changes in state or federal insurance or other statutes or regulations, our dependence on a limited number of business partners, potential regulatory scrutiny of collateral protection insurance, level of new car sales, availability of credit for vehicle purchases and other factors affecting automobile financing, our ability to compete effectively, a downgrade in the financial strength ratings of our insurance subsidiaries, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, changes in interest rates or other changes in the financial markets, the effects of emerging claim and coverage issues, changes in the demand for our products, the effect of general economic conditions, breaches in data security or other disruptions with our technology, and changes in pricing or other competitive environments.
Forward-looking statements involve inherent risks and uncertainties that are difficult to predict, many of which are beyond our control. Additional information about these risks and uncertainties is contained in our filings with the Securities and Exchange Commission. The forward-looking statements in this press release speak only as of the date of this release, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
STATE NATIONAL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except for share and per share information)
June 30, December 31,
2017 2016
---- ----
(Unaudited)
Assets:
Investments:
Fixed-maturity securities -
available-for-sale, at
fair value (amortized cost -
$377,101, $329,994,
respectively) $382,518 $332,107
Equity securities -
available-for-sale, at
fair value (cost - $2,036,
$3,271, respectively) 2,134 3,224
----- -----
Total investments 384,652 335,331
Cash and cash equivalents 47,979 91,698
Restricted cash and
investments 16,746 2,958
Accounts receivable from
agents, net 120,214 35,964
Reinsurance recoverable on
paid losses 1,972 1,430
Deferred acquisition costs 1,106 1,194
Reinsurance recoverables 2,607,559 2,342,864
Property and equipment, net
(includes land held for sale
- $1,034, $1,034,
respectively) 16,876 16,163
Interest receivable 2,333 2,112
Income taxes receivable 174 329
Deferred income taxes, net 28,202 28,858
Goodwill and intangible
assets, net 14,539 12,588
Other assets 6,656 5,248
----- -----
Total assets $3,249,008 $2,876,737
========== ==========
Liabilities:
Unpaid losses and loss
adjustment expenses $1,858,105 $1,703,706
Unearned premiums 787,051 680,691
Allowance for policy
cancellations 54,541 66,418
Deferred ceding fees 39,385 32,226
Accounts payable to agents 2,121 2,639
Accounts payable to insurance
companies 94,259 14,871
Debt, net 43,804 43,783
Other liabilities 49,256 36,023
------ ------
Total liabilities 2,928,522 2,580,357
Shareholders' equity:
Common stock, $.001 par value
(150,000,000 shares
authorized; 42,173,561 and
41,924,440 shares issued at
June 30, 2017 and December
31, 2016, respectively) 42 42
Preferred stock, $.001 par
value (10,000,000 shares
authorized; no shares issued
and outstanding at June 30,
2017 and December 31, 2016) - -
Additional paid-in capital 231,654 229,297
Retained earnings 85,910 66,230
Accumulated other
comprehensive income 2,880 811
----- ---
Total shareholders' equity 320,486 296,380
------- -------
Total liabilities and
shareholders' equity $3,249,008 $2,876,737
========== ==========
STATE NATIONAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ in thousands, except for per share information)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Premiums earned $33,934 $28,916 $70,442 $60,593
Commission income 322 305 598 626
Ceding fees 20,998 16,917 38,643 33,161
Net investment income 2,288 2,100 4,439 4,140
Realized net investment gains
(losses) 523 282 2,399 (356)
Other income 530 459 1,061 915
--- --- ----- ---
58,595 48,979 117,582 99,079
Expenses:
Losses and loss adjustment
expenses 16,135 13,743 34,966 28,832
Commissions 1,703 1,130 3,277 2,827
Taxes, licenses, and fees 914 804 1,866 1,506
General and administrative 18,618 17,148 37,746 34,142
Interest expense 612 553 1,200 1,090
--- --- ----- -----
Total expenses 37,982 33,378 79,055 68,397
------ ------ ------ ------
Income (loss) before income
taxes 20,613 15,601 38,527 30,682
Income taxes:
Current tax expense (benefit) 8,551 6,137 14,260 10,491
Deferred tax expense (benefit) (1,173) (524) (458) 533
------ ---- ---- ---
7,378 5,613 13,802 11,024
----- ----- ------ ------
Net income (loss) $13,235 $9,988 $24,725 $19,658
======= ====== ======= =======
Net income (loss) per share
attributable to common
shareholders:
Basic earnings per
share $0.32 $0.24 $0.59 $0.46
Diluted earnings per share 0.31 0.24 0.58 0.46
Dividends, per share $0.06 $0.06 $0.12 $0.12
Weighted-average common shares
outstanding - basic 41,669,172 42,310,242 41,641,374 42,326,799
Weighted-average common shares
outstanding - diluted 42,908,190 42,321,607 42,710,444 42,357,960
Program Services Segment - Results of Operations
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
($ in thousands) 2017 2016 2017 2016
--------------- ---- ---- ---- ----
Revenues:
Ceding fees $20,998 16,917 $38,643 $33,161
------- ------ ------- -------
Total revenues 20,998 16,917 38,643 33,161
Expenses:
Losses and loss
adjustment expenses 80 396 (170) 905
Commissions 2 2 4 3
Taxes, licenses, and
fees 15 3 45 11
General and
administrative 4,177 4,011 8,496 7,119
----- ----- ----- -----
Total expenses 4,274 4,412 8,375 8,038
Income (loss) before
income taxes $16,724 $12,505 $30,268 $25,123
======= ======= ======= =======
Gross premiums written $482,843 $336,395 $827,841 $607,421
Gross premiums earned $385,479 $293,602 $716,886 $560,627
Lender Services Segment - Results of Operations
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
($ in thousands) 2017 2016 2017 2016
--------------- ---- ---- ---- ----
Revenues:
Premiums earned $33,934 $28,916 $70,442 $60,593
Commission income 322 305 598 626
Other income 534 471 1,073 919
--- --- ----- ---
Total revenues 34,790 29,692 72,113 62,138
Expenses:
Losses and loss
adjustment expenses 16,055 13,347 35,136 27,927
Commissions 1,701 1,128 3,273 2,824
Taxes, licenses, and
fees 899 801 1,821 1,495
General and
administrative 10,960 10,528 22,699 21,135
------ ------ ------ ------
Total expenses 29,615 25,804 62,929 53,381
Income (loss) before
income taxes $5,175 $3,888 $9,184 $8,757
====== ====== ====== ======
Net loss ratio 47.3% 46.2% 49.9% 46.1%
Net expense ratio 40.0% 43.1% 39.4% 42.0%
---- ---- ---- ----
Net combined ratio 87.3% 89.3% 89.3% 88.1%
Gross premiums written $39,825 $36,483 $81,819 $68,942
Net premiums written $32,787 $29,884 $66,624 $56,916
Corporate Segment - Results of Operations
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
($ in thousands) 2017 2016 2017 2016
--------------- ---- ---- ---- ----
Revenues:
Net investment income $2,288 $2,100 $4,439 $4,140
Realized net
investment gains
(losses) 523 282 2,399 (356)
Other income (4) (12) (12) (4)
--- --- --- ---
Total revenues 2,807 2,370 6,826 3,780
Expenses:
General and
administrative 3,481 2,609 6,551 5,888
Interest expense 612 553 1,200 1,090
--- --- ----- -----
Total expenses 4,093 3,162 7,751 6,978
Income (loss) before
income taxes (1,286) (792) (925) (3,198)
Income tax expense
(benefit) 7,378 5,613 13,802 11,024
----- ----- ------ ------
Net income (loss) $(8,664) $(6,405) $(14,727) $(14,222)
======= ======= ======== ========
Non-GAAP Reconciliation
The accompanying information provides a reconciliation of this non-GAAP financial measure to its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This non-GAAP financial measure should not be considered as an alternative to GAAP measures such as net income, earnings per share, return on equity or any other GAAP measure of liquidity or financial performance.
Earnings before interest, taxes, depreciation and amortization or EBITDA, is considered a non-GAAP financial measure because it reflects adjustments to net income for interest expense, income tax expense, and depreciation and amortization. Management believes this measure is helpful to investors because it provides a supplemental measure of evaluating core financial performance between periods.
State National Companies, Inc.
Reconciliation of Non-GAAP Financial Measures
(unaudited)
($ in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
EBITDA $22,121 $17,160 $41,558 $33,797
Reconciliation of EBITDA:
Net income $13,235 $9,988 $24,725 $19,658
Plus: Interest expense 612 553 1,200 1,090
Plus: Income tax expense 7,378 5,613 13,802 11,024
Plus: Depreciation and
amortization 896 1,006 1,831 2,025
--- ----- ----- -----
EBITDA $22,121 $17,160 $41,558 $33,797
======= ======= ======= =======
CONTACTS: State National Companies,
Inc.
David Hale, COO & CFO
817-265-2000
Dennard -- Lascar Associates
Rick Black
713-529-6600
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SOURCE State National Companies, Inc.
