BEDFORD, Texas, May 09, 2016 (GLOBE NEWSWIRE) -- State National Companies, Inc. (NASDAQ:SNC), a leading specialty provider of property and casualty insurance, today reported its financial results for the first quarter ended March 31, 2016. The Company also raised its 2016 outlook for the Program Services segment.
Key Highlights - First Quarter 2016 Financials Compared to the First Quarter 2015:
- Total revenues were $50.1 million, up 8.7%
- Premiums earned were $31.7 million, an increase of 8.2%
- Ceding fees were $16.2 million, up 14.9%
- Net income was $9.7 million, an increase of 11.5%
- EPS of $0.23, up from $0.20
- EBITDA was $16.6 million, up 6.4%
- Combined ratio for Lender Services was 87.0% in both periods
- In April, we amended our agreement with Meadowbrook extending the relationship through at least 2017 with contractual minimum ceding fees totaling $22.5 million.
Commenting on the results, State National’s Chairman and Chief Executive Officer, Terry Ledbetter, said, “We are pleased with our strong first quarter results maintaining the positive momentum we established in 2015. Revenue growth in Lender and Program Services led to first quarter net income of $9.7 million, an increase of 11.5% compared to the first quarter last year. Today, we are also announcing that we have amended our agreement with Meadowbrook to extend the relationship through at least 2017 with contractual minimum ceding fees totaling $22.5 million over that time period. Based on this agreement with Meadowbrook, in addition to our view of current programs and pipeline opportunities, we are raising our 2016 Program Services ceding fee outlook range to $61 to $66 million from our prior range of $55 to $65 million.”
Total revenues in the first quarter of 2016 were $50.1 million, up 8.7% from $46.1 million in the first quarter of 2015. Net income was $9.7 million, or $0.23 per diluted share, in the first quarter of 2016, compared to net income of $8.7 million, or $0.20 per diluted share, for the same period in 2015.
Lender Services Segment
In Lender Services, the Collateral Protection Insurance, or CPI, business is fully vertically integrated as State National manages all aspects of the CPI business for its clients, including policy issuance and administration, underwriting and claims. The Company differentiates itself from competitors by establishing long-term relationships with clients, leveraging its alliance with CUNA Mutual, and providing high-quality service and advanced technology to more than 600 customers with over 5.9 million loans.
In the first quarter of 2016, total revenues from the Lender Services segment were $32.4 million, an increase of $2.4 million, or 8.0%, from the first quarter of 2015. Premiums earned increased by $2.4 million, or 8.2%, to $31.7 million in the first quarter of 2016 from $29.3 million in the first quarter of 2015. Contributing to this increase in Lender Services premiums are sales of new accounts and growth in loan portfolios of existing accounts driven by rising automobile sales, higher average automobile loan sizes and an aging U.S. automobile fleet.
Losses and loss adjustment expenses were $14.6 million in the first quarter of 2016, compared to $13.1 million in the same period last year, primarily a result of increased exposure due to higher earned premiums, and an increase in claim frequency and severity. A strengthening economy, an aging automobile fleet, and easier access to credit have contributed to an increase in vehicle sales, resulting in higher loan balances upon which the Company pays claims. Although Lender Services experienced a slightly higher loss ratio during the quarter, that increase was offset by a decrease in the expense ratio due to our ability to effectively leverage fixed costs. The net expense ratio decreased to 41.0% for the first quarter 2016 from 42.2% in the first quarter 2015. The resulting net combined ratio for both the first quarter 2016 and 2015 was 87%, consistent with our objective of 85 to 90%.
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 first quarter of 2016, total revenues from the Program Services segment were $16.2 million, an increase of $2.1 million, or 14.9% from the first quarter of 2015. The growth in revenues was driven by increased ceding fees from both new and existing client programs.
General and Administrative Expenses
General and administrative expenses in the first quarter of 2016 increased 5.6%, to $17 million from $16.1 million in the first quarter of 2015, primarily due to an increase in compensation expense in part due to new hires.
Balance Sheet
State National’s balance sheet reflects low financial leverage with $43.8 million of debt. This debt has limited covenant requirements and is interest-only until the mid-2030s.
The Company had $5.8 million of goodwill and other intangibles at March 31, 2016.
State National’s investment portfolio is primarily comprised of fixed income securities, the majority of which have investment grade ratings with short duration of approximately four years and are laddered to allow for new funds to reinvest annually as rates change.
Approximately $2 billion of State National’s assets are comprised of reinsurance recoverables, which are primarily related to the Program Services segment. Offsetting these recoverables are unpaid losses, loss adjustment expenses and unearned premium liabilities for the same business. Recoverables of approximately $1.5 billion are secured by trust funds or letters of credit.
Share Repurchase Program
Pursuant to the share repurchase plan, the Company purchased approximately 174 thousand shares for $1.6 million in the first quarter. In total, under the program, the Company has purchased approximately 2 million shares for $18.9 million, including broker commissions. Under the $50 million Board authorized plan, $31 million remains available.
2016 Outlook
State National has reaffirmed its fiscal 2016 outlook in Lender Services and has raised its outlook range in Program Services:
| Net Earned Premiums | Combined Ratio | ||
| Lender Services | $115 to $125 million | 85 to 90 percent | |
| Ceding Fees | |||
| Program Services | $61 to $66 million | ||
| Prior range $55 to $65 million | |||
Conference Call
State National will host a conference tomorrow morning, Tuesday, May 10, 2016 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss its first quarter 2016 results. To access the call live, dial (716) 247-5810 and use the passcode 85850881# at least 10 minutes prior to the start time. Alternatively, investors can listen live over the Internet by visiting the Company’s website at http://ir.statenational.com/. For those who cannot listen to the live call, a telephonic replay will be available through May 17, 2016 and may be accessed by calling (404) 537-3406 and using pass code 85850881#. Also, an archive of the webcast will be available after the call for a period of 90 days on the “Investor Relations” section of the Company's website at http://www.statenational.com/.
About State National Companies, Inc.
State National Companies, Inc. (NASDAQ:SNC) is a leading specialty provider of property and casualty insurance operating in two niche markets across the United States. In its Lender Services segment, the company specializes in providing collateral protection insurance, 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. The Company 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 lender-placed automobile 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) | |||||||
| March 31, | December 31, | ||||||
| 2016 | 2015 | ||||||
| Assets | (Unaudited) | ||||||
| Investments: | |||||||
| Fixed-maturity securities – available-for-sale, at fair value (amortized cost – $335,664, $327,764, respectively) | $ | 341,452 | $ | 329,522 | |||
| Equity securities – available-for-sale, at fair value (cost – $4,001, $4,796, respectively) | 4,670 | 5,544 | |||||
| Total investments | 346,122 | 335,066 | |||||
| Cash and cash equivalents | 38,244 | 51,770 | |||||
| Restricted cash and investments | 3,716 | 3,717 | |||||
| Accounts receivable from agents, net | 31,323 | 23,913 | |||||
| Reinsurance recoverable on paid losses | 1,267 | 1,187 | |||||
| Deferred acquisition costs | 872 | 1,075 | |||||
| Reinsurance recoverables | 1,962,189 | 1,911,660 | |||||
| Property and equipment, net (includes land held for sale – $1,034, $1,034, respectively) | 16,798 | 17,163 | |||||
| Interest receivable | 2,040 | 2,158 | |||||
| Income taxes receivable | 1,671 | 3,330 | |||||
| Deferred income taxes, net | 23,499 | 26,208 | |||||
| Goodwill and intangible assets, net | 5,778 | 5,958 | |||||
| Other assets | 5,490 | 4,353 | |||||
| Total assets | $ | 2,439,009 | $ | 2,387,558 | |||
| Liabilities | |||||||
| Unpaid losses and loss adjustment expenses | $ | 1,412,128 | $ | 1,364,774 | |||
| Unearned premiums | 583,843 | 585,448 | |||||
| Allowance for policy cancellations | 54,317 | 59,610 | |||||
| Deferred ceding fees | 29,877 | 29,119 | |||||
| Accounts payable to agents | 2,104 | 2,458 | |||||
| Accounts payable to insurance companies | 9,812 | 3,801 | |||||
| Debt, net | 43,751 | 43,740 | |||||
| Other liabilities | 30,198 | 35,151 | |||||
| Total liabilities | 2,166,030 | 2,124,101 | |||||
| Shareholders’ equity | |||||||
| Common stock, $.001 par value (150,000,000 shares authorized; 42,704,712 and 42,699,550 shares issued at March 31, 2016 and December 31, 2015, respectively) | 43 | 43 | |||||
| Preferred stock, $.001 par value (10,000,000 shares authorized; no shares issued and outstanding at March 31, 2016 and December 31, 2015) | — | — | |||||
| Additional paid-in capital | 225,671 | 224,719 | |||||
| Retained earnings | 42,823 | 37,322 | |||||
| Accumulated other comprehensive income | 4,442 | 1,373 | |||||
| Total shareholders’ equity | 272,979 | 263,457 | |||||
| Total liabilities and shareholders’ equity | $ | 2,439,009 | $ | 2,387,558 | |||
| STATE NATIONAL COMPANIES, INC. | ||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
| (Unaudited) | ||||||||||
| ($ in thousands, except for per share information) | ||||||||||
| Three Months Ended | ||||||||||
| March 31, | March 31, | |||||||||
| 2016 | 2015 | |||||||||
| Revenues: | ||||||||||
| Premiums earned | $ | 31,677 | $ | 29,284 | ||||||
| Commission income | 321 | 370 | ||||||||
| Ceding fees | 16,244 | 14,144 | ||||||||
| Net investment income | 2,040 | 1,681 | ||||||||
| Realized net investment gains (losses) | (638 | ) | 265 | |||||||
| Other income | 456 | 385 | ||||||||
| Total revenues | 50,100 | 46,129 | ||||||||
| Expenses: | ||||||||||
| Losses and loss adjustment expenses | 15,089 | 13,533 | ||||||||
| Commissions | 1,697 | 1,497 | ||||||||
| Taxes, licenses, and fees | 702 | 712 | ||||||||
| General and administrative | 16,994 | 16,142 | ||||||||
| Interest expense | 537 | 500 | ||||||||
| Total expenses | 35,019 | 32,384 | ||||||||
| Income (loss) before income taxes | 15,081 | 13,745 | ||||||||
| Income taxes: | ||||||||||
| Current tax expense (benefit) | 4,354 | 5,244 | ||||||||
| Deferred tax expense (benefit) | 1,057 | (173 | ) | |||||||
| 5,411 | 5,071 | |||||||||
| Net income (loss) | $ | 9,670 | $ | 8,674 | ||||||
| Net income (loss) per share attributable to common shareholders: | ||||||||||
| Basic earnings per share | $ | 0.23 | $ | 0.20 | ||||||
| Diluted earnings per share | 0.23 | 0.20 | ||||||||
| Dividends, per share | $ | 0.06 | $ | 0.01 | ||||||
| Weighted-average common shares outstanding – basic | 42,343,357 | 44,235,102 | ||||||||
| Weighted-average common shares outstanding – diluted | 42,396,713 | 44,247,102 | ||||||||
| Program Services Segment — Results of Operations | |||||||||
| Unaudited | |||||||||
| Three Months Ended | |||||||||
| March 31, | |||||||||
| ($ in thousands) | 2016 | 2015 | |||||||
| Revenues: | |||||||||
| Premiums earned | $ | — | $ | (11 | ) | ||||
| Ceding fees | 16,244 | 14,144 | |||||||
| Total revenues | 16,244 | 14,133 | |||||||
| Expenses: | |||||||||
| Losses and loss adjustment expenses | 509 | 414 | |||||||
| Commissions | 1 | — | |||||||
| Taxes, licenses, and fees | 8 | 5 | |||||||
| General and administrative | 3,108 | 3,133 | |||||||
| Total expenses | 3,626 | 3,552 | |||||||
| Income (loss) before income taxes | $ | 12,618 | $ | 10,581 | |||||
| Program gross expense ratio | 1.1 | % | 1.2 | % | |||||
| Gross premiums written | $ | 271,026 | $ | 264,912 | |||||
| Gross premiums earned | $ | 267,025 | $ | 232,933 | |||||
| Lender Services Segment — Results of Operations | |||||||
| Unaudited | |||||||
| Three Months Ended | |||||||
| March 31, | |||||||
| ($ in thousands) | 2016 | 2015 | |||||
| Revenues: | |||||||
| Premiums earned | $ | 31,677 | $ | 29,295 | |||
| Commission income | 321 | 370 | |||||
| Other income | 448 | 351 | |||||
| Total revenues | 32,446 | 30,016 | |||||
| Expenses: | |||||||
| Losses and loss adjustment expenses | 14,580 | 13,119 | |||||
| Commissions | 1,696 | 1,497 | |||||
| Taxes, licenses, and fees | 694 | 707 | |||||
| General and administrative | 10,607 | 10,173 | |||||
| Total expenses | 27,577 | 25,496 | |||||
| Income (loss) before income taxes | $ | 4,869 | $ | 4,520 | |||
| Net loss ratio | 46.0 | % | 44.8 | % | |||
| Net expense ratio | 41.0 | % | 42.2 | % | |||
| Net combined ratio | 87.0 | % | 87.0 | % | |||
| Gross premiums written | $ | 32,459 | $ | 32,649 | |||
| Net premiums written | $ | 27,032 | $ | 26,882 | |||
| Corporate Segment — Results of Operations | ||||||||||
| Unaudited | ||||||||||
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| ($ in thousands) | 2016 | 2015 | ||||||||
| Revenues: | ||||||||||
| Net investment income | $ | 2,040 | $ | 1,681 | ||||||
| Realized net investment gains (losses) | (638 | ) | 265 | |||||||
| Other income | 8 | 34 | ||||||||
| Total revenues | 1,410 | 1,980 | ||||||||
| Expenses: | ||||||||||
| General and administrative | 3,279 | 2,836 | ||||||||
| Interest expense | 537 | 500 | ||||||||
| Total expenses | 3,816 | 3,336 | ||||||||
| Income (loss) before income taxes | (2,406 | ) | (1,356 | ) | ||||||
| Income tax expense (benefit) | 5,411 | 5,071 | ||||||||
| Net income (loss) | $ | (7,817 | ) | $ | (6,427 | ) | ||||
Non-GAAP Reconciliation
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. In addition, EBITDA is part of our material management reporting and planning process and is an important metric that management uses to evaluate the operating performance of our company.
The accompanying information provides a reconciliation of this non-GAAP financial measure to net income, 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.
| STATE NATIONAL COMPANIES, INC. | ||||||
| Reconciliation of Non-GAAP Financial Measures | ||||||
| (in thousands) | ||||||
| Three Months Ended | ||||||
| March 31, | ||||||
| 2016 | 2015 | |||||
| EBITDA | $ | 16,636 | $ | 15,569 | ||
| Reconciliation of EBITDA: | ||||||
| Net income | $ | 9,670 | $ | 8,674 | ||
| Plus: Interest expense | 537 | 500 | ||||
| Plus: Income tax expense | 5,410 | 5,070 | ||||
| Plus: Depreciation and amortization | 1,019 | 1,325 | ||||
| EBITDA | $ | 16,636 | $ | 15,569 | ||