Attached files
| file | filename |
|---|---|
| 8-K - 8-K - State National Companies, Inc. | a17-24298_18k.htm |
|
CONTACTS: FOR IMMEDIATE RELEASE |
State National Companies, Inc. David Hale, COO & CFO 817-265-2000
Dennard · Lascar Associates Rick Black 713-529-6600 |
State National Companies Reports Third Quarter 2017 Results
BEDFORD, TX — October 23, 2017 — State National Companies, Inc. (NASDAQ: SNC), a leading specialty provider of property and casualty insurance services, today reported its financial results for the third quarter ended September 30, 2017.
Commenting on the results, State National’s Chairman and Chief Executive Officer, Terry Ledbetter, said, “Our third quarter revenue increase was driven by continued growth in Lender and Program Services with premiums earned and ceding fees both up sequentially and year over year. We believe that the favorable industry trends in both business segments position the company well for future growth and profitability.
As we have previously announced, the definitive agreement under which Markel will acquire all of the outstanding shares of State National remains on track to close in the fourth quarter of 2017.”
Total revenues in the third quarter of 2017 were $61.4 million, up 6% from $57.9 million in the third quarter of 2016. Net income was $14.7 million, or $0.34 per diluted share, in the third quarter of 2017, compared to net income of $15.3 million, or $0.37 per diluted share, for the same period in 2016. Realized investment gains were $1.0 million in the third quarter of 2017, down from $2.0 million in the third quarter of 2016. The impact of the decrease in realized net investment gains and losses (net of tax) for the third quarter of 2017 was $0.02 per diluted share. The impact of the additional weighted-average shares outstanding for the current quarter accounts for the additional $0.01 of decrease in the earnings per share compared to the same period last year.
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, 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 third quarter of 2017, total revenues from the Program Services segment were $21.7 million, an increase of $2.4 million, or 13%, from the third 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
State National Companies, Inc. Press Release
differentiates itself from competitors by establishing long-term relationships with clients and providing high-quality service and advanced technology.
In the third quarter of 2017, net premiums written from the Lender Services segment were $42.5 million, an increase of $5.0 million, or 13%, from the third quarter of 2016. Net premiums earned were $35.5 million in the third quarter of 2017, an increase of $1.8 million, or 5%, from the third 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 and rising average automobile loan sizes.
Losses and loss adjustment expenses were $15.7 million in the third quarter of 2017, compared to $13.7 million in the same period last year. The loss ratio increased to 44% in the third quarter from 40% in the third quarter last year, primarily due to increased claim severity. The net expense ratio decreased to approximately 37% in the third quarter 2017 from 38% in the third quarter 2016 due to our ability to effectively leverage fixed costs. The overall result was a net combined ratio for the quarter of 81% compared to 78% in the same period of 2016.
General and Administrative Expenses
General and administrative expenses in the third quarter of 2017 increased to $19.7 million from $17.2 million in the third quarter of 2016, reflecting investment in strategic growth and increased professional fees primarily related to the transaction with Markel.
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 $2.9 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 $1.8 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 third quarter 2017 results.
State National Companies, Inc. Press Release
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 trusted 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. Press Release
STATE NATIONAL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except for share and per share information)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2017 |
|
2016 |
| ||
|
|
|
(Unaudited) |
|
|
| ||
|
Assets: |
|
|
|
|
| ||
|
Investments: |
|
|
|
|
| ||
|
Fixed-maturity securities — available-for-sale, at fair value (amortized cost — $400,885, $329,994, respectively) |
|
$ |
406,677 |
|
$ |
332,107 |
|
|
Equity securities — available-for-sale, at fair value (cost — $2,039, $3,271, respectively) |
|
2,116 |
|
3,224 |
| ||
|
Total investments |
|
408,793 |
|
335,331 |
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents |
|
64,003 |
|
91,698 |
| ||
|
Restricted cash and investments |
|
25,192 |
|
2,958 |
| ||
|
Accounts receivable from agents, net |
|
145,867 |
|
35,964 |
| ||
|
Reinsurance recoverable on paid losses |
|
1,740 |
|
1,430 |
| ||
|
Deferred acquisition costs |
|
1,348 |
|
1,194 |
| ||
|
Reinsurance recoverables |
|
2,871,500 |
|
2,342,864 |
| ||
|
Property and equipment, net (includes land held for sale — $1,034, $1,034, respectively) |
|
16,999 |
|
16,163 |
| ||
|
Interest receivable |
|
2,319 |
|
2,112 |
| ||
|
Income taxes receivable |
|
— |
|
329 |
| ||
|
Deferred income taxes, net |
|
30,900 |
|
28,858 |
| ||
|
Goodwill and intangible assets, net |
|
14,364 |
|
12,588 |
| ||
|
Other assets |
|
7,680 |
|
5,248 |
| ||
|
Total assets |
|
$ |
3,590,705 |
|
$ |
2,876,737 |
|
|
|
|
|
|
|
| ||
|
Liabilities: |
|
|
|
|
| ||
|
Unpaid losses and loss adjustment expenses |
|
$ |
2,087,941 |
|
$ |
1,703,706 |
|
|
Unearned premiums |
|
828,583 |
|
680,691 |
| ||
|
Allowance for policy cancellations |
|
68,568 |
|
66,418 |
| ||
|
Deferred ceding fees |
|
39,639 |
|
32,226 |
| ||
|
Accounts payable to agents |
|
2,467 |
|
2,639 |
| ||
|
Accounts payable to insurance companies |
|
118,791 |
|
14,871 |
| ||
|
Debt, net |
|
43,815 |
|
43,783 |
| ||
|
Income taxes payable |
|
3,649 |
|
— |
| ||
|
Other liabilities |
|
63,454 |
|
36,023 |
| ||
|
Total liabilities |
|
3,256,907 |
|
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 September 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 September 30, 2017 and December 31, 2016) |
|
— |
|
— |
| ||
|
Additional paid-in capital |
|
232,710 |
|
229,297 |
| ||
|
Retained earnings |
|
98,073 |
|
66,230 |
| ||
|
Accumulated other comprehensive income |
|
2,973 |
|
811 |
| ||
|
Total shareholders’ equity |
|
333,798 |
|
296,380 |
| ||
|
Total liabilities and shareholders’ equity |
|
$ |
3,590,705 |
|
$ |
2,876,737 |
|
State National Companies, Inc. Press Release
STATE NATIONAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ in thousands, except for per share information)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
| ||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Premiums earned |
|
$ |
35,499 |
|
$ |
33,700 |
|
$ |
105,941 |
|
$ |
94,293 |
|
|
Commission income |
|
328 |
|
389 |
|
926 |
|
1,015 |
| ||||
|
Ceding fees |
|
21,697 |
|
19,263 |
|
60,340 |
|
52,424 |
| ||||
|
Net investment income |
|
2,314 |
|
2,001 |
|
6,753 |
|
6,141 |
| ||||
|
Realized net investment gains (losses) |
|
1,010 |
|
2,063 |
|
3,409 |
|
1,707 |
| ||||
|
Other income |
|
597 |
|
501 |
|
1,658 |
|
1,416 |
| ||||
|
Total revenues |
|
61,445 |
|
57,917 |
|
179,027 |
|
156,996 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Losses and loss adjustment expenses |
|
15,883 |
|
13,755 |
|
50,849 |
|
42,587 |
| ||||
|
Commissions |
|
1,064 |
|
1,408 |
|
4,341 |
|
4,235 |
| ||||
|
Taxes, licenses, and fees |
|
1,096 |
|
960 |
|
2,962 |
|
2,466 |
| ||||
|
General and administrative |
|
19,666 |
|
17,235 |
|
57,412 |
|
51,377 |
| ||||
|
Interest expense |
|
631 |
|
565 |
|
1,831 |
|
1,655 |
| ||||
|
Total expenses |
|
38,340 |
|
33,923 |
|
117,395 |
|
102,320 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before income taxes |
|
23,105 |
|
23,994 |
|
61,632 |
|
54,676 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income taxes: |
|
|
|
|
|
|
|
|
| ||||
|
Current tax expense (benefit) |
|
11,160 |
|
10,801 |
|
25,420 |
|
21,292 |
| ||||
|
Deferred tax expense (benefit) |
|
(2,749 |
) |
(2,130 |
) |
(3,207 |
) |
(1,597 |
) | ||||
|
|
|
8,411 |
|
8,671 |
|
22,213 |
|
19,695 |
| ||||
|
Net income (loss) |
|
$ |
14,694 |
|
$ |
15,323 |
|
$ |
39,419 |
|
$ |
34,981 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share |
|
$ |
0.35 |
|
$ |
0.37 |
|
$ |
0.95 |
|
$ |
0.83 |
|
|
Diluted earnings per share |
|
0.34 |
|
0.37 |
|
0.92 |
|
0.83 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dividends, per share |
|
$ |
0.06 |
|
$ |
0.06 |
|
$ |
0.18 |
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted-average common shares outstanding — basic |
|
41,683,695 |
|
41,937,467 |
|
41,655,636 |
|
42,196,075 |
| ||||
|
Weighted-average common shares outstanding — diluted |
|
43,412,902 |
|
41,940,918 |
|
42,967,302 |
|
42,215,846 |
| ||||
State National Companies, Inc. Press Release
Program Services Segment — Results of Operations
Unaudited
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
($ in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Premiums earned |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
|
Ceding fees |
|
21,697 |
|
19,263 |
|
60,340 |
|
52,424 |
| ||||
|
Total revenues |
|
21,697 |
|
19,266 |
|
60,340 |
|
52,427 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Losses and loss adjustment expenses |
|
187 |
|
96 |
|
17 |
|
1,001 |
| ||||
|
Commissions |
|
4 |
|
2 |
|
8 |
|
5 |
| ||||
|
Taxes, licenses, and fees |
|
17 |
|
2 |
|
62 |
|
13 |
| ||||
|
General and administrative |
|
3,794 |
|
3,681 |
|
12,290 |
|
10,800 |
| ||||
|
Total expenses |
|
4,002 |
|
3,781 |
|
12,377 |
|
11,819 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before income taxes |
|
$ |
17,695 |
|
$ |
15,485 |
|
$ |
47,963 |
|
$ |
40,608 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Gross premiums written |
|
$ |
426,098 |
|
$ |
350,541 |
|
$ |
1,253,939 |
|
$ |
957,962 |
|
|
Gross premiums earned |
|
$ |
393,303 |
|
$ |
311,463 |
|
$ |
1,110,189 |
|
$ |
872,090 |
|
State National Companies, Inc. Press Release
Lender Services Segment — Results of Operations
Unaudited
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
($ in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Premiums earned |
|
$ |
35,499 |
|
$ |
33,697 |
|
$ |
105,941 |
|
$ |
94,290 |
|
|
Commission income |
|
328 |
|
389 |
|
926 |
|
1,015 |
| ||||
|
Other income |
|
554 |
|
491 |
|
1,627 |
|
1,410 |
| ||||
|
Total revenues |
|
36,381 |
|
34,577 |
|
108,494 |
|
96,715 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Losses and loss adjustment expenses |
|
15,696 |
|
13,659 |
|
50,832 |
|
41,586 |
| ||||
|
Commissions |
|
1,060 |
|
1,406 |
|
4,333 |
|
4,230 |
| ||||
|
Taxes, licenses, and fees |
|
1,079 |
|
958 |
|
2,900 |
|
2,453 |
| ||||
|
General and administrative |
|
10,878 |
|
10,262 |
|
33,577 |
|
31,397 |
| ||||
|
Total expenses |
|
28,713 |
|
26,285 |
|
91,642 |
|
79,666 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before income taxes |
|
$ |
7,668 |
|
$ |
8,292 |
|
$ |
16,852 |
|
$ |
17,049 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net loss ratio |
|
44.2 |
% |
40.5 |
% |
48.0 |
% |
44.1 |
% | ||||
|
Net expense ratio |
|
36.7 |
% |
37.5 |
% |
38.5 |
% |
40.4 |
% | ||||
|
Net combined ratio |
|
80.9 |
% |
78.0 |
% |
86.5 |
% |
84.5 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Gross premiums written |
|
$ |
52,947 |
|
$ |
45,746 |
|
$ |
134,766 |
|
$ |
114,688 |
|
|
Net premiums written |
|
$ |
42,469 |
|
$ |
37,517 |
|
$ |
109,093 |
|
$ |
94,433 |
|
Corporate Segment — Results of Operations
Unaudited
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
($ in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Net investment income |
|
$ |
2,314 |
|
$ |
2,001 |
|
$ |
6,753 |
|
$ |
6,141 |
|
|
Realized net investment gains (losses) |
|
1,010 |
|
2,063 |
|
3,409 |
|
1,707 |
| ||||
|
Other income |
|
43 |
|
10 |
|
31 |
|
6 |
| ||||
|
Total revenues |
|
3,367 |
|
4,074 |
|
10,193 |
|
7,854 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Expenses: |
|
|
|
|
|
|
|
|
| ||||
|
General and administrative |
|
4,994 |
|
3,292 |
|
11,545 |
|
9,180 |
| ||||
|
Interest expense |
|
631 |
|
565 |
|
1,831 |
|
1,655 |
| ||||
|
Total expenses |
|
5,625 |
|
3,857 |
|
13,376 |
|
10,835 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before income taxes |
|
(2,258 |
) |
217 |
|
(3,183 |
) |
(2,981 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income tax expense (benefit) |
|
8,411 |
|
8,671 |
|
22,213 |
|
19,695 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) |
|
$ |
(10,669 |
) |
$ |
(8,454 |
) |
$ |
(25,396 |
) |
$ |
(22,676 |
) |
State National Companies, Inc. Press Release
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 |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
EBITDA |
|
$ |
24,727 |
|
$ |
25,633 |
|
$ |
66,285 |
|
$ |
59,430 |
|
|
Reconciliation of EBITDA: |
|
|
|
|
|
|
|
|
| ||||
|
Net income |
|
$ |
14,694 |
|
$ |
15,323 |
|
$ |
39,419 |
|
$ |
34,981 |
|
|
Plus: Interest expense |
|
631 |
|
565 |
|
1,831 |
|
1,655 |
| ||||
|
Plus: Income tax expense |
|
8,411 |
|
8,671 |
|
22,213 |
|
19,695 |
| ||||
|
Plus: Depreciation and amortization |
|
991 |
|
1,074 |
|
2,822 |
|
3,099 |
| ||||
|
EBITDA |
|
$ |
24,727 |
|
$ |
25,633 |
|
$ |
66,285 |
|
$ |
59,430 |
|
###