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State National Companies Reports First Quarter 2017 Results
Company Raises 2017 Outlook

BEDFORD, Texas, May 10, 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 first quarter ended March 31, 2017. The Company also raised its 2017 earnings per share outlook.

Key Highlights - First Quarter 2017 Financials Compared to the First Quarter 2016:

  • Total revenues were $59.0 million, up 18%
  • Premiums earned were $36.5 million, an increase of 15%
  • Ceding fees were $17.6 million, up 9%
  • Net income was $11.5 million, an increase of 19 %
  • EPS of $0.27, up from $0.23
  • EBITDA was $19.4 million, up 17%

Commenting on the results, State National's Chairman and Chief Executive Officer, Terry Ledbetter, said, "We generated strong growth in the first quarter in both business segments compared to the prior year that led to increased earnings and EBITDA. In Lender Services, premiums earned grew 15 percent in the first quarter and ceding fees in our Program Services segment grew 9 percent for the quarter.

In early May, we were pleased to announce the addition of two significant client relationships in Program Services that have begun writing with us in the second quarter. These clients both bring existing books of business to State National and together are expected to produce annual premiums of approximately $200 million. Furthermore, we continue to see a high level of Program Services activity in our sales pipeline as a result of our increased sales efforts and the elevated profile of State National in the marketplace." 

In both Lender and Program Services, favorable industry trends underscore our firm belief that we are well positioned for continued growth and profitability," added Ledbetter.

Total revenues in the first quarter of 2017 were $59.0 million, up 18% from $50.1 million in the first quarter of 2016.  Net income was $11.5 million, or $0.27 per diluted share, in the first quarter of 2017, compared to net income of $9.7 million, or $0.23 per diluted share, for the same period in 2016. Realized investment gains were $1.9 million in the first quarter of 2017, up from a loss of $0.6 million in the first quarter of 2016. The impact of the realized net investment gains and losses (net of tax) for the first quarter of 2017 was $0.04 per diluted share.

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, 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 to more than 600 customers and tracking over 6 million loans as of March 31, 2017. 

In the first quarter of 2017, net premiums written from the Lender Services segment were $33.8 million, an increase of $6.8 million, or 25%, from the first quarter of 2016. Net premiums earned were $36.5 million in the first quarter of 2017, an increase of $4.8 million, or 15%, from the first 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 $19.1 million in the first quarter of 2017, compared to $14.6 million in the same period last year.  The loss ratio increased to 52% in the first quarter of 2017, primarily related to increased claim severity, which we expect to decrease throughout the remainder of the year. The net expense ratio decreased to 39% in the first quarter 2017 from 41% in the first quarter 2016, which resulted in an increase in our net combined ratio for the quarter of 91% compared to 87% in the same period of 2016. Our long-term objective for our Lender Services business is to achieve a net combined ratio 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 2017, total revenues from the Program Services segment were $17.6 million, an increase of $1.4 million, or 9%, from the first quarter of 2016.  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 2017 increased to $19.1 million from $17.0 million in the first quarter of 2016, reflecting investment in strategic growth and increased consulting 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 $2.4 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.

2017 Outlook

State National is raising its 2017 outlook range for diluted adjusted earnings per share to $1.18 to $1.26 up from the Company's prior range of $1.13 to $1.21.

Conference Call

State National will host a conference call tomorrow, May 11, 2017, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss its first quarter 2017 results.  To access the call live, dial (412) 902-0030 and use the conference ID number 13660211# 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 18, 2017 and may be accessed by calling (201) 612-7415 and using pass code 13660211#.  Also, an archive of the webcast will be available after the call for at least 90 days on the "Investor Relations" section of the Company's website at http://www.statenational.com/.  

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 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.  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)











March 31,


December 31,




2017


2016


Assets:



(unaudited)





Investments:








Fixed-maturity securities – available-for-sale, at fair value (amortized cost – $373,431, $329,994, respectively)


$

376,834


$

332,107


Equity securities – available-for-sale, at fair value (cost – $2,282, $3,271, respectively)



2,394



3,224


Total investments



379,228



335,331










Cash and cash equivalents



49,133



91,698


Restricted cash and investments



4,003



2,958


Accounts receivable from agents, net



75,377



35,964


Reinsurance recoverable on paid losses



1,636



1,430


Deferred acquisition costs



1,161



1,194


Reinsurance recoverables



2,397,488



2,342,864


Property and equipment, net (includes land held for sale – $1,034, $1,034, respectively)



16,441



16,163


Interest receivable



2,129



2,112


Income taxes receivable





329


Deferred income taxes, net



27,709



28,858


Goodwill and intangible assets, net



14,714



12,588


Other assets



6,938



5,248


Total assets


$

2,975,957


$

2,876,737










Liabilities:








Unpaid losses and loss adjustment expenses


$

1,746,399


$

1,703,706


Unearned premiums



691,233



680,691


Allowance for policy cancellations



58,502



66,418


Deferred ceding fees



33,806



32,226


Accounts payable to agents



1,762



2,639


Accounts payable to insurance companies



53,793



14,871


Debt, net



43,794



43,783


Income taxes payable



5,210




Other liabilities



34,208



36,023


Total liabilities



2,668,707



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 March 31, 2017 and December 31, 2016, respectively)



42



42


Preferred stock, $.001 par value (10,000,000 shares authorized; no shares issued and outstanding at March 31, 2017 and December 31, 2016)






Additional paid-in capital



230,388



229,297


Retained earnings



75,205



66,230


Accumulated other comprehensive income



1,615



811


Total shareholders' equity



307,250



296,380


Total liabilities and shareholders' equity


$

2,975,957


$

2,876,737


 

STATE NATIONAL COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 ($ in thousands, except for per share information)









Three Months Ended



March 31,


March 31,



2017


2016


Revenues:







Premiums earned

$

36,508


$

31,677


Commission income


276



321


Ceding fees


17,645



16,244


Net investment income


2,151



2,040


Realized net investment gains (losses)


1,876



(638)


Other income


531



456




58,987



50,100









Expenses:







Losses and loss adjustment expenses


18,831



15,089


Commissions


1,574



1,697


Taxes, licenses, and fees


952



702


General and administrative


19,128



16,994


Interest expense


588



537


Total expenses


41,073



35,019









Income (loss) before income taxes


17,914



15,081









Income taxes:







Current tax expense (benefit)


5,709



4,354


Deferred tax expense (benefit)


715



1,057




6,424



5,411


Net income (loss)

$

11,490


$

9,670









Net income (loss) per share attributable to common shareholders:







Basic earnings per share

$

0.28


$

0.23


Diluted earnings per share


0.27



0.23









Dividends, per share

$

0.06


$

0.06









Weighted-average common shares outstanding – basic


41,613,267



42,343,357


Weighted-average common shares outstanding – diluted


42,495,238



42,396,713


 


Program Services Segment — Results of Operations
Unaudited



















Three Months Ended




March 31,

($ in thousands)



2017


2016









Revenues:








Ceding fees



$

17,645


$

16,244

Total revenues




17,645



16,244









Expenses:








Losses and loss adjustment expenses




(250)



509

Commissions




2



1

Taxes, licenses, and fees




30



8

General and administrative




4,319



3,108

Total expenses




4,101



3,626









Income (loss) before income taxes



$

13,544


$

12,618









Gross premiums written



$

344,998


$

271,026

Gross premiums earned



$

331,407


$

267,025

 

Lender Services Segment — Results of Operations
Unaudited


















Three Months Ended




March 31,


($ in thousands)


2017


2016










Revenues:








Premiums earned


$

36,508


$

31,677


Commission income



276



321


Other income



539



448


Total revenues



37,323



32,446










Expenses:








Losses and loss adjustment expenses



19,081



14,580


Commissions



1,572



1,696


Taxes, licenses, and fees



922



694


General and administrative



11,739



10,607


Total expenses



33,314



27,577










Income (loss) before income taxes


$

4,009


$

4,869










Net loss ratio



52.3

%


46.0

%

Net expense ratio



39.0

%


41.0

%

Net combined ratio



91.3

%


87.0

%









Gross premiums written


$

41,994


$

32,459


Net premiums written


$

33,837


$

27,032



 

Corporate Segment — Results of Operations
Unaudited


















Three Months Ended




March 31,


($ in thousands)


2017


2016










Revenues:








Net investment income


$

2,151


$

2,040


Realized net investment gains (losses)



1,876



(638)


Other income



(8)



8


Total revenues



4,019



1,410










Expenses:








General and administrative



3,070



3,279


Interest expense



588



537


Total expenses



3,658



3,816










Income (loss) before income taxes



361



(2,406)










Income tax expense (benefit)



6,424



5,411










Net income (loss)


$

(6,063)


$

(7,817)


 

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 and analysts 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





March 31,





2017


2016

EBITDA




$

19,437


$

16,637

Reconciliation of EBITDA:









Net income




$

11,490


$

9,670

Plus: Interest expense





588



537

Plus: Income tax expense





6,424



5,411

Plus: Depreciation and amortization





935



1,019

EBITDA




$

19,437


$

16,637

 

CONTACTS:

State National Companies, Inc.

David Hale, COO & CFO

817-265-2000

 

Dennard ▪ Lascar Associates

Rick Black

713-529-6600

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/state-national-companies-reports-first-quarter-2017-results-300455483.html

SOURCE State National Companies, Inc.