News Release

Printer Friendly Version View printer-friendly version
<< Back
State National Companies Reports Second Quarter 2017 Results

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

 

View original content:http://www.prnewswire.com/news-releases/state-national-companies-reports-second-quarter-2017-results-300501314.html

SOURCE State National Companies, Inc.