State National Companies, Inc. (Nasdaq:SNC) today reported its
financial results for the first quarter ended March 31, 2015.
Total revenues in the first quarter of 2015 were $46.1 million,
up 29.9 percent from $35.5 million in the first quarter of 2014.
Adjusted net income, a non-GAAP measure, was $8.7 million, or $0.20
per diluted share, in the first quarter of 2015, compared to
adjusted net income of $4.9 million, or $0.14 per diluted share,
for the same period in 2014. Reported net income was also $8.7
million, or $0.20 per diluted share, in the first quarter of 2015.
See below for a reconciliation of non-GAAP financial measures.
Financial Highlights - First Quarter 2015 Compared to
the First Quarter 2014:
- Gross written premiums were $297.6 million, up 29.2
percent
- Premiums earned were $29.3 million, up 28.5 percent
- Ceding fees were $14.1 million, up 42.4 percent
- Adjusted net income was $8.7 million, up 77.6 percent
- Adjusted diluted EPS of $0.20 up from $0.14
Commenting on the quarter, State National's Chairman, President
and Chief Executive Officer Terry Ledbetter, stated, "We are
excited to announce significant growth in the first quarter with
adjusted net income increasing 78 percent, driven by growth in
premiums earned in Lender Services and ceding fees in Program
Services. We are optimistic about the positive trends in our
business and are maintaining our 2015 growth outlook in both our
Program and Lender Services segments.
"At State National, we simplify and expand access to insurance
coverage for our clients and capacity providers. In Lender
Services, we provide high quality service and advanced technology
to create process efficiency for our customers. In Program
Services, we provide fronting services that leverage our "A"
(Excellent) A.M. Best rating with our expansive licenses and
trusted reputation to provide access to the U.S. property and
casualty insurance market in exchange for a ceding fee. The growth
in both business segments is the direct result of our reputation as
a trusted provider of customized insurance solutions and our
ability to deliver superior customer service through quality
programs."
Program Services Segment
Our Program Services business provides fronting to general
agents and insurance carriers that lack adequate ratings or
licenses to provide access to the U.S. property and casualty
insurance market in exchange for a ceding fee. State National
issues the policy, and the reinsurer assumes the risk.
In the first quarter of 2015, total revenues from the Program
Services segment were $14.1 million, an increase of $4.2 million,
or 42.4 percent, from the first quarter of 2014. The growth
in revenues was driven by increased ceding fees, primarily the
result of the rise in gross earned premiums related to the year
over year increases totaling $1.5 million from two large programs
and $1.9 million from the Nephila program.
Lender Services Segment
In Lender Services, our Collateral Protection Insurance, or CPI,
business is fully vertically integrated and we manage all aspects
of the CPI business for our 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 and over 5.9 million loans.
In the first quarter of 2015, total revenues from the Lender
Services segment were $30.0 million, an increase of $6.5 million,
or 27.7 percent, from the first quarter of 2014. Premiums
earned increased by $6.5 million, or 28.5 percent, to $29.3 million
in the first quarter of 2015 from $22.8 million in the first
quarter of 2014. Increases in Lender Services premiums from
existing clients, new business and our CUNA Mutual agreement are
being driven by overall growth in lenders' portfolios as a result
of rising automobile sales, higher average automobile loan balances
and increasing credit availability. Our CUNA Mutual alliance
continues to generate increases in premiums earned due to increased
sales to credit unions and high account retention.
Losses and loss adjustment expenses were $13.1 million in the
first quarter of 2015 compared to $9.7 million in the same
period last year, primarily a result of an increased loss ratio,
increased retention for the business subject to the CUNA Mutual
alliance and higher earned premiums. The net loss ratio rose
to 44.8 percent in the first quarter of 2015 from 42.8 percent in
the first quarter of 2014.
General and Administrative Expenses
General and administrative expenses in the first quarter of 2015
increased by $1.5 million, or 10.3 percent, to $16.1 million from
$14.6 million in the first quarter of 2014, primarily due to an
increase in direct personnel costs, including stock-based
compensation expense, and employee health insurance. In addition,
professional fees are higher due to costs associated with being a
public company.
Balance Sheet
State National's balance sheet reflects low financial leverage
with $44.5 million of subordinated debentures. The
subordinated debentures have limited covenant requirements and are
interest-only until the mid-2030s. The Company had only $6.5
million of goodwill and other intangibles at March 31, 2015.
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. Most of the Company's reserves are ceded to
reinsurers.
2015 Outlook
We maintain our Outlook for 2015 in our Lender and Program
Services operating businesses.
In Lender Services, we expect our strong sales and marketing
efforts coupled with the ongoing success of our relationship with
CUNA Mutual to continue to drive growth. The trend of rising
automobile sales, higher average automobile loan balances and
increasing credit availability should also contribute to organic
growth in 2015. Based on these factors, we expect net earned
premiums in 2015 to be in the range of $120 million to
$130 million, up from $96.7 million in 2014, with an expected
combined ratio of 85 to 90 percent.
In Program Services, increased capital in the property and
casualty insurance market, including the increased role of
alternative capital markets in reinsurance, and the growth of
offshore markets generally should drive demand for our services, as
many of these firms do not have direct access to the U.S. market.
We have a robust pipeline that is partially a result of new
dedicated business development staff that was added in the summer
of 2014, calling directly on general agents. In 2015, we
expect fees for Program Services to be in the range of $55 million
to $60 million. Included in this projection is our
expectation of fees from Meadowbrook and Nephila, each of which is
expected to contribute $10 million to $13 million in fees.
Non-GAAP Reconciliation
This press release includes certain financial measures that have
been adjusted for items impacting comparability. The
accompanying information provides reconciliations of these non-GAAP
financial measures to their most directly comparable financial
measure calculated and presented in accordance with accounting
principles generally accepted in the United States of America
("GAAP"). Our non-GAAP financial measures should not be considered
as alternatives to GAAP measures such as net income, earnings per
share, return on equity or any other GAAP measure of liquidity or
financial performance.
Adjusted net income is considered a non-GAAP financial measure
because it reflects the following adjustments, as applicable, to
net income, which is the most directly comparable measure
calculated in accordance with GAAP: the pro forma provision
for income taxes as if the Company had been treated as a C
Corporation for each period presented, and the exclusion (net of
tax benefit) of the increase in the Company's deferred tax asset as
a result of the conversion to C Corporation status, the amount of
founder special compensation and the non-recurring offering-related
expenses and contract modification expense related to the amendment
to our alliance agreement with CUNA Mutual. Management
believes this measure is helpful to investors because it provides
comparability in evaluating core financial performance between
periods.
Adjusted Net Income |
|
|
Three Months
Ended |
|
March 31, |
|
2015 |
2014 |
Adjusted net income |
$ 8,674 |
$ 4,893 |
Reconciliation of adjusted net
income: |
|
|
Net income (loss) |
$ 8,674 |
$ (3,400) |
Plus: Provision for income taxes to
reflect change to C corporation status (2) |
— |
2,160 |
Plus: Founder special compensation (1)
(3) |
— |
6,133 |
Adjusted net income |
$ 8,674 |
$ 4,893 |
|
|
|
Adjusted Earnings Per
Share |
|
|
|
Three Months
Ended |
|
March 31, |
|
2015 |
2014 |
Adjusted diluted earnings per
share |
$ 0.20 |
$ 0.14 |
Reconciliation of
adjusted diluted earnings per share: |
|
|
Net income (loss) |
$ 0.20 |
$ (0.10) |
Plus: Provision for income
taxes to reflect change to C corporation status (2) |
— |
0.06 |
Plus: Founder special
compensation (1) (3) |
— |
0.18 |
Adjusted diluted earnings per
share |
$ 0.20 |
$ 0.14 |
___________________
(1) During the periods presented, we made special
compensation payments to our co-founders and principal executive
officers, Lonnie Ledbetter and Terry Ledbetter in recognition of
their service to our Company. We refer to these payments as
"founder special compensation." Following the completion of
the private placement, we ceased paying founder special
compensation.
(2) Upon the completion of the private placement, our
parent company's status as a Subchapter S corporation terminated
and our consolidated income became fully subject to U.S. federal
income taxes. This adjustment represents estimated income
taxes as if the Company had been treated as a C Corporation for
each period presented.
(3) Founder special compensation is shown net of estimated
statutory federal and state income taxes for each period
presented.
Conference Call
State National will host a conference tomorrow morning, May 15,
2015 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss
its first quarter 2015 results. To access the call live, dial (716)
247-5810 and use the passcode 25899422# 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 22,
2015 and may be accessed by calling (404) 537-3406 and using
pass code 25899422#. 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 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 a
ceding fee. 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.
To learn more, please visit www.statenational.com.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Various statements contained in this press release, including
those that express a belief, expectation or intention, as well as
those that are not statements of historical fact, 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,"
"anticipate," "would," "will," "may," "plan," "goal," "target,"
"could," "continue," "intend" or other words that convey the
uncertainty of future events or outcomes. While our management
considers these expectations and assumptions to be reasonable, they
are inherently subject to significant business, economic,
competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of
which are beyond our control.
Examples of forward-looking statements include the plans and
objectives of management for future operations, including those
relating to future growth of our business, and are based on current
expectations that involve assumptions that are difficult or
impossible to predict accurately and many of which are beyond our
control. 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 and State National Companies cautions readers that
various factors could cause its actual financial and operational
results to differ materially from those indicated by
forward-looking statements made from time-to-time in news releases,
reports, proxy statements, registration statements, and other
written communications, as well as oral statements made from time
to time by representatives of State National Companies. These
factors and other risks and uncertainties are described in detail
in our Annual Report on Form 10-K for the year ended December 31,
2014 and our other 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. |
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS |
($ in thousands, except
for share and per share information) |
|
|
|
|
March 31, |
December 31, |
|
2015 |
2014 |
Assets |
(Unaudited) |
|
Investments: |
|
|
Fixed-maturity
securities – available-for-sale, at fair value (amortized cost
– $310,676, $305,019, respectively) |
$ 318,445 |
$ 309,911 |
Equity securities –
available-for-sale, at fair value (cost – $1,967, $1,419,
respectively) |
3,171 |
2,642 |
Total investments |
321,616 |
312,553 |
|
|
|
Cash and cash equivalents |
31,239 |
38,348 |
Restricted cash and investments |
3,716 |
6,597 |
Accounts receivable from agents, net |
23,295 |
18,528 |
Reinsurance recoverable on paid losses |
948 |
1,200 |
Deferred acquisition costs |
921 |
1,036 |
Reinsurance recoverables |
1,711,956 |
1,656,534 |
Property and equipment, net (includes land
held for sale – $1,034, $1,034, respectively) |
18,020 |
18,397 |
Interest receivable |
1,829 |
1,795 |
Deferred income taxes, net |
23,037 |
23,864 |
Goodwill and intangible assets, net |
6,502 |
6,683 |
Other assets |
5,992 |
6,229 |
Total assets |
$ 2,149,071 |
$ 2,091,764 |
|
|
|
Liabilities |
|
|
Unpaid losses and loss adjustment
expenses |
$ 1,235,049 |
$ 1,209,905 |
Unearned premiums |
508,931 |
480,124 |
Allowance for policy cancellations |
50,428 |
55,500 |
Deferred ceding fees |
25,401 |
23,612 |
Accounts payable to agents |
2,071 |
2,448 |
Accounts payable to insurance companies |
2,386 |
4,399 |
Subordinated debentures |
44,500 |
44,500 |
Income taxes payable |
700 |
1,762 |
Other liabilities |
27,877 |
28,642 |
Total liabilities |
1,897,343 |
1,850,892 |
|
|
|
Shareholders' equity |
|
|
Common stock, $.001 par value (150,000,000
shares authorized; 44,477,162 and 44,247,102 shares issued at
March 31, 2015 and December 31, 2014, respectively) |
44 |
44 |
Preferred stock, $.001 par value (10,000,000
authorized; no shares issued and outstanding at March 31, 2015
and December 31, 2014) |
— |
— |
Additional paid-in capital |
221,343 |
220,577 |
Retained earnings |
24,340 |
16,108 |
Accumulated other comprehensive income |
6,001 |
4,143 |
Total shareholders' equity |
251,728 |
240,872 |
Total liabilities and shareholders'
equity |
$ 2,149,071 |
$ 2,091,764 |
|
STATE NATIONAL
COMPANIES, INC. |
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME |
($ in thousands, except
for per share information) |
|
|
|
Three
Months Ended |
|
March 31, |
March 31, |
|
2015 |
2014 |
Revenues: |
|
|
Premiums earned |
$ 29,284 |
$ 22,786 |
Commission income |
370 |
417 |
Ceding fees |
14,144 |
9,902 |
Net investment income |
1,681 |
1,112 |
Realized net investment
gains |
265 |
400 |
Other income |
385 |
910 |
Total revenues |
46,129 |
35,527 |
|
|
|
Expenses: |
|
|
Losses and loss adjustment
expenses |
13,533 |
9,996 |
Commissions |
1,497 |
836 |
Taxes, licenses, and fees |
712 |
605 |
General and administrative |
16,142 |
14,577 |
Founder special
compensation |
— |
11,203 |
Interest expense |
500 |
574 |
Total expenses |
32,384 |
37,791 |
|
|
|
Income (loss) before income taxes |
13,745 |
(2,264) |
|
|
|
Income taxes: |
|
|
Current tax expense |
5,244 |
1,678 |
Deferred tax benefit |
(173) |
(542) |
|
5,071 |
1,136 |
Net income (loss) |
$ 8,674 |
$ (3,400) |
|
|
|
Net income (loss) per share attributable to
common shareholders: |
|
|
Basic earnings per share |
$ 0.20 |
$ (0.10) |
Diluted earnings per share |
0.20 |
(0.10) |
|
|
|
Dividends, per share |
$ 0.01 |
$ 0.34 |
|
Program Services
Segment — Results of Operations |
Unaudited |
|
|
|
Three Months
Ended |
|
March 31, |
($ in thousands) |
2015 |
2014 |
Revenues: |
|
|
Premiums earned |
$ (11) |
$ (16) |
Ceding fees |
14,144 |
9,902 |
Total
revenues |
14,133 |
9,886 |
|
|
|
Expenses: |
|
|
Losses and loss adjustment expenses |
414 |
247 |
Commissions |
— |
(5) |
Taxes, licenses, and fees |
5 |
6 |
General and administrative |
3,133 |
2,856 |
Total
expenses |
3,552 |
3,104 |
|
|
|
Income before income
taxes |
$ 10,581 |
$ 6,782 |
|
|
|
Program gross expense
ratio |
1.2% |
1.4% |
Gross premiums written |
$ 264,912 |
$ 204,158 |
Gross premiums earned |
$ 232,933 |
$ 175,103 |
|
|
|
Lender Services Segment —
Results of Operations |
Unaudited |
|
|
|
Three Months
Ended |
|
March 31, |
($ in thousands) |
2015 |
2014 |
Revenues: |
|
|
Premiums earned |
$ 29,295 |
$ 22,802 |
Commission income |
370 |
417 |
Other income |
351 |
311 |
Total revenues |
30,016 |
23,530 |
|
|
|
Expenses: |
|
|
Losses and loss adjustment
expenses |
13,119 |
9,749 |
Commissions |
1,497 |
841 |
Taxes, licenses, and fees |
707 |
599 |
General and administrative |
10,173 |
10,197 |
Total expenses |
25,496 |
21,386 |
|
|
|
Income before income
taxes |
$ 4,520 |
$ 2,144 |
|
|
|
|
|
|
Net loss ratio |
44.8% |
42.8% |
Net expense ratio |
42.2% |
51.0% |
Net combined ratio |
87.0% |
93.8% |
|
|
|
Gross premiums written |
$ 32,649 |
$ 26,110 |
Net premiums written |
$ 26,882 |
$ 19,368 |
|
Corporate
Segment — Results of Operations |
Unaudited |
|
|
|
Three Months
Ended |
|
March 31, |
($ in thousands) |
2015 |
2014 |
Revenues: |
|
|
Net investment income |
$ 1,681 |
$ 1,112 |
Realized net investment
gains |
265 |
400 |
Other income |
34 |
599 |
Total revenues |
1,980 |
2,111 |
|
|
|
Expenses: |
|
|
General and administrative |
2,836 |
1,524 |
Founder special
compensation |
— |
11,203 |
Interest expense |
500 |
574 |
Total expenses |
3,336 |
13,301 |
|
|
|
Income (loss) before income
taxes |
(1,356) |
(11,190) |
|
|
|
Income tax expense |
5,071 |
1,136 |
|
|
|
Net income (loss) |
$ (6,427) |
$ (12,326) |
|
|
|
|
|
|
Adjusted pre-tax income
(loss) |
$ (1,356) |
$ 13 |
Reconciliation of
adjusted pre-tax income (loss): |
|
|
Pre-tax income (loss) |
$ (1,356) |
$ (11,190) |
Plus: Founder special
compensation (1) |
— |
11,203 |
Adjusted pre-tax income
(loss) |
$ (1,356) |
$ 13 |
___________________
(1) During the periods presented, we made special compensation
payments to our co-founders and principal executive officers,
Lonnie Ledbetter and Terry Ledbetter in recognition of their
service to our Company. We refer to these payments as "founder
special compensation." Following the completion of the private
placement, we ceased paying founder special compensation.
CONTACT: State National Companies, Inc.
David Hale, COO & CFO
817-265-2000
Dennard * Lascar Associates
Rick Black
713-529-6600
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