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 |
CONTACTS:
State National Companies, Inc.
David Hale, COO & CFO
817-265-2000
Dennard ▪ Lascar Associates
Rick Black
713-529-6600
State National Companies, Inc. (NASDAQ:SNC)
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