UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 8-K
_____________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): May 7, 2018
FEDERATED NATIONAL HOLDING COMPANY
(Exact Name of Registrant as Specified in Charter)
FLORIDA | 000-25001 | 65-0248866 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 |
(Address of Principal Executive Offices) (Zip Code) |
(800) 293-2532
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition.
On May 7, 2018, Federated National Holding Company (the “Company”) issued a press release to report its results for its fiscal quarter ended March 31, 2018. A copy of the press release is attached to this current report on Form 8-K as Exhibit 99.1 and incorporated herein by reference. The information in this Current Report on Form 8-K and Exhibit 99.1 attached hereto is hereby intended to be furnished pursuant to Item 2.02, “Results of Operations and Financial Condition.” As provided in General Instruction B.6 of SEC Form 8-K, such information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act, whether made before or after the date hereof, except as expressly set forth by specific reference in such filing to this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Federated National Holding Company Press Release, dated May 7, 2018.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FEDERATED NATIONAL HOLDING COMPANY | ||
Date: May 7, 2018 | By: | /s/ Ronald A. Jordan |
Ronald A. Jordan | ||
Chief Financial Officer (Principal Executive Officer) | ||
EXHIBIT INDEX
Exhibit No. | Exhibit Title | |
99.1 | Federated National Holding Company Press Release, dated May 7, 2018. |
EXHIBIT 99.1
Federated National Holding Company Reports First Quarter of 2018 Results
SUNRISE, Fla., May 07, 2018 (GLOBE NEWSWIRE) -- Federated National Holding Company (the “Company”) (Nasdaq:FNHC) today reported results for the three months ended March 31, 2018.
Q1 2018 highlights (as measured against the same three-month period last year, except where noted):
Mr. Michael H. Braun, the Company’s Chief Executive Officer, said regarding the quarter’s results, “Our strong first quarter financial results demonstrate continued momentum from prior quarters and a strong start to 2018. Earnings per share of $0.64, before investment losses, were significantly higher than last year’s first quarter and up sequentially from the preceding quarters, driven by the performance of Homeowners, our core line of business. We increased our underwriting profitability with a significantly improved loss ratio and our lowest combined ratio in eight quarters as a result of our entire team's efforts, along with the 10% rate increase that went into effect last August, the benefit of which will not be fully reflected in our earnings until later this year in the third quarter. We showed solid performance in our core Florida homeowners business along with significant growth in our select coastal markets outside Florida. As we progress through the year, our focus remains on increasing the profitability of our homeowners business, capitalizing on our recent Monarch acquisition, improving our efficiencies and leveraging the strong relationships we enjoy with our trusted partner agents.”
Consolidated
Revenues
Expenses
Stock Repurchase Program
Line of Business Results
Conference Call Information
The Company will hold an investor conference call at 9:00 AM (ET) Tuesday, May 8, 2018. The Company’s CEO, Michael Braun and its CFO, Ronald Jordan will discuss the financial results and review the outlook for the Company. Messrs. Braun and Jordan invite interested parties to participate in the conference call.
Listeners interested in participating in the Q&A session may access the conference call as follows:
Toll-Free Dial-in: (877) 303-6913
Conference ID: 2775258
A live webcast of the call will be available online via the “Conference Calls” section of the Company’s website at FedNat.com or interested parties can click on the following link:
http://www.fednat.com/investors/conference-calls/
Please call at least five minutes in advance to ensure that you are connected prior to the presentation. A webcast replay of the conference call will be available shortly after the live webcast is completed and may be accessed via the Company’s website.
About the Company
The Company, through our wholly owned subsidiaries, are authorized to underwrite, and/or place homeowners multi-peril, personal automobile, commercial general liability, federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.
The Company’s supplemental line of business information is designed to afford users greater transparency into our results. The “Homeowners” line of business consists of our homeowners and fire property and casualty insurance business, which currently operates in Florida, Alabama, Texas, Louisiana and South Carolina. The “Automobile” line of business consists of our nonstandard personal automobile insurance business which currently operates in Georgia, Texas, Alabama, and Florida, pending our withdrawal. The “Other” line of business primarily consists of our commercial general liability (pending our withdrawal) and federal flood businesses, along with corporate and investment operations.
Forward-Looking Statements /Safe Harbor Statements
Safe harbor statement under the Private Securities Litigation Reform Act of 1995:
Statements that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative or other variations thereof, and similar words or phrases or comparable terminology, are intended to identify forward-looking statements.
Forward-looking statements might also include, but are not limited to, one or more of the following:
The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for losses and loss adjustment expense; claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our compliance with minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; the impact that the results of our subsidiaries’ operations may have on our results of operations; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and Exchange Commission.
In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | |||||||
| March 31, | |||||||
| 2018 | 2017 | ||||||
Revenue: | ||||||||
Net premiums earned | $ | 82,109 | $ | 81,660 | ||||
Net investment income | 2,943 | 2,318 | ||||||
Net realized and unrealized investment losses | (1,052 | ) | (105 | ) | ||||
Direct written policy fees | 3,576 | 4,712 | ||||||
Other income | 5,501 | 4,469 | ||||||
Total revenue | 93,077 | 93,054 | ||||||
| ||||||||
Costs and expenses: | ||||||||
Losses and loss adjustment expenses | 46,071 | 56,899 | ||||||
Commissions and other underwriting expenses | 30,221 | 27,568 | ||||||
General and administrative expenses | 6,085 | 4,619 | ||||||
Interest expense | 1,084 | 84 | ||||||
Total costs and expenses | 83,461 | 89,170 | ||||||
| ||||||||
Income before income taxes | 9,616 | 3,884 | ||||||
Income taxes | 2,371 | 1,435 | ||||||
Net income | 7,245 | 2,449 | ||||||
Net (loss) income attributable to noncontrolling interest | (218 | ) | 27 | |||||
Net income attributable to Federated National Holding Company shareholders | $ | 7,463 | $ | 2,422 | ||||
| ||||||||
Net income per share attributable to Federated National Holding Company shareholders | ||||||||
Basic | $ | 0.58 | $ | 0.18 | ||||
Diluted | $ | 0.58 | $ | 0.18 | ||||
| ||||||||
Weighted average number of shares of common stock outstanding: | ||||||||
Basic | 12,850 | 13,432 | ||||||
Diluted | 12,945 | 13,559 | ||||||
| ||||||||
Dividends declared per share of common stock | $ | 0.08 | $ | 0.08 |
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics
(Unaudited)
| Three Months Ended | |||||||
| March 31, | |||||||
2018 | 2017 | |||||||
| (In thousands) | |||||||
Gross premiums written: | ||||||||
Homeowners Florida | $ | 108,371 | $ | 110,853 | ||||
Homeowners non-Florida | 14,444 | 10,368 | ||||||
Automobile | 6,347 | 19,291 | ||||||
Commercial general liability | 2,514 | 3,296 | ||||||
Federal flood | 2,719 | 2,243 | ||||||
Total gross premiums written | $ | 134,395 | $ | 146,051 |
| Three Months Ended | |||||||
| March 31, | |||||||
2018 | 2017 | |||||||
| (In thousands) | |||||||
Gross premiums earned: | ||||||||
Homeowners Florida | $ | 118,824 | $ | 117,544 | ||||
Homeowners non-Florida | 13,639 | 9,100 | ||||||
Automobile | 8,328 | 15,647 | ||||||
Commercial general liability | 2,629 | 3,194 | ||||||
Federal flood | 3,022 | 2,493 | ||||||
Total gross premiums earned | $ | 146,442 | $ | 147,978 |
| Three Months Ended | |||||||
| March 31, | |||||||
| 2018 | 2017 | ||||||
| (In thousands) | |||||||
Net premiums earned: | ||||||||
Homeowners | $ | 77,405 | $ | 70,596 | ||||
Automobile | 2,211 | 8,036 | ||||||
Commercial general liability | 2,493 | 3,028 | ||||||
Total net premiums earned | $ | 82,109 | $ | 81,660 |
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics (continued)
(Unaudited)
| Three Months Ended | |||||||
| March 31, | |||||||
| 2018 | 2017 | ||||||
| (In thousands) | |||||||
Commissions and other underwriting expenses: | ||||||||
Homeowners Florida | $ | 14,363 | $ | 13,759 | ||||
All others | 6,452 | 8,524 | ||||||
Ceding commissions | (3,715 | ) | (4,382 | ) | ||||
Total commissions and other fees | 17,100 | 17,901 | ||||||
Salaries and wages | 3,766 | 3,675 | ||||||
Other underwriting expenses | 9,355 | 5,992 | ||||||
Total commissions and other underwriting expenses | $ | 30,221 | $ | 27,568 |
| Three Months Ended | |||||||
| March 31, | |||||||
| 2018 | 2017 | ||||||
Net loss ratio | 56.1 | % | 69.7 | % | ||||
Net expense ratio | 44.2 | % | 39.4 | % | ||||
Combined ratio | 100.3 | % | 109.1 | % | ||||
Gross loss ratio | 123.5 | % | 50.0 | % | ||||
Gross expense ratio | 27.3 | % | 24.7 | % | ||||
Book value per share excluding non-controlling interest | $ | 16.36 | $ | 16.23 |
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
| March 31, | December 31, | ||||||
| 2018 | 2017 | ||||||
ASSETS | ||||||||
Investments: | (In thousands) | |||||||
Debt securities, available-for-sale, at fair value | $ | 429,457 | $ | 423,238 | ||||
Debt securities, held-to-maturity, at amortized cost | 5,298 | 5,349 | ||||||
Equity securities, at fair value | 16,515 | 15,434 | ||||||
Total investments | 451,270 | 444,021 | ||||||
| ||||||||
Cash and cash equivalents | 55,591 | 86,228 | ||||||
Prepaid reinsurance premiums | 87,201 | 135,492 | ||||||
Premiums receivable, net of allowance of $72 and $70, respectively | 45,667 | 46,393 | ||||||
Reinsurance recoverable, net | 146,091 | 124,601 | ||||||
Deferred acquisition costs | 39,401 | 40,893 | ||||||
Income taxes receivable, net | 4,699 | 9,510 | ||||||
Deferred income taxes, net | 4,368 | 307 | ||||||
Property and equipment, net | 3,797 | 4,025 | ||||||
Other assets | 10,130 | 13,403 | ||||||
TOTAL ASSETS | $ | 848,215 | $ | 904,873 | ||||
| ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Loss and loss adjustment expense reserves | $ | 236,214 | $ | 230,515 | ||||
Unearned premiums | 282,397 | 294,423 | ||||||
Reinsurance payable | 38,489 | 71,944 | ||||||
Long-term debt, net of deferred financing costs of $672 and $749, respectively | 44,328 | 49,251 | ||||||
Deferred Revenue | 5,924 | 6,222 | ||||||
Other liabilities | 32,783 | 25,059 | ||||||
Total liabilities | 640,135 | 677,414 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock, $0.01 par value: 1,000,000 shares authorized | — | — | ||||||
Common stock, $0.01 par value: 25,000,000 shares authorized; 12,718,953 and 12,988,247 shares issued and outstanding, respectively | 127 | 130 | ||||||
Additional paid-in capital | 139,388 | 139,728 | ||||||
Accumulated other comprehensive (loss) income | (3,861 | ) | 1,770 | |||||
Retained earnings | 72,426 | 70,009 | ||||||
Total shareholders’ equity attributable to Federated National Holding Company shareholders | 208,080 | 211,637 | ||||||
Non-controlling interest | — | 15,822 | ||||||
Total shareholders’ equity | 208,080 | 227,459 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 848,215 | $ | 904,873 |
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||||||||
| Homeowners | Automobile | Other | Consolidated | Homeowners | Automobile | Other | Consolidated | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||||
Gross premiums written | $ | 122,815 | $ | 6,347 | $ | 5,233 | $ | 134,395 | $ | 121,221 | $ | 19,291 | $ | 5,539 | $ | 146,051 | |||||||||||||||
Gross premiums earned | 132,463 | 8,328 | 5,651 | 146,442 | 126,644 | 15,647 | 5,687 | 147,978 | |||||||||||||||||||||||
Ceded premiums | (55,058 | ) | (6,117 | ) | (3,158 | ) | (64,333 | ) | (56,048 | ) | (7,611 | ) | (2,659 | ) | (66,318 | ) | |||||||||||||||
Net premiums earned | 77,405 | 2,211 | 2,493 | 82,109 | 70,596 | 8,036 | 3,028 | 81,660 | |||||||||||||||||||||||
Net investment income | — | — | 2,943 | 2,943 | — | — | 2,318 | 2,318 | |||||||||||||||||||||||
Net realized and unrealized investment gains | — | — | (1,052 | ) | (1,052 | ) | — | — | (105 | ) | (105 | ) | |||||||||||||||||||
Direct written policy fees | 1,923 | 1,467 | 186 | 3,576 | 2,124 | 2,430 | 158 | 4,712 | |||||||||||||||||||||||
Other income | 3,977 | 488 | 1,036 | 5,501 | 2,791 | 1,059 | 619 | 4,469 | |||||||||||||||||||||||
Total revenue | 83,305 | 4,166 | 5,606 | 93,077 | 75,511 | 11,525 | 6,018 | 93,054 | |||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||
Losses and loss adjustment expenses | 41,955 | 2,236 | 1,880 | 46,071 | 44,802 | 9,559 | 2,538 | 56,899 | |||||||||||||||||||||||
Commissions and other underwriting expenses | 27,356 | 1,860 | 1,005 | 30,221 | 22,046 | 4,266 | 1,256 | 27,568 | |||||||||||||||||||||||
General and administrative expenses | 4,889 | 125 | 1,071 | 6,085 | 3,490 | 175 | 954 | 4,619 | |||||||||||||||||||||||
Interest expense | 100 | — | 984 | 1,084 | 84 | — | — | 84 | |||||||||||||||||||||||
Total costs and expenses | 74,300 | 4,221 | 4,940 | 83,461 | 70,422 | 14,000 | 4,748 | 89,170 | |||||||||||||||||||||||
Income (loss) before income taxes | 9,005 | (55 | ) | 666 | 9,616 | 5,089 | (2,475 | ) | 1,270 | 3,884 | |||||||||||||||||||||
Income taxes (benefits) | 2,282 | (14 | ) | 103 | 2,371 | 1,964 | (956 | ) | 427 | 1,435 | |||||||||||||||||||||
Net income (loss) | 6,723 | (41 | ) | 563 | 7,245 | 3,125 | (1,519 | ) | 843 | 2,449 | |||||||||||||||||||||
Net (loss) income attributable to non-controlling interest | (218 | ) | — | — | (218 | ) | 27 | — | — | 27 | |||||||||||||||||||||
Net income (loss) attributable to FNHC shareholders | $ | 6,941 | $ | (41 | ) | $ | 563 | $ | 7,463 | $ | 3,098 | $ | (1,519 | ) | $ | 843 | $ | 2,422 | |||||||||||||
Ratios to net premiums earned: | |||||||||||||||||||||||||||||||
Net loss ratio | 54.2 | % | 101.1 | % | 75.4 | % | 56.1 | % | 63.5 | % | 119.0 | % | 83.8 | % | 69.7 | % | |||||||||||||||
Net expense ratio | 41.7 | % | 44.2 | % | 36.2 | % | 39.4 | % | |||||||||||||||||||||||
Combined ratio | 95.9 | % | 100.3 | % | 99.6 | % | 109.1 | % |
FOR IMMEDIATE RELEASE CONTACT:
Michael H. Braun, CEO (954) 308-1322,
Ronald Jordan, CFO (954) 308-1363,
or Erick A. Fernandez, CAO (954) 308-1341
Federated National Holding Company