James River Announces Second Quarter 2018 Results

| Source: James River Group Holdings, Ltd. James River Group Holdings, Ltd.

  • Second Quarter 2018 Net Income of $17.0 million -- $0.56 per diluted share, a 17% increase over the second quarter of 2017, and Adjusted Net Operating Income of $17.6 million -- $0.58 per diluted share, an 18% increase over the second quarter of 2017

  • Year-to-date annualized Adjusted Net Operating Return on Average Tangible Equity of 14.5% 
  • Underwriting Profit of $5.5 million, an improvement of 33% over the prior year quarter
     
  • Net Investment Income of $16.1 million, an increase of 18%, or $2.4 million, over the prior year quarter
     
  • 15% growth in core (non-Commercial Auto) Excess and Surplus Lines Gross Written Premium driven by strong growth in the General Casualty, Excess Casualty, Life Sciences and Small Business divisions

PEMBROKE, Bermuda, Aug. 01, 2018 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported second quarter 2018 net income of $17.0 million ($0.56 per diluted share), compared to $14.5 million ($0.48 per diluted share) for the second quarter of 2017.  Adjusted net operating income for the second quarter of 2018 was $17.6 million ($0.58 per diluted share), compared to $14.9 million ($0.49 per diluted share) for the same period in 2017.

  
Earnings Per Diluted ShareThree Months Ended
June 30,
 2018 2017
    
Net Income 1$0.56  $0.48 
Adjusted Net Operating Income 2$0.58  $0.49 
    
1 2018 results include unrealized losses on equity securities and related taxes.
2 See "Reconciliation of Non-GAAP Measures" below.
 

Robert P. Myron, the Company’s Chief Executive Officer, commented “We had another solid quarter and our results for the first half of the year have been strong.  For the second consecutive quarter we delivered an annualized Adjusted Net Operating Return on Average Tangible Equity greater than 14%, driven by good underwriting results in all three segments and the exceptional performance of our bank loan and alternative investment portfolios.

Our two U.S. primary segments continued to have strong growth in gross written premium, while the decrease in our Casualty Reinsurance premium was in line with our expectations.”

Second Quarter 2018 Operating Results

  • Gross written premium of $293.4 million, consisting of the following:
   
 Three Months Ended
June 30,		 
($ in thousands)2018 2017 % Change
Excess and Surplus Lines$165,398  $138,004  20%
Specialty Admitted Insurance97,100  76,771  26%
Casualty Reinsurance30,880  66,700  -54%
 $293,378  $281,475  4%
           
  • Net written premium of $188.6 million, consisting of the following:
   
 Three Months Ended
June 30,		 
($ in thousands)2018 2017 % Change
Excess and Surplus Lines$143,235  $124,197  15%
Specialty Admitted Insurance14,487  16,900  -14%
Casualty Reinsurance30,884  66,727  -54%
 $188,606  $207,824  -9%
  • Net earned premium of $208.2 million, consisting of the following:
 Three Months Ended
June 30,		 
($ in thousands)2018 2017 % Change
Excess and Surplus Lines$139,127  $117,268  19%
Specialty Admitted Insurance14,266  17,760  -20%
Casualty Reinsurance54,817  49,049  12%
 $208,210  $184,077  13%
           
  • The Excess and Surplus Lines segment grew due to increases in its Commercial Auto division amid a rate increase on the March 1, 2018 renewal of the Company's largest contract, as well as 15% growth in core (non-Commercial Auto) lines gross written premium, as eight out of twelve underwriting divisions grew;
  • The Specialty Admitted Insurance segment gross written premium increased due to growth in individual risk Workers’ Compensation and fronting gross written premium, while net written premium and net earned premium decreased as a result of the October 1, 2017 inception of a new third party 50% quota share reinsurance agreement on its individual risk Workers' Compensation line;
  • Net written premium in the Casualty Reinsurance segment decreased from its level as of the prior year quarter, but net earned premium increased as a result of a higher level of net written premium during 2017 than in 2016.  The Company expects net written premium in this segment to decrease meaningfully for the full year 2018, but its net earned premium will lag given the earning patterns of the business, which generally extend to 24 months and in some cases beyond;
  • Unfavorable reserve development of $2.2 million compared to unfavorable reserve development of $1.7 million in the prior year quarter (representing a 1.1 percentage point and 0.9 percentage point increase to the Company’s loss ratio in each period, respectively);
  • Pre-tax favorable (unfavorable) reserve development by segment was as follows:
  
 Three Months Ended
June 30,
($ in thousands)2018 2017
Excess and Surplus Lines$58  $1,440 
Specialty Admitted Insurance167  (949)
Casualty Reinsurance(2,449) (2,206)
 $(2,224) $(1,715)

The unfavorable reserve development in the Casualty Reinsurance segment primarily related to losses from risk profiles and treaty structures that the Company no longer writes;

  • Group accident year loss ratio of 73.2% was up from 70.3% in the prior year quarter due to changes in mix of business, specifically growth in the Commercial Auto division within the Excess and Surplus Lines segment which carries a higher initial loss pick but also a lower expense ratio than the segment as a whole;
  • Group combined ratio of 97.3% improved from 97.7% in the prior year quarter;
  • Group expense ratio of 23.1% improved from 26.5% in the prior year quarter, driven by increased net earned premium and fee income, as well as continued growth in lines of business which carry relatively low expenses.  Note that the prior year quarter included a prior period commission adjustment for three profitable contracts in the Casualty Reinsurance segment that increased the expense ratio 1.1 percentage points;
  • Gross fee income of $7.4 million increased from $6.9 million in the prior year quarter;
  • Gross fee income by segment was as follows:
   
 Three Months Ended
June 30,		 
($ in thousands)2018 2017 % Change
Excess and Surplus Lines$3,663  $4,207  (13)%
Specialty Admitted Insurance3,735  2,673  40%
 $7,398  $6,880  8%
           

Fee income in the Excess & Surplus Lines segment decreased from its level in the prior year quarter as a portion of the segment’s fee for services revenue is now recorded as gross written premium.  Fee income in the Specialty Admitted Insurance segment increased as a result of the continued growth of the segment's fronting business.

  • Net investment income of $16.1 million, an increase of 18% from the prior year quarter.  Further details can be found in the "Investment Results" section below.

Investment Results

Net investment income for the second quarter of 2018 was $16.1 million, which compares to $13.7 million for the same period in 2017.  The increase was driven by improved book yields in the fixed maturity and bank loan portfolios due to higher market interest rates, as well as strong performance across all investments in our "Other Private Investments" portfolio.

The Company’s net investment income consisted of the following:

   
 Three Months Ended
June 30,		 
($ in thousands)2018 2017 % Change
Renewable Energy Investments$530 $1,521 (65)%
Other Private Investments 1,506 838 80%
All Other Net Investment Income 14,099  11,355 24%
Total Net Investment Income$16,135 $13,714 18%
         

The Company’s annualized gross investment yield on average fixed maturity and bank loan securities for the three months ended June 30, 2018 was 4.0% (up from 3.6% for the three months ended June 30, 2017) and the average duration of the fixed maturity and bank loan portfolio was 3.4 years at June 30, 2018 (unchanged from June 30, 2017 and down from 3.5 years at March 31, 2018).  Renewable energy and other private investments produced an annualized return of 10.7% for the three months ended June 30, 2018 (15.1% for the three months ended June 30, 2017).

Taxes

Generally, the Company's effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction.  The tax rate for the three months ended June 30, 2018 and 2017 was 8.2% and 6.5%, respectively.

Tangible Equity

Tangible equity before dividends increased 2.7% from $474.5 million at December 31, 2017 to $487.5 million at June 30, 2018, due to $32.6 million of net income and $5.1 million of option exercise activity and stock compensation.  These items were partially offset by $25.1 million of after tax unrealized losses in the Company's fixed income investment portfolio resulting from increased market interest rates.

Tangible equity after dividends decreased 1.1% from $474.5 million at December 31, 2017 to $469.4 million at June 30, 2018, and increased 0.8% from $465.8 million at March 31, 2018 to $469.4 million at June 30, 2018.  Tangible equity per common share was $15.69 at June 30, 2018, net of $0.60 of dividends per share the Company paid during the first six months of 2018.  The year-to-date annualized adjusted net operating income return on average tangible equity was 14.5%, which compares to 13.4% for the same period in 2017.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share, equal to the prior quarter. This dividend is payable on Friday, September 28, 2018 to all shareholders of record on Monday, September 10, 2018. James River Group Holdings, Ltd. has paid cumulative dividends, including this upcoming payment, of $191.8 million since its December 2014 initial public offering, or 41.2% of its tangible equity at initial public offering.

Conference Call

James River Group Holdings, Ltd. will hold a conference call to discuss its second quarter results tomorrow, August 2, 2018, at 8:30 a.m. Eastern Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 1394997, or via the internet by going to www.jrgh.net and clicking on the “Investor Relations” link. Please visit the website at least 15 minutes early to register and download any necessary audio software. A replay of the call will be available until 11:30 a.m. (Eastern Time) on September 1, 2018 and can be accessed by dialing (855) 859-2056 or by visiting the company website.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  Although it is not possible to identify all of these risks and factors, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; the potential loss of key members of our management team or key employees and our ability to attract and retain personnel; adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both; a decline in our financial strength rating resulting in a reduction of new or renewal business; reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain such relationships; changes in laws or government regulation, including tax or insurance law and regulations; the recently enacted Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation; the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation; a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities; losses from catastrophic events which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; potential effects on our business of emerging claim and coverage issues; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims or insurance companies with whom we have a fronting arrangement failing to pay us for claims; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; inadequacy of premiums we charge to compensate us for our losses incurred; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K filed with the SEC on March 1, 2018. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting James River Group Holdings, Ltd.’s results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures, including underwriting profit, adjusted net operating income, tangible equity, adjusted net operating return on average tangible equity, and pre-dividend tangible equity per share, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those measures determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included at the end of this press release.

About James River Group Holdings, Ltd.

James River Group Holdings, Ltd. is a Bermuda-based insurance holding company which owns and operates a group of specialty insurance and reinsurance companies. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. Each of the Company’s regulated insurance subsidiaries are rated “A” (Excellent) by A.M. Best Company.

Visit James River Group Holdings, Ltd. on the web at www.jrgh.net

 
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)
 
 June 30, 2018 December 31, 2017
 ($ in thousands, except for share data)
ASSETS   
Invested assets:   
Fixed maturity securities, available-for-sale$1,021,387  $1,016,098 
Fixed maturity securities, trading—  3,808 
Equity securities, available-for-sale84,009  82,522 
Bank loan participations, held-for-investment253,689  238,214 
Short-term investments25,140  36,804 
Other invested assets76,813  70,208 
Total invested assets1,461,038  1,447,654 
    
Cash and cash equivalents267,367  163,495 
Accrued investment income9,502  8,381 
Premiums receivable and agents’ balances341,391  352,436 
Reinsurance recoverable on unpaid losses375,535  302,524 
Reinsurance recoverable on paid losses13,365  11,292 
Deferred policy acquisition costs65,462  72,365 
Goodwill and intangible assets219,867  220,165 
Other assets183,849  178,383 
Total assets$2,937,376  $2,756,695 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Reserve for losses and loss adjustment expenses$1,468,353  $1,292,349 
Unearned premiums417,771  418,114 
Senior debt98,300  98,300 
Junior subordinated debt104,055  104,055 
Accrued expenses40,342  39,295 
Other liabilities119,312  109,883 
Total liabilities2,248,133  2,061,996 
    
Total shareholders’ equity689,243  694,699 
Total liabilities and shareholders’ equity$2,937,376  $2,756,695 
    
Tangible equity (a)$469,376  $474,534 
Tangible equity per common share outstanding (a)$15.69  $15.98 
Total shareholders’ equity per common share
  outstanding		$23.04  

 		$23.39 
Common shares outstanding29,917,821  29,696,682 
Debt (b) to total capitalization ratio22.7% 22.6%
(a) See “Reconciliation of Non-GAAP Measures”.
(b) Includes senior debt and junior subordinated debt.
 

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income Statement Data
(Unaudited)

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
 ($ in thousands, except for share data)
REVENUES       
Gross written premiums$293,378  $281,475  $591,494  $505,654 
Net written premiums188,606  207,824  399,584  365,734 
        
Net earned premiums208,210  184,077  409,152  338,764 
Net investment income16,135  13,714  29,391  30,447 
Net realized and unrealized (losses) gains on investments (a)(64) 307  (874) 1,354 
Other income3,760  4,296  8,716  8,231 
Total revenues228,041  202,394  446,385  378,796 
        
EXPENSES       
Losses and loss adjustment expenses154,595  131,084  298,367  236,453 
Other operating expenses51,751  53,036  106,534  101,929 
Other expenses93  346  97  232 
Interest expense2,946  2,224  5,468  4,347 
Amortization of intangible assets149  149  298  298 
Total expenses209,534  186,839  410,764  343,259 
Income before taxes18,507  15,555  35,621  35,537 
Income tax expense1,523  1,014  3,004  2,546 
NET INCOME$16,984  $14,541  $32,617  $32,991 
ADJUSTED NET OPERATING INCOME (b)$17,569  $14,864  $34,138  $32,583 
        
EARNINGS PER SHARE       
Basic$0.57  $0.49  $1.09  $1.12 
Diluted$0.56  $0.48  $1.08  $1.09 
        
ADJUSTED NET OPERATING INCOME PER SHARE      
Basic$0.59  $0.51  $1.14  $1.11 
Diluted$0.58  $0.49  $1.13  $1.07 
        
Weighted-average common shares outstanding:       
Basic29,882,988  29,406,877  29,823,982  29,348,557 
Diluted30,293,933  30,307,099  30,243,946  30,317,585 
Cash dividends declared per common share$0.30  $0.30  $0.60  $0.60 
        
Ratios:       
Loss ratio74.2% 71.2% 72.9% 69.8%
Expense ratio (c)23.1% 26.5% 24.0% 27.7%
Combined ratio97.3% 97.7% 96.9% 97.5%
Accident year loss ratio73.2% 70.3% 73.0% 70.3%
(a) 2018 includes net realized gains of $521,000 and net realized losses of $1.2 million for the change in net unrealized gains on equity securities in the three and six months ended June 30, 2018, respectively, in accordance with the Company's adoption of ASU 2016-01 effective January 1, 2018.
(b) See "Reconciliation of Non-GAAP Measures".
(c) Calculated with a numerator comprising other operating expenses less gross fee income of the Excess and Surplus Lines segment and a denominator of net earned premiums.
 

James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES

 Three Months Ended
June 30,		   Six Months Ended
June 30,		  
 2018 2017 % Change 2018 2017 % Change
 ($ in thousands)
Gross written premiums$165,398  $138,004  19.9% $332,884  $246,999  34.8%
Net written premiums$143,235  $124,197  15.3% $297,166  $221,168  34.4%
            
Net earned premiums$139,127  $117,268  18.6% $269,098  $211,117  27.5%
Losses and loss adjustment expenses(109,607) (86,521) 26.7% (210,226) (153,089) 37.3%
Underwriting expenses(19,403) (19,018) 2.0% (37,456) (37,499) (0.1)%
Underwriting profit (a), (b)$10,117  $11,729  (13.7)% $21,416  $20,529  4.3%
            
Ratios:           
Loss ratio78.8% 73.8%   78.1% 72.5%  
Expense ratio13.9% 16.2%   13.9% 17.8%  
Combined ratio92.7% 90.0%   92.0% 90.3%  
Accident year loss ratio78.8% 75.0%   78.6% 74.7%  
            
(a) See "Reconciliation of Non-GAAP Measures".          
(b) Underwriting results include fee income of $3.7 million and $4.2 million for the three months ended June 30, 2018 and 2017, respectively, and $8.5 million and $8.1 million for the respective six month periods. These amounts are included in “Other income” in our Condensed Consolidated Income Statements.
 

SPECIALTY ADMITTED INSURANCE

 Three Months Ended
June 30,		   Six Months Ended
June 30,		  
 2018 2017 % Change 2018 2017 % Change
 ($ in thousands)
Gross written premiums$97,100  $76,771  26.5% $184,501  $149,235  23.6%
Net written premiums$14,487  $16,900  (14.3)% $28,305  $34,959  (19.0)%
            
Net earned premiums$14,266  $17,760  (19.7)% $27,606  $34,013  (18.8)%
Losses and loss adjustment expenses(9,426) (11,867) (20.6)% (17,037) (21,848) (22.0)%
Underwriting expenses(3,852) (5,340) (27.9)% (7,958) (10,770) (26.1)%
Underwriting profit (a), (b)$988  $553  78.7% $2,611  $1,395  87.2%
            
Ratios:           
Loss ratio66.1% 66.8%   61.7% 64.2%  
Expense ratio27.0% 30.1%   28.8% 31.7%  
Combined ratio93.1% 96.9%   90.5% 95.9%  
Accident year loss ratio67.2% 61.5%   67.1% 61.6%  
            
(a) See "Reconciliation of Non-GAAP Measures". 
(b) Underwriting results include fee income of $3.7 million and $2.7 million for the three months ended June 30, 2018 and 2017, respectively, and $7.1 million and $4.7 million for the respective six month periods.
 

CASUALTY REINSURANCE

 Three Months Ended
June 30,		   Six Months Ended
June 30,		  
 2018 2017 % Change 2018 2017 % Change
 ($ in thousands)
Gross written premiums$30,880  $66,700  (53.7)% $74,109  $109,420  (32.3)%
Net written premiums$30,884  $66,727  (53.7)% $74,113  $109,607  (32.4)%
            
Net earned premiums$54,817  $49,049  11.8% $112,448  $93,634  20.1%
Losses and loss adjustment expenses(35,562) (32,696) 8.8% (71,104) (61,516) 15.6%
Underwriting expenses(17,526) (18,376) (4.6)% (37,871) (33,048) 14.6%
Underwriting profit (loss) (a)$1,729  $(2,023) - $3,473  $(930) -
            
Ratios:           
Loss ratio64.9% 66.7%   63.2% 65.7%  
Expense ratio31.9% 37.4%   33.7% 35.3%  
Combined ratio96.8% 104.1%   96.9% 101.0%  
Accident year loss ratio60.4% 62.2%   61.2% 63.5%  
            
(a) See "Reconciliation of Non-GAAP Measures". 
 

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit (loss) by individual operating segment and for the entire Company to consolidated income before taxes. We believe that these measures are useful to investors in evaluating the performance of our Company and its operating segments because our objective is to consistently earn underwriting profits.  We evaluate the performance of our operating segments and allocate resources based primarily on underwriting profit of operating segments.  Our definition of underwriting profit of operating segments and underwriting profit may not be comparable to that of other companies.

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
 (in thousands)
Underwriting profit (loss) of the operating segments:       
Excess and Surplus Lines$10,117  $11,729  $21,416  $20,529 
Specialty Admitted Insurance988  553  2,611  1,395 
Casualty Reinsurance1,729  (2,023) 3,473  (930)
Total underwriting profit of operating segments12,834  10,259  27,500  20,994 
Other operating expenses of the Corporate and Other segment(7,307) (6,095) (14,738) (12,556)
Underwriting profit (a)5,527  4,164  12,762  8,438 
Net investment income16,135  13,714  29,391  30,447 
Net realized and unrealized (losses) gains on investments (b)(64) 307  (874) 1,354 
Other income and expenses4  (257) 108  (57)
Interest expense(2,946) (2,224) (5,468) (4,347)
Amortization of intangible assets(149) (149) (298) (298)
Consolidated income before taxes$18,507  $15,555  $35,621  $35,537 
        
(a)  Included in underwriting results for the three months ended June 30, 2018 and 2017 is fee income of $7.4 million and $6.9 million, respectively, and $15.6 million and $12.8 million for the respective six month periods.
(b)  2018 includes net realized gains of $521,000 and net realized losses of $1.2 million for the change in net unrealized gains on equity securities in the three and six months ended June 30, 2018, respectively, in accordance with the Company's adoption of ASU 2016-01 effective January 1, 2018.
 

Adjusted Net Operating Income

We define adjusted net operating income as net income excluding net realized and unrealized (losses) gains on investments (net realized investment (losses) gains and the change in unrealized (losses) gains on equity securities per the adoption of ASU 2016-01), as well as non-operating expenses including those that relate to due diligence costs for various merger and acquisition activities, professional fees related to the filing of registration statements for the sale of our securities, costs associated with former employees and interest and other expenses on a leased building that we are deemed to own for accounting purposes. We use adjusted net operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.  Adjusted net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.

Our income before taxes and net income for the three and six months ended June 30, 2018 and 2017, respectively, reconciles to our adjusted net operating income as follows:

  
 Three Months Ended June 30,
 2018 2017
 Income
Before Taxes		 Net Income Income
Before Taxes		 Net Income
 (in thousands)
Income as reported$18,507  $16,984  $15,555  $14,541 
Net realized and unrealized losses (gains) on investments (a)64  98  (307) (248)
Other expenses93  126  346  368 
Interest expense on leased building the Company is deemed to own for accounting purposes457  361  313  203 
Adjusted net operating income$19,121  $17,569  $15,907  $14,864 
        
 Six Months Ended June 30,
 2018 2017
 Income
Before Taxes		 Net Income Income
Before Taxes		 Net Income
 (in thousands)
Income as reported$35,621  $32,617  $35,537  $32,991 
Net realized and unrealized losses (gains) on investments (a)874  763  (1,354) (1,082)
Other expenses97  146  232  268 
Interest expense on leased building the Company is deemed to own for accounting purposes775  612  625  406 
Adjusted net operating income$37,367  $34,138  $35,040  $32,583 
        
(a)  2018 includes net realized gains of $521,000 and net realized losses of $1.2 million for the change in net unrealized gains on equity securities in the three and six months ended June 30, 2018, respectively, in accordance with the Company's adoption of ASU 2016-01 effective January 1, 2018.
        

Tangible Equity (per Share) and Pre-Dividend Tangible Equity (per Share)

We define tangible equity as shareholders’ equity less goodwill and intangible assets (net of amortization).  Our definition of tangible equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders’ equity calculated in accordance with GAAP.  We use tangible equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.  The following table reconciles shareholders’ equity to tangible equity for June 30, 2018, December 31, 2017, and June 30, 2017 and reconciles tangible equity to tangible equity before dividends for June 30, 2018.

 June 30, 2018 December 31, 2017 June 30, 2017
($ in thousands, except for share data)Equity Equity
per share		 Equity Equity
per share		 Equity Equity
per share
Shareholders' equity$689,243  $23.04  $694,699  $23.39  $719,719  $24.42 
Goodwill and intangible assets219,867  7.35  220,165  7.41  220,464  7.48 
Tangible equity$469,376  $15.69  $474,534  $15.98  $499,255  $16.94 
Dividends to shareholders for the six months ended June 30, 201818,109  0.60         
Pre-dividend tangible equity$487,485  $16.29         


            








        

            

                

                    
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