Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2017. Net income was $197.0 million, or $3.76 per diluted share, for the full year 2017, compared to $210.4 million, or $4.01 per diluted share, in 2016. Net income was $32.1 million, or $0.61 per diluted share, in the fourth quarter of 2017, compared to $45.8 million, or $0.87 per diluted share, in the fourth quarter of 2016. Net income was reduced by $10.1 million for the fourth quarter and year ended December 31, 2017 due to the enactment of the Tax Cuts and Jobs Act ("TCJA") on December 22, 2017, which reduced fourth quarter and full year Class A diluted earnings per share by $0.19.
4Q and Full Year 2017
|
(dollars in thousands) |
4Q'17 | 4Q'16 | 2017 | 2016 |
|---|---|---|---|---|
|
Operating income |
$57,958 |
$56,685 |
$288,372 |
$292,364 |
|
Investment income, net of interest expense |
6,683 |
13,438 |
27,323 |
27,727 |
|
Income before income taxes |
64,641 |
70,123 |
315,695 |
320,091 |
|
Income tax expense |
32,588 |
24,337 |
118,696 |
109,725 |
|
Net income |
$32,053 |
$45,786 |
$196,999 |
$210,366 |
|
Gross margin from operations |
14.4% |
14.9% |
17.0% |
18.3% |
2017 Full Year Highlights
Operating income before taxes decreased $4.0 million, or 1.4 percent, in 2017 compared to 2016.
- Management fee revenue increased $95.2 million, or 6.1 percent, in 2017 compared to 2016.
- Commissions increased $53.7 million in 2017 compared to 2016 as a result of the 6.0 percent increase in direct and assumed premiums written by the Exchange.
- Non-commission expense increased $45.5 million in 2017 compared to 2016.Underwriting and policy processing costs increased $7.0 million primarily due to increased personnel costs and underwriting report costs.Information technology costs increased $19.2 million primarily due to increased professional fees, hardware and software costs and personnel costs.Customer service costs increased $3.2 million primarily due to increased personnel costs and credit card processing fees.Administrative and other costs increased $17.5 million primarily driven by increased personnel costs, including higher incentive plan costs. The incentive plan cost increase was driven by an increase in long-term incentive plan cost due to the increase in the company stock price during 2017 coupled with lower incentive plan cost in the prior year due to incentive compensation that was forfeited by senior executives who separated from service during 2016. Additionally, the employee incentive plan program was expanded to additional employee groups beginning in 2017.Personnel costs in all expense categories were impacted by increased medical and pension costs.
- The gross margin for 2017 was 17.0 percent, compared to 18.3 percent for 2016.
Income from investments before taxes and net of interest expense totaled $27.3 million in 2017 compared to $27.7 million in 2016. Net investment income and realized investment gains were $25.9 million in 2017 compared to $21.2 million in 2016. Earnings from limited partnerships were $2.8 million in 2017 compared to $7.0 million in 2016.
Income tax expense in 2017 was impacted by the enactment of the TCJA, which reduced the corporate income tax rate from 35% to 21%. Income tax expense increased by $10.1 million related to the TCJA, which included an increase of $19.9 million related to the re-measurement of our net deferred tax asset partially offset by a deferred tax benefit of $9.8 million primarily related to the acceleration of pension contributions.
4Q 2017 Highlights
Operating income before taxes increased $1.3 million, or 2.2 percent, in the fourth quarter of 2017 compared to the fourth quarter of 2016.
- Management fee revenue increased $21.9 million, or 5.9 percent, in the fourth quarter of 2017 compared to the fourth quarter of 2016.
- Commissions increased $10.1 million in the fourth quarter of 2017 compared to the fourth quarter of 2016 as a result of the 6.0 percent increase in direct and assumed premiums written by the Exchange.
- Non-commission expense increased $10.4 million in the fourth quarter of 2017 compared to the fourth quarter of 2016.Information technology costs increased $4.0 million primarily due to an increase in hardware and software costs and personnel costs.Customer service costs increased $1.3 million primarily due to increased personnel costs and credit card processing fees.Administrative and other costs increased $5.0 million primarily due to increased personnel costs.Personnel costs in all expense categories were impacted by increased medical and pension costs.
- The gross margin in the fourth quarter of 2017 was 14.4 percent, compared to 14.9 percent in the fourth quarter of 2016.
Income from investments before taxes and net of interest expense totaled $6.7 million in the fourth quarter of 2017, compared to $13.4 million in the fourth quarter of 2016. Earnings from limited partnerships were $0.9 million in the fourth quarter of 2017 compared to earnings of $7.3 million in the fourth quarter of 2016.
Income tax expense in the fourth quarter of 2017 included an increase of $10.1 million due to the enactment of the TCJA.
Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on February 23, 2018. Investors may access the live audio broadcast by logging on to www.erieinsurance.com. Indemnity recommends visiting the website at least 15 minutes prior to the Webcast to download and install any necessary software. A Webcast audio replay will be available on the Investor Relations page of the Erie Insurance website by 12:30 PM ET.