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The National Security Group, Inc. Releases Earnings

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ELBA, Ala.--(BUSINESS WIRE)--

The National Security Group, Inc. (NASDAQ: NSEC) results for the three months and six months ended June 30, 2015 and 2014, based on accounting principles generally accepted in the United States of America, were reported today as follows:

         
Unaudited Consolidated Financial Summary Three months ended

June 30,

Six months ended

June 30,

2015     2014 2015     2014
Gross premiums written $ 18,244,000   $ 18,187,000   $ 34,784,000   $ 34,357,000  
Net premiums written $ 17,000,000   $ 16,373,000   $ 32,034,000   $ 30,765,000  
 
Net premiums earned $ 14,880,000 $ 14,100,000 $ 29,586,000 $ 27,924,000
Net investment income 784,000 1,030,000 1,758,000 1,978,000
Net realized investment gains 245,000 312,000 387,000 400,000
Gain on company owned life insurance 1,621,000 1,621,000
Other income 156,000   92,000   314,000   246,000  
Total Revenues 16,065,000   17,155,000   32,045,000   32,169,000  
Policyholder benefits and settlement expenses 9,435,000 9,155,000 17,697,000 17,019,000
Amortization of deferred policy acquisition costs 918,000 873,000 1,817,000 1,771,000
Commissions 2,089,000 1,967,000 4,144,000 3,994,000
General and administrative expenses 2,093,000 2,413,000 4,099,000 4,439,000
Taxes, licenses and fees 518,000 521,000 1,173,000 1,051,000
Interest expense 345,000   382,000   662,000   768,000  
Total Benefits, Losses and Expenses 15,398,000   15,311,000   29,592,000   29,042,000  
Income Before Income Taxes 667,000   1,844,000   2,453,000   3,127,000  
Income tax expense (benefit) 44,000   (90,000 ) 522,000   194,000  
Net Income $ 623,000   $ 1,934,000   $ 1,931,000   $ 2,933,000  
Income Per Common Share $ 0.25   $ 0.77   $ 0.77   $ 1.18  
Reconciliation of Net Income to non-GAAP Measurement
Net income $ 623,000 $ 1,934,000 $ 1,931,000 $ 2,933,000
Income tax expense (benefit) 44,000 (90,000 ) 522,000 194,000
Realized investment gains, net (245,000 ) (312,000 ) (387,000 ) (400,000 )
Gain on company owned life insurance   (1,621,000 )   (1,621,000 )
Pretax Income (Loss) From Insurance Operations $ 422,000   $ (89,000 ) $ 2,066,000   $ 1,106,000  
 
 
 

Three months ended June 30, 2015 compared to three months ended June 30, 2014:

Premium Revenue:

For the quarter ended June 30, 2015, net premiums earned were up $780,000 at $14,880,000 for the second quarter of 2015 compared to $14,100,000 for the second quarter of 2014. The primary reasons for the increase were a 13.4% reduction in catastrophe reinsurance costs coupled with an increase in direct premium. The increase in direct premium was primarily related to the P&C segment which had a 6.5% rise in net earned premium revenue during the second quarter of 2015 compared to the same period in 2014.

Net Income:

For the three months ended June 30, 2015, the Company had net income of $623,000, $0.25 per share, compared to net income of $1,934,000, $0.77 per share, for the same period in 2014, a decrease of $1,311,000. The primary reason for the decline was a $1.6 million realized gain on company owned life insurance in the second quarter of last year; no such gain was realized in 2015.

Pretax income from insurance operations:

A primary non-GAAP financial measure used by management is pretax income from insurance operations. This measure consists of net income before income taxes adjusted for realized investment gains and losses. This measure provides a means of comparing the results of our core insurance operations without the impact of items that are more unpredictable and less consistent from year to year. A reconciliation of pretax income from insurance operations is presented in the table above.

For the three months ended June 30, 2015, pretax income from insurance operations was $422,000 compared to a pretax loss from insurance operations of $89,000 for the three months ended June 30, 2014. The primary factors contributing to the increase in pretax income from insurance operations were a $780,000 increase in net premiums earned coupled with a $320,000 decrease in general and administrative expenses. Partially offsetting these improvements was a moderate increase in consolidated claims cost, primarily due to an increase in property and casualty segment fire related claims.

Six months ended June 30, 2015 compared to six months ended June 30, 2014:

Premium Revenue:

For the six months ended June 30, 2015, net premiums earned were up $1,662,000 at $29,586,000 for the first half of 2015 compared to $27,924,000 for the first half of 2014. The primary reasons for the increase were a 13.4% reduction in catastrophe reinsurance costs coupled with increases in direct premium. The increase in direct premium was primarily related to the P&C segment which had a 7.1% increase in net earned premium during the first six months of 2015 compared to the first six months of 2014.

Net Income:

For the six months ended June 30, 2015, the Company had net income of $1,931,000, $0.77 per share, compared to net income of $2,933,000, $1.18 per share, for the same period in 2014, a decrease of $1,002,000. The primary reason for the decline was the $1.6 million gain on company owned life insurance received during the first half of 2014.

Pretax income from insurance operations:

For the six months ended June 30, 2015, pretax income from insurance operations was $2,066,000 compared to $1,106,000 for the six months ended June 30, 2014, an increase of $960,000. The primary factors contributing to the increase in pretax income from insurance operations were a $1,662,000 or 6.0% increase in net premiums earned coupled with a $340,000 decrease in general and administrative expenses. For the first six months of 2015, general and administrative expenses were 13.9% of net premiums earned compared to 15.9% for the same period in 2014. A continued focus by management to improve efficiency and implement cost saving measures to reduce general and administrative expenses was the primary reason for the decline. In addition, a slight reduction in the loss ratio of policyholder benefits as a percent of premium earned also contributed to the improved results. Policyholder benefits were 59.8% of net earned premium revenue in the first half of 2015 compared to 60.9% for the same period in 2014.

Balance Sheet highlights at June 30, 2015 compared to December 31, 2014

Selected Balance Sheet Highlights       June 30, 2015     December 31, 2014
(UNAUDITED)
Invested Assets $ 107,984,000 $ 109,549,000
Cash $ 8,378,000 $ 6,426,000
Total Assets $ 146,493,000 $ 144,865,000
Policy Liabilities $ 77,066,000 $ 74,115,000
Total Debt $ 18,372,000 $ 19,572,000
Accumulated Other Comprehensive Income $ 1,836,000 $ 2,772,000
Shareholders' Equity $ 43,629,000 $ 42,757,000
Book Value Per Share $ 17.37 $ 17.05
 

Invested Assets:

Invested assets as of June 30, 2015 were $107,984,000 down $1,565,000, or 1.4%, compared to December 31, 2014. The decrease in invested assets was primarily due to the decline in market value of available for sale securities in our fixed income portfolio.

Cash:

The Company, primarily through its insurance subsidiaries, had $8,378,000 in cash and cash equivalents at June 30, 2015, compared to $6,426,000 at December 31, 2014. Positive cash flow from operations totaling $3,097,000 was the primarily contributor to the increase in cash for the six months ended June 30, 2015.

Total Assets:

Total assets as of June 30, 2015 were $146,493,000 compared to $144,865,000 at December 31, 2014. The $1,952,000 increase in cash during the first six months of 2015 was the primary contributor to the increase in total assets.

Debt Outstanding:

Total debt at June 30, 2015 was $18,372,000 compared to $19,572,000 at December 31, 2014. Debt was reduced $1,200,000 during the first six months in 2015. The primary reason for the decline was the reduction of balances in revolving lines of credit in the Holding Company.

Shareholders' Equity:

Shareholders' equity as of June 30, 2015 was $43,629,000 up $872,000 compared to December 31, 2014 Shareholders' equity of $42,757,000. Book value per share was $17.37 at June 30, 2015, compared to $17.05 per share at December 31, 2014, an increase of $0.32. The primary factor contributing to the increase in Shareholders' equity was net income of $1,931,000. Offsetting the increase in Shareholders' equity was a decrease in accumulated other comprehensive income of $936,000. The decline in accumulated other comprehensive income was primarily driven by decreases in market values of available for sale investment securities primarily in our fixed income portfolio.

The National Security Group, Inc. (NASDAQ Symbol: NSEC), through its property and casualty and life insurance subsidiaries, offers property, casualty, life, accident and health insurance in ten states. The Company writes primarily personal lines property coverage including dwelling fire and windstorm, homeowners and mobile homeowners lines of insurance. The Company also offers life, accident and health, supplemental hospital and cancer insurance products. The Company was founded in 1947 and is based in Elba, Alabama. Additional information about the Company, including additional details of recent financial results, can be found on our website: www.nationalsecuritygroup.com.

The National Security Group, Inc.
Brian McLeod, Chief Financial Officer, 334-897-2273

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