Powell BrownThank you, Alan. Good morning, everyone. Carriers are talking about the need for rate in certain lines of business; however, it’s not always happening or sticking. There continues to be a large gap between desired renewal pricing and new business pricing. With that, I’d like to turn it over to Cory for our financial report. Cory Walker Thanks, Powell. Our net income for the third quarter of 2011 of $44.2 million was nearly the same as last year’s third quarter net income of $44.3 million. Our earnings per share for the third quarter of 2011 rounded down to $0.30 compared to the third quarter of last year’s EPS, which rounded up to $0.31. The single most significant difference in the two quarterly EPS results relates to a $2.6 million legal claim that was first filed in 1994 where we initially won on a summary judgment; but then the case was reversed – matter of fact, several times – over the next 17 years in the Texas State Appellate Court system, until this quarter when the Texas Supreme Court declined to review the case. From a revenue standpoint, commissions and fees for the quarter increased 4.5% or $11.1 million to 257.2 million. That’s up from the $246.1 million earned last year’s third quarter. Included in our press release is the table that summarizes our total growth rate and internal growth rates from our core commissions and fees, which of course excludes profit sharing contingent commissions and revenues from books or operations sold. In the third quarter of 2011, we received $7.2 million of profit-sharing contingent commissions. That’s $2.4 million less than the 9.7 million that we received in the third quarter last year. For the fourth quarter of 2011, most of any profit-sharing contingencies that we will receive will come from our FIU operations. If Florida is unfortunate and does have a hurricane to hit the state before year-end, we probably would not receive any additional profit-sharing contingencies; however, if there are no hurricanes, we could possibly receive a $1 million or maybe even a little bit more.
Now looking at the internal growth schedule, we had a consolidated negative internal growth rate of 2.4%. Excluding the negative impact this quarter of Proctor Financial Inc. that we’ve discussed in previous conference calls, our internal growth rate was negative 2.1%. Our total core commissions and fees for the quarter increased 6.3% or $14.8 million of total new commissions and fees; however, within that net number was $20.5 million of acquired revenues. That means that we had $5.7 million less commissions and fee revenues on a same store sales basis, hence the 2.4% negative internal growth rate. As the internal growth rate schedule indicates, we had positive internal growth rate in three of our four divisions, with only the retail division showing negative revenue growth. Powell will discuss the changes that we’ll be seeing in the various divisions after the financial review.So moving on, our investment income was slightly down from the 2010 third quarter. However, our other income was $1.7 million more than last year’s third quarter, and that was primarily due to a settlement on a lawsuit that we had pursued and some gains on a few books of businesses. As it relates to our expenses and our pre-tax margins, our pre-tax margin for the third quarter of 2011 was 27.9% compared with our prior year margins of 29.5%. That’s a decline of 1.6 percentage points. However, if you exclude the impact of three items, one being the change in the acquisition earn-out liability line which is approximately $1 million, two – the unusual $2.6 million legal claim expense, and three – there was a one-time credit that we received in last year’s third quarter of $1.8 million which was a refund for previously expensed legal fees that we received from a carrier. If we do that, the 2011 third quarter pre-tax margin really is only about 30 basis points lower than the comparable 2010 quarter.
Employee compensation and benefits as a percentage of total commissions and fee revenues for the third quarter of ’11 was 49.3%. That’s compared with 49.6% in the third quarter of 2010. The total dollar increase on a net basis in employee compensation and benefits was approximately $4.9 million; however, $7.3 million of this net total was attributable to just the standalone acquisitions since last year. Therefore, if you exclude the impact of these standalone acquisitions, we actually had $2.4 million in less compensation, which is on kind of a semi-same store sales basis, and that reduction is primarily in salaries and producer commission expense.Our non-cash stock-based compensation costs of $2.9 million in the third quarter of 2011 is consistent with our previous guidance on the increased cost that includes the stock incentive plan that we implemented in the first quarter of 2011. In the current quarter, other operating expenses increased as a percentage of total commissions and fees by 2.2 percentage points to 14.9%. You may recall that in the third quarter of 2010, as I previously just mentioned, we received $1.8 million in cash from an insurance carrier that was on the tail coverage of one of our acquisitions. After months of discussion, the carrier agreed to reimburse us for prior defense costs that we had expended defending this pre-acquisition claim. The carrier also agreed to defend the case on a go-forward basis. Therefore, if you exclude, as I mentioned before, the $2.6 million of legal claim in 2011 and then you add back the one-time credit of $1.8 million for the ’10 other operating expenses, then that line item increased only 50 basis points over last year’s ratio. Read the rest of this transcript for free on seekingalpha.com