FORT WORTH, Texas, May 15, 2008 (PRIME NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported net income of $7.1 million for the first quarter of 2008, a 42% increase over the $5.0 million reported for the first quarter of 2007. On a fully diluted basis, net income was $0.34 per share for the first quarter of 2008 as compared to $0.24 per share for the first quarter of 2007. Total revenues for the first quarter of 2008 were $71.2 million, representing an 11% increase from the $64.0 million reported for the first quarter of 2007.
Mark J. Morrison, President and Chief Executive Officer, said, "Our results for the quarter were strong despite the continued impact from the general economic slow-down on premium renewals from our smaller commercial construction accounts and ongoing rate competition on our larger accounts. However, premium production from our Personal Segment has seen a significant 40% increase from the fourth quarter of 2007 due to our continued focus on geographic expansion into markets with less competitive pricing. We believe that our underwriting discipline in this soft rate environment will enable us to deliver superior results to the average of our peers in our specialty and niche markets of the property/casualty segment."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Our quarterly net combined ratio of 89%, an annualized return on average equity of 16% and cash flow from operations of over $12 million generated for the quarter reflect our continued underwriting discipline and focus on bottom-line results. Our solid investment performance contributed to a 19% increase in book value per share since the end of the first quarter of 2007."
Three Months Ended March 31, ---------------------------- 2008 2007 % Change --------- --------- -------- ($ in thousands) Gross premiums written $ 64,237 $ 64,658 -1% Net premiums written 61,905 60,771 2% Net premiums earned 58,916 51,648 14% Commission and fees 6,484 7,905 -18% Investment income, net of expenses 3,625 2,990 21% Gain on investments 859 53 NM Total revenues 71,193 63,958 11% Net income 7,052 4,970 42% Common EPS - basic $ 0.34 $ 0.24 42% Common EPS - diluted $ 0.34 $ 0.24 42% Annualized return on average equity 15.5% 13.0% 19% Book value per share $ 8.93 $ 7.52 19% Cash flow from operations $ 12,388 $ 18,962 -35%
The increase in net income for the quarter was favorably impacted by increased retention of business produced by our Specialty Commercial Segment, increased production from our Personal Segment, increased investment income from a larger investment portfolio and favorable prior year loss reserve development of $1.6 million during the first quarter of 2008. We did not recognize any prior year development during the first quarter of 2007. Specialty Commercial Segment revenues increased $4.0 million, or 14%, during the quarter as compared to the first quarter of 2007. Revenues from the Personal Segment increased $1.9 million, or 14%, during the quarter due largely to geographic expansion into new states. An increased recognized gain on our investment portfolio was the primary reason for the increase in revenue for Corporate.
Hallmark's net loss ratio was 60.3% for the first quarter of 2008 as compared to 62.3% for the first quarter of 2007. Hallmark's net expense ratio was 29.0% for the first quarter of 2008 as compared to 28.2% for the first quarter of 2007. As a result, Hallmark maintained a strong net combined ratio of 89.3% for the first quarter of 2008 as compared to 90.5% for the first quarter of 2007.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Our business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. Our business is geographically concentrated in the south central and northwest regions of the United States, except for our general aviation business which is written on a national basis. The Company is headquartered in Fort Worth, Texas and its common stock is presently listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this Release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's periodic report filings with the Securities and Exchange Commission.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands) March 31 Dec. 31 ASSETS 2008 2007 ------ ---- ---- (unaudited) Investments: Debt securities, available-for-sale, at fair value $167,108 $248,069 Equity securities, available-for-sale, at fair value 35,566 15,166 Short-term investments, available-for-sale, at fair value 95,060 2,625 --------- --------- Total investments 297,734 265,860 Cash and cash equivalents 61,303 145,884 Restricted cash and cash equivalents 4,682 16,043 Premiums receivable 47,740 46,026 Accounts receivable 5,344 5,219 Receivable for securities -- 27,395 Prepaid reinsurance premiums 2,197 274 Reinsurance recoverable 4,469 4,952 Deferred policy acquisition costs 20,416 19,757 Excess of cost over fair value of net assets acquired 30,025 30,025 Intangible assets 23,208 23,781 Deferred federal income taxes 1,075 275 Prepaid expenses 1,319 1,240 Other assets 19,541 19,583 --------- --------- Total assets $519,053 $606,314 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Notes payable $ 60,921 $ 60,814 Structured settlements -- 10,000 Reserves for unpaid losses and loss adjustment expenses 133,748 125,338 Unearned premiums 106,009 102,998 Unearned revenue 2,447 2,949 Accrued agent profit sharing 667 2,844 Accrued ceding commission payable 12,185 12,099 Pension liability 1,584 1,669 Current federal income tax payable 3,418 630 Payable for securities -- 91,401 Accounts payable and other accrued expenses 12,410 16,385 --------- --------- Total liabilities 333,389 427,127 --------- --------- Commitments and Contingencies Stockholders' equity: Common stock, $.18 par value (authorized 33,333,333 shares in 2008 and 2007; issued 20,809,415 and 20,776,080 shares in 2008 and 2007) 3,746 3,740 Capital in excess of par value 119,120 118,459 Retained earnings 65,961 58,909 Accumulated other comprehensive loss (3,086) (1,844) Treasury stock, at cost (7,828 shares in 2008 and 2007) (77) (77) --------- --------- Total stockholders' equity 185,664 179,187 --------- --------- $519,053 $606,314 ========= ========= Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) ($ in thousands, except per share amounts) Three Months Ended March 31 ------------------- 2008 2007 ---- ---- Gross premiums written $ 64,237 $ 64,658 Ceded premiums written (2,332) (3,887) --------- --------- Net premiums written 61,905 60,771 Change in unearned premiums (2,989) (9,123) --------- --------- Net premiums earned 58,916 51,648 Investment income, net of expenses 3,625 2,990 Gain on investments 859 53 Finance charges 1,264 1,086 Commission and fees 6,484 7,905 Processing and service fees 42 272 Other income 3 4 --------- --------- Total revenues 71,193 63,958 Losses and loss adjustment expenses 35,504 32,185 Other operating expenses 23,465 22,701 Interest expense 1,185 786 Amortization of intangible asset 573 573 --------- --------- Total expenses 60,727 56,245 Income before tax 10,466 7,713 Income tax expense 3,414 2,743 --------- --------- Net income $ 7,052 $ 4,970 ========= ========= Net income per share: Basic $ 0.34 $ 0.24 ========= ========= Diluted $ 0.34 $ 0.24 ========= ========= Hallmark Financial Services, Inc. Consolidated Segment Data Three Months Ended March 31, 2008 ---------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated --------- --------- --------- -------- --------- Produced premium $ 21,749 $ 32,020 $ 17,727 $ -- $ 71,496 --------- --------- --------- -------- --------- Gross premiums written 21,749 24,761 17,727 -- 64,237 Ceded premiums written (1,364) (968) -- -- (2,332) --------- --------- --------- -------- --------- Net premiums written 20,385 23,793 17,727 -- 61,905 Change in unearned premiums 404 (155) (3,238) -- (2,989) --------- --------- --------- -------- --------- Net premiums earned 20,789 23,638 14,489 -- 58,916 Total revenues 21,829 32,087 15,726 1,551 71,193 Losses and loss adjustment expenses 11,310 15,003 9,191 -- 35,504 Pre-tax income (loss) 3,881 5,293 2,590 (1,298) 10,466 Net loss ratio (1) 54.4% 63.5% 63.4% 60.3% Net expense ratio (1) 27.4% 30.7% 22.5% 29.0% --------- --------- --------- --------- Net combined ratio (1) 81.8% 94.2% 85.9% 89.3% ========= ========= ========= ========= Three Months Ended March 31, 2007 ---------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated --------- --------- --------- -------- --------- Produced premium $ 23,550 $ 39,357 $ 15,076 $ -- $ 77,983 --------- --------- --------- -------- --------- Gross premiums written 23,481 26,101 15,076 -- 64,658 Ceded premiums written (2,635) (1,252) -- -- (3,887) --------- --------- --------- -------- --------- Net premiums written 20,846 24,849 15,076 -- 60,771 Change in unearned premiums (924) (5,756) (2,443) -- (9,123) --------- --------- --------- -------- --------- Net premiums earned 19,922 19,093 12,633 -- 51,648 Total revenues 21,767 28,098 13,773 320 63,958 Losses and loss adjustment expenses 12,841 11,081 8,267 (4) 32,185 Pre-tax income (loss) 2,759 4,686 2,118 (1,850) 7,713 Net loss ratio (1) 64.5% 58.0% 65.4% 62.3% Net expense ratio (1) 28.0% 31.5% 23.6% 28.2% --------- --------- --------- --------- Net combined ratio (1) 92.5% 89.5% 89.0% 90.5% ========= ========= ========= ========= 1 Net loss ratio is calculated as total net losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. Net expense ratio is calculated as total underwriting expenses of our insurance company subsidiaries, including allocated overhead expenses and offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.