FORT WORTH, Texas, March 26, 2009 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported fiscal 2008 net income of $12.9 million compared to $27.9 million reported for fiscal 2007. Hallmark reported a net loss of $2.4 million for the fourth quarter of 2008 compared to net income of $7.3 million reported for the fourth quarter of 2007. On a fully diluted basis, fiscal 2008 net income was $0.62 per share and fourth quarter 2008 was a net loss of $0.12 per share, as compared to net income of $1.34 per share and $0.35 per share for the similar periods of 2007. Total revenues were $268.7 million and $60.2 million for fiscal 2008 and the fourth quarter 2008, representing a 2% and a 14% decrease from the $275.2 million and $69.9 million reported for the similar periods of 2007.
The fourth quarter and fiscal 2008 results were impacted by investment impairments we recognized to reflect market conditions, investment losses realized for tax planning purposes, a valuation allowance on our deferred tax asset and the hurricanes that hit the Texas coast during the third quarter. The following table details these items and their impact on our reported net income and diluted earnings per share ($ in thousands, except per share amounts):
4Q08 Per Share FY2008 Per Share
Net income (loss) $ (2,407) $ (0.12) $ 12,899 $ 0.62
========= ========= ========= =========
Investment impairments
after tax (3,634) $ (0.17) (5,749) $ (0.28)
Net realized investment
losses after tax (2,772) $ (0.13) (1,570) $ (0.08)
Deferred tax valuation
allowance (2,969) $ (0.14) (2,969) $ (0.14)
Net hurricane loss and LAE
after tax -- $ -- (3,900) $ (0.19)
--------- --------- --------- ---------
Impact on net income or
loss from significant
items $ (9,375) $ (0.44) $(14,188) $ (0.69)
========= ========= ========= =========
Book value per share was also impacted by unrealized investment losses due to continued market turmoil, recognized investment impairments, realized investment losses and the hurricanes. The table below details the impact of these and other items during the fourth quarter and fiscal 2008 on our reported book value per share.
4Q08 FY2008
Beginning book value per share $ 9.11 $ 8.65
-------- --------
Impacted by:
Recognized investment impairment after tax $ (0.17) $ (0.28)
Realized investment losses after tax $ (0.13) $ (0.08)
Unrealized investment losses after tax $ (0.28) $ (0.59)
Deferred tax valuation allowance $ (0.18) $ (0.22)
Additional minimum pension liability $ (0.11) $ (0.11)
Net hurricane loss and LAE after tax $ -- $ (0.19)
All other items $ 0.37 $ 1.43
-------- --------
Book value per share as of December 31, 2008 $ 8.61 $ 8.61
======== ========
Mark J. Morrison, President and Chief Executive Officer, said, "Not only did the trend of deteriorating economic conditions, decreasing prices and increased competition continue through the fourth quarter of the year, but 2008 produced one of the most costly catastrophe years on record in the United States. Hallmark has not escaped the events of 2008 unscathed. However, our unrelenting focus on underwriting discipline and bottom-line profitability has again resulted in strong underwriting margins in each of our operating units. Despite incurring over $6 million in losses from three hurricanes that made landfall on the Texas and Louisiana coasts, we were able to achieve our underwriting profit target for the year with a combined ratio under 90%. This marks the fifth consecutive year we have exceeded this target."
Mr. Morrison continued, "Underwriting discipline in a soft market cycle does not come without a price. As a result of our discipline, premium production declined 3.6% in 2008. If the competitive and economic environments do not improve, production could decline further in the future. Underwriting profits have been and will remain the key component of our strategy. We can only achieve this goal by remaining disciplined in soft market conditions. Thus, our primary focus will continue to be on underwriting profitability, as opposed to premium growth or market share."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "The significant decline in general economic conditions, the massive disruptions in financial markets and the magnitude of catastrophe losses that occurred over the past year created challenges for most companies in our industry. Although there are signs of easing in the soft market conditions for certain lines of business, most would agree that the competitive landscape and general economic climate will continue to create headwinds for our industry in the coming year. Despite these challenges, we expect our competitive strengths and growth strategies will allow Hallmark to continue to produce superior results."
Mr. Schwarz continued, "Hallmark's growth in book value per share was flat for the year due to approximately $8.8 million in recognized impairment losses that reflect current market prices for certain securities. With few exceptions, it is our expectation we will hold these securities until they recover in value. Despite the negative contribution to book value growth, Hallmark's investment portfolio performed comparatively well in the face of extremely volatile market conditions. Net investment income increased 30% over the same quarter of last year and for the year has grown by 22%. We continue to maintain a diversified portfolio, with fixed income investments representing 91% of invested assets and 89% of the fixed income securities being rated investment grade. Our fixed income investment holdings are comprised of 76% tax-exempt securities and 22% short-term investments. As of the end of the year, our portfolio had a modified duration of 3.3 years and a tax-equivalent yield over 8.3%. Hallmark remains financially strong and has ample liquidity, with $59 million of cash and cash equivalents, excess capital held at the holding company and cash flow from operations of over $46 million for the year."
Three Months Ended
December 31,
-------------------------------
2008 2007 % Change
--------- --------- ---------
($ in thousands)
Gross premiums written $ 57,492 $ 55,933 3%
Net premiums written 55,073 53,881 2%
Net premiums earned 58,384 59,250 -1%
Commission and fee income 6,000 4,710 27%
Investment income, net of expenses 4,367 3,369 30%
Gain (loss) on investments (9,856) 1,287 -866%
Total revenues 60,196 69,916 -14%
Net income (loss) (2,407) 7,276 -133%
Common EPS - basic $ (0.12) $ 0.35 -134%
Common EPS - diluted $ (0.12) $ 0.35 -134%
Annualized return on average equity -5.2% 16.5% -132%
Book value per share $ 8.61 $ 8.65 0%
Cash flow from operations $ 9,138 $ 17,796 -49%
Fiscal Year Ended
December 31,
-------------------------------
2008 2007 % Change
--------- --------- ---------
($ in thousands)
Gross premiums written $243,849 $249,472 -2%
Net premiums written 234,927 238,811 -2%
Net premiums earned 236,320 225,971 5%
Commission and fee income 22,280 28,054 -21%
Investment income, net of expenses 16,049 13,180 22%
Gain (loss) on investments (11,261) 2,586 -535%
Total revenues 268,690 275,166 -2%
Net income 12,899 27,863 -54%
Common EPS - basic $ 0.62 $ 1.34 -54%
Common EPS - diluted $ 0.62 $ 1.34 -54%
Annualized return on average equity 7.2% 16.9% -57%
Book value per share $ 8.61 $ 8.65 0%
Cash flow from operations $ 46,296 $ 79,563 -42%
The decrease in total revenue for the three months ended December 31, 2008 was primarily due to recognized impairment losses on our investment portfolio and lower earned premium. The decrease in total revenues for the year ended December 31, 2008 was primarily due to recognized impairment losses on our investment portfolio and lower commission and fee income partially offset by increased earned premium and investment income.
Standard Commercial Segment revenues decreased $1.6 million and $2.4 million, or 7% and 3%, during the three months and year ended December 31, 2008 as compared to the same periods during 2007, due primarily to lower earned premium as a result of increased competition, rate pressure and deterioration of the economic environment in the U.S. Specialty Commercial Segment revenues increased $0.7 million and $1.3 million, or 2% and 1%, during the three months and year ended December 31, 2008 as compared to the same periods of 2007, due to the acquisition of our Heath XS Operating Unit in the third quarter and increased retention of business. Revenues from the Personal Segment increased $1.6 million and $6.2 million, or 11% and 11%, during the three months and year ended December 31, 2008 as compared to the same periods during 2007, due largely to geographic expansion into new states. Corporate revenue decreased $10.4 million and $11.6 million for the three months and year ended December 31, 2008 primarily due to losses recognized on our investment portfolio of $9.9 million and $11.3 million during the three months and year ended December 31, 2008 as compared to recognized gains on our investment portfolio of $1.3 million and $2.6 million during the same period in the prior year, partially offset by increased investment income of $0.7 million and $2.3 million for the same periods primarily due to changes in capital allocation.
On a diluted basis per share, net income (loss) was ($0.12) and $0.62 per share for the three months and year ended December 31, 2008 as compared to $0.35 and $1.34 per share for the same periods in 2007. The decrease in net income for the three months and year ended December 31, 2008 was primarily attributable to decreased revenue and recognized losses on investments discussed above and higher loss and loss adjustment expenses due to hurricane related losses in 2008.
Hallmark's net loss ratio was 57.8% for the fourth quarter of 2008 as compared to 56.2% for the fourth quarter of 2007. For fiscal 2008, Hallmark's net loss ratio was 61.0% as compared to 58.8% for fiscal 2007. Hallmark's net expense ratio was 28.8% for the fourth quarter of 2008 as compared to 27.7% for the fourth quarter of 2007. For fiscal 2008, Hallmark's net expense ratio was 28.9% as compared to 27.8% for fiscal 2007. Hallmark maintained a profitable net combined ratio of 86.6% for the fourth quarter of 2008 and 89.9% for fiscal 2008 as compared to 83.9% and 86.6% for the same periods in the prior year.
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. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas, and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.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, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
(In thousands)
ASSETS 2008 2007
------ ---- ----
Investments:
Debt securities, available-for-sale, at
fair value $ 268,513 $ 250,359
Equity securities, available-for-sale, at
fair value 25,003 15,166
--------- ---------
Total investments 293,516 265,525
Cash and cash equivalents 59,134 146,219
Restricted cash and cash equivalents 8,033 16,043
Prepaid reinsurance premiums 1,349 942
Premiums receivable 44,032 46,026
Accounts receivable 4,531 5,219
Receivable for securities 1,031 27,395
Reinsurance recoverable 8,218 4,952
Deferred policy acquisition costs 19,524 19,757
Excess of cost over fair value of net assets
acquired 41,080 30,025
Intangible assets 28,969 23,781
Current federal income tax recoverable 696 --
Deferred federal income taxes 6,696 275
Prepaid expenses 1,007 1,240
Other assets 20,582 19,583
--------- ---------
$ 538,398 $ 606,982
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable $ 60,919 $ 60,814
Structured settlements -- 10,000
Reserves for unpaid losses and loss adjustment
expenses 156,363 125,338
Unearned premiums 102,192 102,998
Unearned revenue 2,037 2,949
Accrued agent profit sharing 2,151 2,844
Accrued ceding commission payable 8,605 12,099
Pension liability 4,309 1,669
Payable for securities 3,606 91,401
Current federal income tax payable -- 864
Accounts payable and other accrued expenses 18,067 16,385
--------- ---------
358,249 427,361
--------- ---------
Commitments and contingencies
Redeemable minority interest 737 --
Stockholders' equity:
Common stock, $.18 par value, authorized
33,333,333 shares in 2008 and 2007; issued
20,841,782 shares in 2008 and 20,776,080
shares in 2007 3,751 3,740
Capital in excess of par value 119,928 118,459
Retained earnings 72,242 59,343
Accumulated other comprehensive loss (16,432) (1,844)
Treasury stock, 7,828 shares in 2008 and 2007,
at cost (77) (77)
--------- ---------
Total stockholders' equity 179,412 179,621
--------- ---------
$ 538,398 $ 606,982
========= =========
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
($ in thousands, except per share amounts)
Three Months Ended Fiscal Year Ended
December 31 December 31
--------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Gross premiums written $ 57,492 $ 55,933 $ 243,849 $ 249,472
Ceded premiums written (2,419) (2,052) (8,922) (10,661)
---------- ---------- ---------- ----------
Net premiums written 55,073 53,881 234,927 238,811
Change in unearned
premiums 3,311 5,369 1,393 (12,840)
---------- ---------- ---------- ----------
Net premiums earned 58,384 59,250 236,320 225,971
Investment income, net of
expenses 4,367 3,369 16,049 13,180
Gain (loss) on investments (9,856) 1,287 (11,261) 2,586
Finance charges 1,280 1,225 5,174 4,702
Commission and fees 6,000 4,710 22,280 28,054
Processing and service
fees 16 71 114 657
Other income 5 4 14 16
---------- ---------- ---------- ----------
Total revenues 60,196 69,916 268,690 275,166
Losses and loss adjustment
expenses 33,730 33,298 144,244 132,918
Other operating expenses 24,982 23,761 96,096 94,272
Interest expense 1,188 1,306 4,745 3,914
Amortization of intangible
assets 715 574 2,481 2,293
---------- ---------- ---------- ----------
Total expenses 60,615 58,939 247,566 233,397
Income (loss) before tax
and minority interest (419) 10,977 21,124 41,769
Income tax expense 1,953 3,701 8,175 13,906
---------- ---------- ---------- ----------
Income (loss) before
minority interest (2,372) 7,276 12,949 27,863
Minority interest 35 -- 50 --
---------- ---------- ---------- ----------
Net income (loss) $ (2,407) $ 7,276 $ 12,899 $ 27,863
========== ========== ========== ==========
Common stockholders net
income (loss) per share:
Basic $ (0.12) $ 0.35 $ 0.62 $ 1.34
========== ========== ========== ==========
Diluted $ (0.12) $ 0.35 $ 0.62 $ 1.34
========== ========== ========== ==========
Hallmark Financial Services, Inc.
Consolidated Segment Data
Three Months Ended December 31, 2008
------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-------- -------- -------- -------- --------
Produced
premium(1) $17,863 $41,752 $14,191 $ -- $73,806
-------- -------- -------- -------- --------
Gross premiums
written 17,863 25,438 14,191 -- 57,492
Ceded premiums
written (1,162) (1,257) -- -- (2,419)
-------- -------- -------- -------- --------
Net premiums
written 16,701 24,181 14,191 -- 55,073
Change in unearned
premiums 2,210 674 427 -- 3,311
-------- -------- -------- -------- --------
Net premiums
earned 18,911 24,855 14,618 -- 58,384
Total revenues 19,458 33,265 16,198 (8,725) 60,196
Losses and loss
adjustment
expenses 13,052 10,667 10,012 (1) 33,730
Pre-tax income
(loss), net of
minority interest 579 8,727 1,942 (11,702) (454)
Net loss ratio(2) 69.0% 42.9% 68.5% 57.8%
Net expense
ratio(2) 27.0% 30.5% 22.0% 28.8%
-------- -------- -------- --------
Net combined
ratio(2) 96.0% 73.4% 90.5% 86.6%
======== ======== ======== ========
Three Months Ended December 31, 2007
------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-------- -------- -------- -------- --------
Produced
premium(1) $20,739 $32,771 $12,688 $ -- $66,198
-------- -------- -------- -------- --------
Gross premiums
written 20,729 22,516 12,688 -- 55,933
Ceded premiums
written (1,220) (832) -- -- (2,052)
-------- -------- -------- -------- --------
Net premiums
written 19,509 21,684 12,688 -- 53,881
Change in unearned
premiums 2,126 2,511 732 -- 5,369
-------- -------- -------- -------- --------
Net premiums
earned 21,635 24,195 13,420 -- 59,250
Total revenues 21,024 32,564 14,614 1,714 69,916
Losses and loss
adjustment
expenses 10,859 13,086 9,357 (4) 33,298
Pre-tax income
(loss) 3,290 7,711 1,375 (1,399) 10,977
Net loss ratio(2) 50.2% 54.1% 69.7% 56.2%
Net expense
ratio(2) 27.1% 30.5% 23.6% 27.7%
-------- -------- -------- --------
Net combined
ratio(2) 77.3% 84.6% 93.3% 83.9%
======== ======== ======== ========
(1) Produced premium is a non-GAAP measurement that management uses to
track total controlled premium produced by our operations. We
believe this is a useful tool for users of our financial statements
to measure our premium production whether retained by our insurance
company subsidiaries or retained by third party insurance carriers.
(2) The net loss ratio is calculated as incurred losses and loss
adjustment expenses divided by net premiums earned, each determined
in accordance with GAAP. The net expense ratio is calculated as
underwriting expenses of our insurance company subsidiaries (which
include provisional ceding commissions, direct agent commissions,
premium taxes and assessments, professional fees, other general
underwriting expenses and 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.
Hallmark Financial Services, Inc.
Consolidated Segment Data
Fiscal Year Ended December 31, 2008
------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-------- -------- -------- -------- --------
Produced
premium(1) $ 80,193 $146,054 $ 60,834 $ -- $287,081
-------- -------- -------- -------- --------
Gross premiums
written 80,190 102,825 60,834 -- 243,849
Ceded premiums
written (4,829) (4,093) -- -- (8,922)
-------- -------- -------- -------- --------
Net premiums
written 75,361 98,732 60,834 -- 234,927
Change in unearned
premiums 4,434 (1,226) (1,815) -- 1,393
-------- -------- -------- -------- --------
Net premiums
earned 79,795 97,506 59,019 -- 236,320
Total revenues 84,075 127,882 64,475 (7,742) 268,690
Losses and loss
adjustment
expenses 49,270 55,933 39,042 (1) 144,244
Pre-tax income
(loss), net of
minority interest 9,683 21,328 8,989 (18,926) 21,074
Net loss
ratio(2) 61.7% 57.4% 66.2% 61.0%
Net expense
ratio(2) 27.1% 30.7% 22.2% 28.9%
-------- -------- -------- --------
Net combined
ratio(2) 88.8% 88.1% 88.4% 89.9%
======== ======== ======== ========
Fiscal Year Ended December 31, 2007
------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-------- -------- -------- -------- --------
Produced
premium(1) $ 90,985 $151,003 $ 55,916 $ -- $297,904
-------- -------- -------- -------- --------
Gross premiums
written 90,868 102,688 55,916 -- 249,472
Ceded premiums
written (6,273) (4,388) -- -- (10,661)
-------- -------- -------- -------- --------
Net premiums
written 84,595 98,300 55,916 -- 238,811
Change in unearned
premiums (840) (9,589) (2,411) -- (12,840)
-------- -------- -------- -------- --------
Net premiums
earned 83,755 88,711 53,505 -- 225,971
Total revenues 86,512 126,550 58,268 3,836 275,166
Losses and loss
adjustment
expenses 48,480 48,484 35,969 (15) 132,918
Pre-tax income
(loss) 12,415 28,338 7,523 (6,507) 41,769
Net loss ratio(2) 57.9% 54.7% 67.2% 58.8%
Net expense
ratio(2) 27.3% 31.1% 23.2% 27.8%
-------- -------- -------- --------
Net combined
ratio(2) 85.2% 85.8% 90.4% 86.6%
======== ======== ======== ========
(1) Produced premium is a non-GAAP measurement that management uses to
track total controlled premium produced by our operations. We
believe this is a useful tool for users of our financial statements
to measure our premium production whether retained by our insurance
company subsidiaries or retained by third party insurance carriers.
(2) The net loss ratio is calculated as incurred losses and loss
adjustment expenses divided by net premiums earned, each determined
in accordance with GAAP. The net expense ratio is calculated as
underwriting expenses of our insurance company subsidiaries (which
include provisional ceding commissions, direct agent commissions,
premium taxes and assessments, professional fees, other general
underwriting expenses and 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.