FORT WORTH, Texas, Nov. 12, 2009 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported third quarter 2009 net earnings of $4.2 million compared to $0.6 million reported for third quarter 2008. Year to date, Hallmark reported net earnings of $15.3 million, compared to $15.3 million for the same period the prior year. On a fully diluted basis, net earnings were $0.20 per share and $0.73 per share for the third quarter and the first nine months of 2009, as compared to $0.03 per share and $0.73 per share for the similar periods of 2008. Total revenues were $71.9 million and $213.6 million for the third quarter and first nine months of 2009, as compared to $65.0 million and $208.5 million for the similar periods of 2008.
Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production increased 4% year to date compared to a year ago due to our ongoing geographic and product expansion in our Personal Segment and the expansion of our Specialty Commercial Segment with the acquisition of Heath XS late last year. However, our continued adherence to underwriting discipline during prolonged soft market conditions has contributed to a decrease in premium production in our Standard Commercial Segment and the other lines of business in our Specialty Commercial Segment. We continue to see aggressive pricing on larger commercial accounts from national standard lines carriers and an increased appetite for risks that have historically been written in the E&S market. However, the greatest factor affecting our premium production is the impact of the economic slowdown on our insureds. Even with strong retention rates on our existing accounts, our commercial businesses again experienced declining premium as a result of a decrease in exposure units upon renewal."
Mr. Morrison continued, "Our primary focus continues to be on underwriting profitability, as opposed to premium growth or market share. We are achieving this goal by remaining disciplined in soft market conditions, as evidenced by our 92.9% combined ratio for the year."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share has increased 25% to $10.79 as of September 30, 2009 compared to $8.61 as of December 31, 2008. In light of the flat change in book value per share during 2008, our year to date growth in book value per share in 2009 represents true incremental growth from where we began 2008. Other operating metrics continue to be strong with cash flow from operations of $46 million and comprehensive income of $42 million for the nine months ended September 30, 2009."
Mr. Schwarz continued, "Total investments and cash and cash equivalents were $421 million as of September 30, 2009 up 19% compared to December 31, 2008. Investment income declined 15% during the third quarter of 2009 compared to the third quarter of 2008, due to near zero yields for cash and short term securities. As of quarter end, Hallmark had $84 million of cash and cash equivalents, plus other securities with short maturities, available to be deployed in higher yielding investments should suitable opportunities arise. Additionally, during the quarter Hallmark repurchased 750,000 shares of its common stock, representing 3.6% of total shares outstanding at a price of $7 per share, or 65% of the Company's $10.79 book value per share as of September 30, 2009."
Three Months Ended September 30, ----------------------------- 2009 2008 % Change -------- -------- -------- ($ in thousands) Produced premium (1) $ 70,797 $ 70,015 1% Gross premiums written 74,013 59,005 25% Net premiums written 62,791 56,512 11% Net premiums earned 64,238 58,928 9% Commission and fee income 2,018 3,127 -35% Investment income, net of expenses 3,467 4,100 -15% Net realized gain (loss) on investments 597 (2,496) -- Total revenues 71,903 64,989 11% Net earnings (2) 4,214 631 568% Net earnings per share - basic $ 0.20 $ 0.03 567% Net earnings per share - diluted $ 0.20 $ 0.03 567% Annualized return on average equity 7.9% 1.3% 508% Book value per share $ 10.79 $ 9.11 18% Cash flow from operations $ 16,913 $ 7,409 128% Nine Months Ended September 30, ----------------------------- 2009 2008 % Change -------- -------- -------- ($ in thousands) Produced premium (1) $222,447 $213,275 4% Gross premiums written 220,545 186,357 18% Net premiums written 203,831 179,854 13% Net premiums earned 185,987 177,936 5% Commission and fee income 10,834 16,280 -33% Investment income, net of expenses 11,203 11,682 -4% Net realized gain (loss) on investments 1,116 (1,405) -- Total revenues 213,557 208,494 2% Net earnings (2) 15,279 15,306 0% Net earnings per share - basic $ 0.73 $ 0.74 -1% Net earnings per share - diluted $ 0.73 $ 0.73 0% Annualized return on average equity 10.3% 11.1% -7% Book value per share $ 10.79 $ 9.11 18% Cash flow from operations $ 45,695 $ 37,158 23% (1) Produced premium is a non-GAAP measurement that management uses to track total premium produced by our operations. Produced premium excludes unaffiliated third party premium fronted by our recently acquired Hallmark County Mutual Insurance Company subsidiary. We believe it is a useful tool for users of our financial statements to measure our premium production whether retained by our insurance company subsidiaries or assumed by third party insurance carriers who pay us commission revenue. (2) Net earnings is net income attributable to Hallmark Financial Services, Inc. as reported in our consolidated statements of operations.
During the three and nine months ended September 30, 2009, our total revenues were $71.9 million and $213.6 million, representing a 11% and 2% increase from the $65.0 million and $208.5 million in total revenues for the same periods of 2008. This increase in revenue was primarily attributable to increased earned premium due to increased retention of business in our Specialty Commercial Segment, the acquisition of our Heath XS Operating Unit in the third quarter of 2008 and increased production by our Personal Lines Segment. Increased revenue was partially offset by reduced earned premium in our Standard Commercial Segment due to the deterioration of the general economic environment in our major markets and by lower commission and fee income in our Specialty Commercial Segment due to profit sharing commission adjustments related to adverse loss development on prior accident years, as well as the shift from a third party agency structure to an insurance underwriting structure.
We reported net earnings of $4.2 million and $15.3 million for the three and nine months ended September 30, 2009, which were $3.6 million higher than the $0.6 million reported for the third quarter 2008 and the same as reported for the nine months ended September 30, 2008. On a diluted basis per share, net earnings were $0.20 and $0.73 per share for the three months and nine months ended September 30, 2009, as compared to $0.03 and $0.73 per share for the same periods in 2008. The increase in net earnings for the three months ended September 30, 2009 was primarily attributable to increased revenue partially offset by higher loss and loss adjustment expense due mostly to unfavorable prior year loss development of $1.7 million recognized in the three months ending September 30, 2009 as compared to favorable development of $0.1 million recognized during the three months ending September 30, 2008. The increase in revenue for the nine months ending September 30, 2009 was offset by increased loss and loss adjustment expense due mostly to unfavorable prior year loss development of $3.5 million recognized during the nine months ending September 30, 2009, as compared to favorable development of $1.9 million recognized during the nine months ending September 30, 2008.
Hallmark's net loss ratio was 63.2% and 62.1% for the three and nine months ended September 30, 2009 as compared to 66.2% and 62.1% for the same periods of 2008. Hallmark's net expense ratio was 31.0% and 30.8% for the three and nine months ended September 30, 2009 as compared to 30.1% and 30.5% for the same periods of 2008. Hallmark maintained profitable net combined ratios of 94.2% and 92.9% for the three and nine months ended September 30, 2009 as compared to 96.3% and 92.6% for the same periods in the prior year.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this Release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands) September 30 December 31 ASSETS 2009 2008 ------ ------------ ------------ (unaudited) Investments: Debt securities, available-for-sale, at fair value $ 295,452 $ 268,513 Equity securities, available-for-sale, at fair value 40,959 25,003 ------------ ------------ Total investments 336,411 293,516 Cash and cash equivalents 84,422 59,134 Restricted cash and cash equivalents 5,918 8,033 Premiums receivable 48,794 44,032 Accounts receivable 3,729 4,531 Receivable for securities 181 1,031 Prepaid reinsurance premiums 11,198 1,349 Reinsurance recoverable 11,695 8,218 Deferred policy acquisition costs 22,629 19,524 Excess of cost over fair value of net assets acquired 41,080 41,080 Intangible assets, net 29,789 28,969 Current federal income tax recoverable 1,080 696 Deferred federal income taxes -- 6,696 Prepaid expenses 816 1,007 Other assets 18,264 20,582 ------------ ------------ Total assets $ 616,006 $ 538,398 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Notes payable $ 59,502 $ 60,919 Reserves for unpaid losses and loss adjustment expenses 180,179 156,363 Unearned premiums 130,467 102,192 Unearned revenue 266 2,037 Reinsurance balances payable 2,680 -- Accrued agent profit sharing 1,908 2,151 Accrued ceding commission payable 8,600 8,605 Pension liability 4,427 4,309 Deferred federal income taxes 92 -- Payable for securities 688 3,606 Accounts payable and other accrued expenses 9,148 18,067 ------------ ------------ Total liabilities 397,957 358,249 ------------ ------------ Commitments and Contingencies Redeemable non-controlling interest 1,011 737 Stockholders' equity: Common stock, $.18 par value (authorized 33,333,333 shares in 2009 and 2008; issued 20,871,498 shares in 2009 and 20,841,782 shares in 2008) 3,757 3,751 Capital in excess of par value 121,261 119,928 Retained earnings 89,186 72,242 Accumulated other comprehensive income (loss) 8,161 (16,432) Treasury stock, at cost (757,828 shares in 2009 and 7,828 in 2008) (5,327) (77) ------------ ------------ Total stockholders' equity 217,038 179,412 ------------ ------------ $ 616,006 $ 538,398 ============ ============ Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) ($ in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 2009 2008 2009 2008 -------- -------- -------- -------- Gross premiums written $ 74,013 $ 59,005 $220,545 $186,357 Ceded premiums written (11,222) (2,493) (16,714) (6,503) -------- -------- -------- -------- Net premiums written 62,791 56,512 203,831 179,854 Change in unearned premiums 1,447 2,416 (17,844) (1,918) -------- -------- -------- -------- Net premiums earned 64,238 58,928 185,987 177,936 Investment income, net of expenses 3,467 4,100 11,203 11,682 Net realized gains (losses) 597 (2,496) 1,116 (1,405) Finance charges 1,525 1,307 4,324 3,894 Commission and fees 2,018 3,127 10,834 16,280 Processing and service fees 7 20 33 98 Other income 51 3 60 9 -------- -------- -------- -------- Total revenues 71,903 64,989 213,557 208,494 Losses and loss adjustment expenses 40,579 38,981 115,552 110,514 Other operating expenses 23,428 24,041 71,056 71,114 Interest expense 1,147 1,186 3,456 3,557 Amortization of intangible assets 916 620 2,412 1,766 -------- -------- -------- -------- Total expenses 66,070 64,828 192,476 186,951 Income before tax 5,833 161 21,081 21,543 Income tax expense (benefit) 1,585 (485) 5,766 6,222 -------- -------- -------- -------- Net income 4,248 646 15,315 15,321 Less: Net income attributable to non-controlling interest 34 15 36 15 -------- -------- -------- -------- Net income attributable to Hallmark Financial Services, Inc. $ 4,214 $ 631 $ 15,279 $ 15,306 ======== ======== ======== ======== Net income per share attributable to Hallmark Financial Services, Inc. common stockholders: Basic $ 0.20 $ 0.03 $ 0.73 $ 0.74 ======== ======== ======== ======== Diluted $ 0.20 $ 0.03 $ 0.73 $ 0.73 ======== ======== ======== ======== Hallmark Financial Services, Inc. Consolidated Segment Data Three Months Ended September 30, 2009 ----------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated ---------- ---------- -------- --------- ------------ Produced premium (1) $ 17,309 $ 36,064 $ 17,424 $ -- $ 70,797 ---------- ---------- -------- --------- ------------ Gross premiums written 17,309 39,280 17,424 -- 74,013 Ceded premiums written (1,144) (10,078) -- -- (11,222) ---------- ---------- -------- --------- ------------ Net premiums written 16,165 29,202 17,424 -- 62,791 Change in unearned premiums 1,627 92 (272) -- 1,447 ---------- ---------- -------- --------- ------------ Net premiums earned 17,792 29,294 17,152 -- 64,238 Total revenues 19,569 32,346 18,735 1,253 71,903 Losses and loss adjustment expenses 11,425 17,641 11,513 -- 40,579 Pre-tax income (loss), net of non-controlling interest 2,164 3,588 2,225 (2,178) 5,799 Net loss ratio (2) 64.2% 60.2% 67.1% 63.2% Net expense ratio (2) 32.8% 29.8% 22.4% 31.0% ---------- ---------- -------- ------------ Net combined ratio (2) 97.0% 90.0% 89.5% 94.2% ========== ========== ======== ============ Three Months Ended September 30, 2008 ----------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated ---------- ---------- -------- --------- ------------ Produced premium (1) $ 18,957 $ 36,295 $ 14,763 $ -- $ 70,015 ---------- ---------- -------- --------- ------------ Gross premiums written 18,954 25,288 14,763 -- 59,005 Ceded premiums written (1,274) (1,219) -- -- (2,493) ---------- ---------- -------- --------- ------------ Net premiums written 17,680 24,069 14,763 -- 56,512 Change in unearned premiums 1,784 650 (18) -- 2,416 ---------- ---------- -------- --------- ------------ Net premiums earned 19,464 24,719 14,745 -- 58,928 Total revenues 20,280 30,245 16,053 (1,589) 64,989 Losses and loss adjustment expenses 13,239 16,287 9,455 -- 38,981 Pre-tax income (loss), net of non-controlling interest 887 745 2,544 (4,030) 146 Net loss ratio (2) 68.0% 65.9% 64.1% 66.2% Net expense ratio (2) 30.9% 30.8% 21.5% 30.1% ---------- ---------- -------- ------------ Net combined ratio (2) 98.9% 96.7% 85.6% 96.3% ========== ========== ======== ============ 1 Produced premium is a non-GAAP measurement that management uses to track total premium produced by our operations. Produced premium excludes unaffiliated third party premium fronted on our recently acquired Hallmark County Mutual Insurance Company subsidiary. 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 assumed by third party insurance carriers who pay us commission revenue. 2 The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. During the second quarter of 2009 we changed the method in which the net expense ratio is calculated. The net expense ratio is now calculated for our operating units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the operating units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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. All prior period ratios have been restated to conform to the new method, resulting in an increase to the consolidated net expense ratio of 1.3% for the three months ended September 30, 2008. Hallmark Financial Services, Inc. Consolidated Segment Data Nine Months Ended September 30, 2009 ----------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated ---------- ---------- -------- --------- ------------ Produced premium (1) $ 56,881 $110,598 $ 54,968 $ -- $222,447 ---------- ---------- -------- --------- ------------ Gross premiums written 56,881 108,696 54,968 -- 220,545 Ceded premiums written (3,331) (13,383) -- -- (16,714) ---------- ---------- -------- --------- ------------ Net premiums written 53,550 95,313 54,968 -- 203,831 Change in unearned premiums 419 (13,692) (4,571) -- (17,844) ---------- ---------- -------- --------- ------------ Net premiums earned 53,969 81,621 50,397 -- 185,987 Total revenues 57,783 97,601 54,971 3,202 213,557 Losses and loss adjustment expenses 33,890 48,422 33,240 -- 115,552 Pre-tax income (loss), net of non-controlling interest 5,987 14,280 7,738 (6,960) 21,045 Net loss ratio (2) 62.8% 59.3% 66.0% 62.1% Net expense ratio (2) 32.4% 30.0% 21.4% 30.8% ---------- ---------- -------- ------------ Net combined ratio (2) 95.2% 89.3% 87.4% 92.9% ========== ========== ======== ============ Nine Months Ended September 30, 2008 ----------------------------------------------------- Standard Specialty Commercial Commercial Personal Segment Segment Segment Corporate Consolidated ---------- ---------- -------- --------- ------------ Produced premium (1) $ 62,330 $104,302 $ 46,643 $ -- $213,275 ---------- ---------- -------- --------- ------------ Gross premiums written 62,327 77,387 46,643 -- 186,357 Ceded premiums written (3,667) (2,836) -- -- (6,503) ---------- ---------- -------- --------- ------------ Net premiums written 58,660 74,551 46,643 -- 179,854 Change in unearned premiums 2,224 (1,900) (2,242) -- (1,918) ---------- ---------- -------- --------- ------------ Net premiums earned 60,884 72,651 44,401 -- 177,936 Total revenues 64,617 94,617 48,277 983 208,494 Losses and loss adjustment expenses 36,218 45,266 29,030 -- 110,514 Pre-tax income (loss) 9,104 12,601 7,047 (7,224) 21,528 Net loss ratio (2) 59.5% 62.3% 65.4% 62.1% Net expense ratio (2) 31.0% 30.6% 21.6% 30.5% ---------- ---------- -------- ------------ Net combined ratio (2) 90.5% 92.9% 87.0% 92.6% ========== ========== ======== ============ 1 Produced premium is a non-GAAP measurement that management uses to track total premium produced by our operations. Produced premium excludes unaffiliated third party premium fronted on our recently acquired Hallmark County Mutual Insurance Company subsidiary. 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 assumed by third party insurance carriers who pay us commission revenue. 2 The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. During the second quarter of 2009 we changed the method in which the net expense ratio is calculated. The net expense ratio is now calculated for our operating units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the operating units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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. All prior period ratios have been restated to conform to the new method, resulting in an increase to the consolidated net expense ratio of 1.6% for the nine months ended September 30, 2008.