FORT WORTH, Texas, May 13, 2010 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported first quarter 2010 net earnings of $6.3 million compared to $6.8 million reported for first quarter 2009. On a fully diluted basis, first quarter 2010 net earnings were $0.31 per share as compared to $0.33 per share for the first quarter of 2009. Total revenues were $75.8 million for the first quarter 2010 as compared to $70.9 million for the first quarter of 2009.
Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production increased 9% this quarter compared to a year ago due to continued geographic and product expansion in our Personal Segment and increased limits offered on policies marketed by our Excess & Umbrella business unit. However, our consistent underwriting discipline despite soft market and adverse economic conditions contributed to a decrease in premium production in our Standard Commercial Segment and generally flat production in each of the other lines of business in our Specialty Commercial Segment."
Mr. Morrison continued, "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 as evidenced by our profitable 93.2% combined ratio for the quarter. We delivered this result despite several large property losses that emerged during the quarter in our Standard Commercial business unit. The combined ratios reported in each of our other business units were better than our 90% target."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share increased 4% during the first quarter due to a combination of solid underwriting profits and strong investment performance. Other operating metrics continue to be strong with cash flow from operations of $12 million and comprehensive income of $9 million during the quarter."
Mr. Schwarz continued, "Total investments and cash and cash equivalents of $465 million as of March 31, 2010 were up 4% compared to December 31, 2009. Investment income for the quarter declined 25% from the prior year due to near zero yields for cash and short term securities. As of the end of the quarter, we had $118 million of cash and cash equivalents, plus other securities with short maturities, available to be deployed in higher yielding investments should suitable opportunities arise."
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Three Months Ended March 31, |
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| 2010 | 2009 | % Change | ||||
| ($ in thousands) | ||||||
| Produced premium (1) | $80,451 | $74,055 | 9% | |||
| Gross premiums written | 81,859 | 71,479 | 15% | |||
| Net premiums written | 72,795 | 69,247 | 5% | |||
| Net premiums earned | 67,015 | 59,430 | 13% | |||
| Investment income, net of expenses | 3,201 | 4,269 | -25% | |||
| Net realized gain (loss) on investments | 3,803 | (348) | -- | |||
| Total revenues | 75,823 | 70,910 | 7% | |||
| Net earnings (2) | 6,286 | 6,790 | -7% | |||
| Net earnings per share - basic | $ 0.31 | $ 0.33 | -6% | |||
| Net earnings per share - diluted | $ 0.31 | $ 0.33 | -6% | |||
| Annualized return on average equity | 10.9% | 14.7% | -26% | |||
| Book value per share | $ 11.70 | $9.13 | 28% | |||
| Cash flow from operations | $12,010 | $8,851 | 36% | |||
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(1) Produced premium is a non-GAAP measurement that management uses to track total premium produced by Hallmark's operations. Hallmark believes it is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary.
(2) Net earnings is net income attributable to Hallmark Financial Services, Inc. as reported in the consolidated statements of operations as determined in accordance with GAAP. |
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The increase in total revenue for the three months ended March 31, 2010 was primarily attributable to increased earned premium due to increased production by the Personal Segment and gains realized on the investment portfolio. These increases to revenue were partially offset by reduced earned premium in the Standard Commercial Segment.
Standard Commercial Segment revenues decreased $2.0 million, or 10%, during the three months ended March 31, 2010 as compared to the same period during 2009, due primarily to lower earned premium as a result of deterioration of the economic environment in its major markets. Specialty Commercial Segment revenues declined $0.3 million, or 1% during the three months ended March 31, 2010 as compared to the same period the prior year due to lower commission and fee revenue related to profit sharing commission adjustments reported during the first quarter of 2009 as well as increased retention of business. This decrease in revenue was partially offset by increased net premiums earned as a result of increased retention of business in the E&S Commercial business unit and increased earned premium in the Excess & Umbrella business unit. Revenues from the Personal Segment increased $3.7 million, or 21%, during the three months ended March 31, 2010 as compared to the same period during 2009, due mostly to continued geographic expansion. Corporate revenue increased $3.6 million primarily due to gains recognized on the investment portfolio of $3.8 million during the three months ended March 31, 2010 as compared to recognized losses on our investment portfolio of $0.3 million during the same period in 2009. This increase in revenue was offset by lower investment income of $0.6 million for the three months ended March 31, 2010 as compared to the same period in the prior year.
On a diluted basis per share, Hallmark's net earnings were $0.31 per share for the three months ended March 31, 2010 as compared to $0.33 per share for the same period in 2009. The decrease in net earnings for the three months ended March 31, 2010 was primarily attributable to increased loss and loss adjustment expense due mostly to unfavorable prior year loss reserve development of $2.2 million recognized during the three months ended March 31, 2010. In addition to increased revenues, the increase in loss and loss adjustment expenses were partially offset by lower operating expenses due to lower production related expenses in the E&S Commercial business unit and the General Aviation business unit and lower information technology costs in our Standard Commercial Segment.
Hallmark's net loss ratio was 64.3% for the first quarter of 2010 as compared to 62.0% for the first quarter of 2009. Hallmark's net expense ratio was 28.9% for the first quarter of 2010 as compared to 30.8% for the first quarter of 2009. Hallmark maintained a profitable net combined ratio of 93.2% for the first quarter of 2010 as compared to 92.8% for the same period 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.
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Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except share amounts) |
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| ASSETS |
March 31 2010 |
December 31 2009 |
| (unaudited) | ||
| Investments: | ||
| Debt securities, available-for-sale, at fair value (cost; $305,355 in 2010 and $287,108 in 2009) | $ 310,474 | $ 291,876 |
| Equity securities, available-for-sale, at fair value (cost; $24,367 in 2010 and $27,251 in 2009) | 36,343 | 35,801 |
| Total investments | 346,817 | 327,677 |
| Cash and cash equivalents | 110,556 | 112,270 |
| Restricted cash and cash equivalents | 7,505 | 5,458 |
| Premiums receivable | 53,439 | 46,635 |
| Accounts receivable | 3,308 | 3,377 |
| Receivable for securities | 2,704 | -- |
| Prepaid reinsurance premiums | 14,296 | 12,997 |
| Reinsurance recoverable | 10,999 | 10,008 |
| Deferred policy acquisition costs | 22,198 | 20,792 |
| Goodwill | 41,080 | 41,080 |
| Intangible assets, net | 27,956 | 28,873 |
| Prepaid expenses | 1,524 | 923 |
| Other assets | 13,241 | 18,779 |
| Total assets | $ 655,623 | $ 628,869 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Liabilities: | ||
| Note payable | $ 2,800 | $ 2,800 |
| Subordinated debt securities | 56,702 | 56,702 |
| Reserves for unpaid losses and loss adjustment expenses | 196,546 | 184,662 |
| Unearned premiums | 132,167 | 125,089 |
| Unearned revenue | 180 | 191 |
| Reinsurance balances payable | 713 | 3,281 |
| Accrued agent profit sharing | 612 | 1,790 |
| Accrued ceding commission payable | 4,233 | 8,600 |
| Pension liability | 2,655 | 2,628 |
| Deferred federal income taxes | 2,368 | 942 |
| Federal income tax payable | 2,588 | 1,266 |
| Payable for securities | 7,001 | 19 |
| Accounts payable and other accrued expenses | 10,459 | 13,258 |
| Total liabilities | 419,024 | 401,228 |
| Commitments and Contingencies | ||
| Redeemable non-controlling interest | 1,063 | 1,124 |
| Stockholders' equity: | ||
| Common stock, $0.18 par value (authorized 33,333,333 shares in 2010 and 2009; | ||
| issued 20,872,831 in 2010 and 2009) | 3,757 | 3,757 |
| Additional paid-in capital | 121,196 | 121,016 |
| Retained earnings | 104,768 | 98,482 |
| Accumulated other comprehensive income | 11,083 | 8,589 |
| Treasury stock, at cost (749,495 shares in 2010 and 757,828 in 2009) | (5,268) | (5,327) |
| Total stockholders' equity | 235,536 | 226,517 |
| $ 655,623 | $ 628,869 | |
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Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) ($ in thousands, except per share amounts) |
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Three Months Ended March 31 |
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| 2010 | 2009 | |
| Gross premiums written | $ 81,859 | $ 71,479 |
| Ceded premiums written | (9,064) | (2,232) |
| Net premiums written | 72,795 | 69,247 |
| Change in unearned premiums | (5,780) | (9,817) |
| Net premiums earned | 67,015 | 59,430 |
| Investment income, net of expenses | 3,201 | 4,269 |
| Net realized gains (losses) | 3,803 | (348) |
| Finance charges | 1,643 | 1,350 |
| Commission and fees | 151 | 6,189 |
| Processing and service fees | 3 | 15 |
| Other income | 7 | 5 |
| Total revenues | 75,823 | 70,910 |
| Losses and loss adjustment expenses | 43,098 | 36,842 |
| Other operating expenses | 21,482 | 23,750 |
| Interest expense | 1,146 | 1,159 |
| Amortization of intangible assets | 916 | 714 |
| Total expenses | 66,642 | 62,465 |
| Income before tax | 9,181 | 8,445 |
| Income tax expense | 2,890 | 1,662 |
| Net income | 6,291 | 6,783 |
| Less: Net income (loss) attributable to | ||
| non-controlling interest | 5 | (7) |
| Net income attributable to Hallmark Financial Services, Inc. | $ 6,286 | $ 6,790 |
| Net income per share attributable to Hallmark Financial | ||
| Services, Inc. common stockholders: | ||
| Basic | $ 0.31 | $ 0.33 |
| Diluted | $ 0.31 | $ 0.33 |
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Consolidated Segment Data (Unaudited; $ in thousands) |
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| Three Months Ended March 31, 2010 | ||||||||||
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Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
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| Produced premium (1) | $ 18,097 | $ 35,282 | $ 27,131 | $ -- | $ 80,510 | |||||
| Gross premiums written | 18,097 | 36,631 | 27,131 | -- | 81,859 | |||||
| Ceded premiums written | (1,036) | (8,024) | (4) | -- | (9,064) | |||||
| Net premiums written | 17,061 | 28,607 | 27,127 | -- | 72,795 | |||||
| Change in unearned premiums | (180) | 2,116 | (7,716) | -- | (5,780) | |||||
| Net premiums earned | 16,881 | 30,723 | 19,411 | -- | 67,015 | |||||
| Total revenues | 18,034 | 32,487 | 21,214 | 4,088 | 75,823 | |||||
| Losses and loss adjustment expenses | 13,616 | 16,396 | 13,086 | -- | 43,098 | |||||
| Pre-tax income (loss), net of | ||||||||||
| non-controlling interest | (939) | 6,347 | 2,650 | 1,118 | 9,176 | |||||
| Net loss ratio (2) | 80.6% | 53.4% | 67.4% | 64.3% | ||||||
| Net expense ratio (2) | 30.9% | 28.0% | 21.6% | 28.9% | ||||||
| Net combined ratio (2) | 111.5% | 81.4% | 89.0% | 93.2% | ||||||
| Three Months Ended March 31, 2009 | ||||||||||
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Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
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| Produced premium (1) | $ 19,147 | $ 34,282 | $ 20,626 | $ -- | $ 74,055 | |||||
| Gross premiums written | 19,147 | 31,706 | 20,626 | -- | 71,479 | |||||
| Ceded premiums written | (1,103) | (1,129) | -- | -- | (2,232) | |||||
| Net premiums written | 18,044 | 30,577 | 20,626 | -- | 69,247 | |||||
| Change in unearned premiums | 406 | (5,626) | (4,597) | -- | (9,817) | |||||
| Net premiums earned | 18,450 | 24,951 | 16,029 | -- | 59,430 | |||||
| Total revenues | 20,020 | 32,825 | 17,535 | 530 | 70,910 | |||||
| Losses and loss adjustment expenses | 11,346 | 14,933 | 10,563 | -- | 36,842 | |||||
| Pre-tax income (loss), net of | ||||||||||
| non-controlling interest | 2,576 | 5,682 | 2,619 | (2,425) | 8,452 | |||||
| Net loss ratio (2) | 61.5% | 59.8% | 65.9% | 62.0% | ||||||
| Net expense ratio (2) | 32.3% | 30.0% | 21.0% | 30.8% | ||||||
| Net combined ratio (2) | 93.8% | 89.8% | 86.9% | 92.8% | ||||||
| (1) Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark's operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary. | ||||||||||
| (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 Hallmark changed the method in which the net expense ratio is calculated. The net expense ratio is now calculated for the business 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 business 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. All prior periods 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 March 31, 2009. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. | ||||||||||