FORT WORTH, Texas, Aug. 11, 2008 (PRIME NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported net income of $7.2 million for the second quarter of 2008, an 18% decrease from the $8.8 million reported for the second quarter of 2007. Year to date, Hallmark reported net income of $14.3 million, representing a 3% increase over the $13.8 million reported for the first six months of 2007. On a fully diluted basis, net income was $0.34 per share and $0.68 per share for the second quarter and six months ended June 30, 2008, as compared to $0.42 per share and $0.66 per share for the similar periods of 2007. Total revenues were $71.7 million and $142.9 million for the second quarter and first six months of 2008, representing 4% and 8% increases from the $68.7 million and $132.7 million reported for the similar periods of 2007.
Mark J. Morrison, President and Chief Executive Officer, said, "Overall, the results for the quarter were solid and the operating margins in our core books of business have proven to be resilient in this soft market cycle. However, the general economic and insurance market conditions have provided ongoing challenges. Nonetheless, we continue to maintain discipline in our underwriting and pricing practices. We see little or no long term benefit to chasing underpriced business for the sake of near term top line growth. Our strategy of increasing our retention of the business produced within the commercial specialty area has helped to bolster revenue and partially offset the soft market conditions. We also believe that our continued selective expansion into new states will yield long term benefits by positioning us to attract new business within the broader footprint when market pricing returns to more rational levels."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Our net combined ratio of 90%, annualized return on average equity of 15% and cash flow from operations of over $17 million for the second quarter demonstrate the results of our underwriting discipline and focus on the bottom-line. Solid investment performance has also contributed to a 16% increase in book value per share since the end of the second quarter of 2007. Our long term focus is to continue to improve the financial value and operational capacity of the Company as measured through intrinsic value per share. While this will not necessarily occur evenly over discrete quarterly intervals, we are nonetheless pleased with the continued progress made during the second quarter of 2008."
Three Months Ended June 30, --------------------------- % 2008 2007 Change -------- -------- ------ ($ in thousands) Gross premiums written $ 63,115 $ 66,577 -5% Net premiums written 60,788 62,296 -2% Net premiums earned 59,443 55,310 7% Commission and fee income 6,669 8,159 -18% Investment income, net of expenses 3,957 3,047 30% Realized gain 232 828 -72% Total revenues 71,663 68,736 4% Net income 7,201 8,815 -18% Common EPS - basic $ 0.35 $ 0.42 -17% Common EPS - diluted $ 0.34 $ 0.42 -19% Annualized return on average equity 15.3% 22.0% -30% Book value per share $ 9.20 $ 7.91 16% Cash flow from operations $ 17,361 $ 25,632 -32% Six Months Ended June 30, --------------------------- % 2008 2007 Change -------- -------- ------ ($ in thousands) Gross premiums written $127,352 $131,235 -3% Net premiums written 122,693 123,067 0% Net premiums earned 118,359 106,958 11% Commission and fee income 13,153 16,064 -18% Investment income, net of expenses 7,582 6,037 26% Realized gain 1,091 881 24% Total revenues 142,856 132,694 8% Net income 14,253 13,785 3% Common EPS - basic $ 0.69 $ 0.66 5% Common EPS - diluted $ 0.68 $ 0.66 3% Annualized return on average equity 15.4% 17.5% -12% Book value per share $ 9.20 $ 7.91 16% Cash flow from operations $ 29,749 $ 44,594 -33%
During the three and six months ended June 30, 2008, Hallmark's total revenues were $71.7 and $142.9 million, representing a 4% and 8% increase over the $68.7 million and $132.7 in total revenues for the same periods of 2007. Increased earned premium due to increased retention of business produced by the Specialty Commercial Segment and increased production by the Personal Segment were the primary causes of the increases in revenue. Standard Commercial Segment revenues increased $2.2 million, or 11% and 5%, during the three and six months ended June 30, 2008 as compared to the same periods during 2007, due primarily to increased contingent commissions related to favorable loss development on prior accident years. Specialty Commercial Segment revenues decreased $1.0 million and increased $3.0 million, during the three months and six months ended June 30, 2008 as compared to the same periods of 2007, due to lower commission income primarily as a result of the continued shift from a third-party agency model to an underwriting model, partially offset by increased net premiums earned as a result of the increased retention of business. Revenues from our Personal Segment increased $1.8 million and $3.8 million, or 12% and 13%, during the three and six months ended June 30, 2008 as compared to the same periods during 2007, due largely to geographic expansion into new states. Corporate revenue of $1.0 million remained relatively unchanged for the second quarter of 2008 as compared to the same period in 2007. Corporate revenue increased $1.2 million for the six months ended June 30, 2008 due primarily to increased recognized gains on our investment portfolio of $0.2 million and increased investment income of $1.0 million due to changes in capital allocation.
We reported net income of $7.2 million and $14.3 million for the three and six months ended June 30, 2008, which was $1.6 million lower and $0.5 million higher than the $8.8 million and $13.8 million reported for the same periods in 2007. The decrease in net income for the three months was primarily attributable to favorable loss development on prior accident years during the second quarter of 2008 of $0.3 million as compared to $1.9 million for the same period during 2007. The year to date increase in net income was primarily attributable to a lower effective tax rate from a higher amount of tax exempt bonds in our investment portfolio in 2008 than we held in 2007. Year to date 2008 pre-tax income increased $0.1 million to $20.7 million from the prior year. Increased revenue was partially offset by increased incurred loss and loss adjustment expense of $8.6 million, increased interest expense of $0.8 million from our issuance of trust preferred securities in the third quarter of 2007 and increased operating expense of $0.6 million.
Hallmark's net loss ratio was 60.6% for the second quarter of 2008 as compared to 55.5% for the second quarter of 2007. For the year to date, Hallmark's net loss ratio was 60.4% as compared to 58.8% for the same period the prior year. Hallmark's net expense ratio was 29.2% for the second quarter of 2008 as compared to 27.9% for the second quarter of 2007. For the year to date, Hallmark's net expense ratio was 29.1% as compared to 28.1% for the same period the prior year. Hallmark maintained a profitable net combined ratio of 89.8% for the second quarter of 2008 and 89.5% for the year to date as compared to 83.4% and 86.9% 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. 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) June 30 December 31 ASSETS 2008 2007 ------ ---- ---- (unaudited) Investments: Debt securities, available-for-sale, at fair value $ 164,137 $ 248,069 Equity securities, available-for- sale, at fair value 51,694 15,166 Short-Term investments, available- for-sale, at fair value 121,440 2,625 --------- --------- Total investments 337,271 265,860 Cash and cash equivalents 33,599 145,884 Restricted cash and cash equivalents 11,588 16,043 Premiums receivable 47,090 46,026 Accounts receivable 5,257 5,219 Receivable for securities 200 27,395 Prepaid reinsurance premiums 682 274 Reinsurance recoverable 3,791 4,952 Deferred policy acquisition costs 20,652 19,757 Excess of cost over fair value of net assets acquired 30,025 30,025 Intangible assets 22,634 23,781 Current federal income tax recoverable 724 -- Deferred federal income taxes 2,413 275 Prepaid expenses 1,212 1,240 Other assets 21,402 19,583 --------- --------- Total assets $ 538,540 $ 606,314 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ----------------------------------- Liabilities: Notes payable $ 60,592 $ 60,814 Structured settlements -- 10,000 Reserves for unpaid losses and loss adjustment expenses 144,374 125,338 Unearned premiums 107,369 102,998 Unearned revenue 2,253 2,949 Accrued agent profit sharing 1,335 2,844 Accrued ceding commission payable 12,189 12,099 Pension liability 1,432 1,669 Current federal income tax -- 630 Payable for securities 3,401 91,401 Accounts payable and other accrued expenses 14,150 16,385 --------- --------- Total liabilities 347,095 427,127 --------- --------- Commitments and Contingencies Stockholders' equity: Common stock, $.18 par value (authorized 33,333,333 shares in 2008 and 2007; issued 20,816,782 in 2008 and 20,776,080 shares in 2007) 3,747 3,740 Capital in excess of par value 119,369 118,459 Retained earnings 73,162 58,909 Accumulated other comprehensive loss (4,756) (1,844) Treasury stock, at cost (7,828 shares in 2008 and 2007) (77) (77) --------- --------- Total stockholders' equity 191,445 179,187 --------- --------- --------- --------- $ 538,540 $ 606,314 ========= ========= Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) ($ in thousands, except per share amounts) Three Months Ended Six Months Ended June 30 June 30 ------------------- --------------------- 2008 2007 2008 2007 --------- --------- ---------- ---------- Gross premiums written $ 63,115 $ 66,577 $ 127,352 $ 131,235 Ceded premiums written (2,327) (4,281) (4,659) (8,168) -------- -------- --------- --------- Net premiums written 60,788 62,296 122,693 123,067 Change in unearned premiums (1,345) (6,986) (4,334) (16,109) -------- -------- --------- --------- Net premiums earned 59,443 55,310 118,359 106,958 Investment income, net of expenses 3,957 3,047 7,582 6,037 Realized gain 232 828 1,091 881 Finance charges 1,323 1,185 2,587 2,271 Commission and fees 6,669 8,159 13,153 16,064 Processing and service fees 36 203 78 475 Other income 3 4 6 8 -------- -------- --------- --------- Total revenues 71,663 68,736 142,856 132,694 Losses and loss adjustment expenses 36,029 30,712 71,533 62,897 Other operating expenses 23,608 23,723 47,073 46,424 Interest expense 1,186 796 2,371 1,582 Amortization of intangible asset 573 573 1,146 1,146 -------- -------- --------- --------- Total expenses 61,396 55,804 122,123 112,049 Income before tax 10,267 12,932 20,733 20,645 Income tax expense 3,066 4,117 6,480 6,860 -------- -------- --------- --------- Net income $ 7,201 $ 8,815 $ 14,253 $ 13,785 ======== ======== ========= ========= Common stockholders net income per share: Basic $ 0.35 $ 0.42 $ 0.69 $ 0.66 ======== ======== ========= ========= Diluted $ 0.34 $ 0.42 $ 0.68 $ 0.66 ======== ======== ========= ========= Hallmark Financial Services, Inc. Consolidated Segment Data Three Months Ended June 30, 2008 --------------------------------------------------- Standard Specialty Commercial Commercial Personal Consol- Segment Segment Segment Corporate idated --------- ---------- --------- --------- --------- Produced premium (1) $ 21,624 $ 35,986 $ 14,153 $ -- $ 71,763 -------- -------- -------- ------- -------- Gross premiums written 21,624 27,338 14,153 -- 63,115 Ceded premiums written (1,382) (945) -- -- (2,327) -------- -------- -------- ------- -------- Net premiums written 20,242 26,393 14,153 -- 60,788 Change in unearned premiums 36 (2,395) 1,014 -- (1,345) -------- -------- -------- ------- -------- Net premiums earned 20,278 23,998 15,167 -- 59,443 Total revenues 22,157 31,988 16,498 1,020 71,663 Losses and loss adjustment expenses 11,669 13,976 10,384 -- 36,029 Pre-tax income (loss) 3,984 6,265 1,913 (1,895) 10,267 Net loss ratio (2) 57.5% 58.2% 68.5% 60.6% Net expense ratio (2) 27.3% 30.7% 21.6% 29.2% -------- -------- -------- -------- Net combined ratio (2) 84.8% 88.9% 90.1% 89.8% ======== ======== ======== ======== Three Months Ended June 30, 2007 --------------------------------------------------- Standard Specialty Commercial Commercial Personal Consol- Segment Segment Segment Corporate idated --------- ---------- --------- --------- --------- Produced premium (1) $ 24,751 $ 40,956 $ 13,298 $ -- $ 79,005 -------- -------- -------- ------- -------- Gross premiums written 24,740 28,540 13,297 -- 66,577 Ceded premiums written (2,804) (1,477) -- -- (4,281) -------- -------- -------- ------- -------- Net premiums written 21,936 27,063 13,297 -- 62,296 Change in unearned premiums (1,731) (5,474) 219 -- (6,986) -------- -------- -------- ------- -------- Net premiums earned 20,205 21,589 13,516 -- 55,310 Total revenues 20,003 32,978 14,696 1,059 68,736 Losses and loss adjustment expenses 11,267 10,635 8,813 (3) 30,712 Pre-tax income (loss) 2,664 9,441 2,176 (1,349) 12,932 Net loss ratio (2) 55.8% 49.3% 65.2% 55.5% Net expense ratio (2) 27.0% 32.0% 22.8% 27.9% -------- -------- -------- -------- Net combined ratio (2) 82.8% 81.3% 88.0% 83.4% ======== ======== ======== ======== 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 where we receive commission revenue. 2 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. Hallmark Financial Services, Inc. Consolidated Segment Data Six Months Ended June 30, 2008 -------------------------------------------------- Standard Specialty Commercial Commercial Personal Consoli- Segment Segment Segment Corporate dated --------- -------- -------- ------- -------- Produced premium (1) 43,373 68,006 31,880 -- 143,259 --------- -------- -------- ------- -------- Gross premiums written 43,373 52,099 31,880 -- 127,352 Ceded premiums written (2,746) (1,913) -- -- (4,659) --------- -------- -------- ------- -------- Net premiums written 40,627 50,186 31,880 -- 122,693 Change in unearned premiums 440 (2,550) (2,224) (4,334) --------- -------- -------- ------- -------- Net premiums earned 41,067 47,636 29,656 -- 118,359 Total revenues 43,986 64,075 32,224 2,571 142,856 Losses and loss adjustment expenses 22,979 28,979 19,575 -- 71,533 Pre-tax income (loss) 7,865 11,558 4,503 (3,193) 20,733 Net loss ratio (2) 56.0% 60.8% 66.0% 60.4% Net expense ratio (2) 27.3% 30.7% 22.0% 29.1% --------- -------- -------- -------- Net combined ratio (2) 83.3% 91.5% 88.0% 89.5% ========= ======== ======== ======== Six Months Ended June 30, 2007 -------------------------------------------------- Standard Specialty Commercial Commercial Personal Consoli- Segment Segment Segment Corporate dated --------- -------- -------- ------- -------- Produced premium (1) 48,301 80,313 28,374 -- 156,988 --------- -------- -------- ------- -------- Gross premiums written 48,221 54,641 28,373 -- 131,235 Ceded premiums written (5,439) (2,729) -- -- (8,168) --------- -------- -------- ------- -------- Net premiums written 42,782 51,912 28,373 -- 123,067 Change in unearned premiums (2,655) (11,230) (2,224) -- (16,109) --------- -------- -------- ------- -------- Net premiums earned 40,127 40,682 26,149 -- 106,958 Total revenues 41,770 61,076 28,469 1,379 132,694 Losses and loss adjustment expenses 24,108 21,716 17,080 (7) 62,897 Pre-tax income (loss) 5,423 14,127 4,294 (3,199) 20,645 Net loss ratio (2) 60.1% 53.4% 65.3% 58.8% Net expense ratio (2) 27.5% 31.8% 23.2% 28.1% --------- -------- -------- -------- Net combined ratio (2) 87.6% 85.2% 88.5% 86.9% ========= ======== ======== ======== 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 where we receive commission revenue. 2 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.