FORT WORTH, Texas, May 15, 2009 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported first quarter 2009 net earnings of $6.8 million compared to $7.3 million reported for first quarter 2008. On a fully diluted basis, first quarter 2009 net earnings were $0.33 per share as compared to $0.35 per share for the first quarter of 2008. Total revenues were $70.9 million for the first quarter 2009 as compared to $71.5 million for the first quarter of 2008.
Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production increased 3.6% this quarter compared to a year ago due to our acquisition of Heath XS last August and the geographic and product expansion in our Personal Segment. However, our consistent underwriting discipline despite the soft market conditions experienced this quarter contributed to a decrease in premium production in our Standard Commercial Segment and 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 91.5% combined ratio for the quarter."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Year-to-date book value per share increased 6% due to a combination of solid underwriting profits and strong investment performance. During the first quarter, annualized return on average equity was 15%, investment income increased 18%, and cash flow from operations was $9 million."
Three Months Ended
March 31,
----------------------------
%
2009 2008 Change
--------- --------- ------
($ in thousands)
Gross premiums written $ 71,479 $ 64,237 11%
Net premiums written 69,247 62,233 11%
Net premiums earned 59,430 59,244 0%
Commission and fee income 6,189 6,484 -5%
Investment income, net of expenses 4,269 3,625 18%
Gain (loss) on investments (348) 859 -141%
Total revenues 70,910 71,521 -1%
Net earnings (1) 6,790 7,265 -7%
Net earnings per share - basic $ 0.33 $ 0.35 -6%
Net earnings per share - diluted $ 0.33 $ 0.35 -6%
Annualized return on average equity 14.7% 15.9% -8%
Book value per share $ 9.13 $ 8.96 2%
Cash flow from operations $ 8,851 $ 12,388 -29%
(1) Net earnings is defined in this document as net income
attributable to Hallmark Financial Services, Inc. as reported in
our consolidated statements of operations.
The decrease in total revenue for the three months ended March 31, 2009 was primarily due to lower gains on investments from our investment portfolio and lower commission income partially offset by higher investment income and earned premium.
Standard Commercial Segment revenues decreased $2.0 million, or 9%, during the three months ended March 31, 2009 as compared to the same period during 2008, due primarily to lower earned premium as a result of increased competition, rate pressure and deterioration of the economic environment in our major markets. The acquisition of our Heath XS Operating Unit in 2008 drove the $0.6 million increase in revenue by our Specialty Commercial Segment during the three months ended March 31, 2009 as compared to the same period of 2008. Revenues from the Personal Segment increased $1.8 million, or 12%, during the three months ended March 31, 2009 as compared to the same periods during 2008, due largely to geographic expansion into new states. Corporate revenue decreased $1.0 million primarily due to losses recognized on our investment portfolio of $0.3 million during the three months ended March 31, 2009 as compared to recognized gains on our investment portfolio of $0.9 million during the same period in 2008.
On a diluted basis per share, net earnings were $0.33 per share for the three months ended March 31, 2009 as compared to $0.35 per share for the same period in 2008. The decrease in net earnings for the three months ended March 31, 2009 was primarily attributable to decreased revenue and recognized losses on investments discussed above and higher loss and loss adjustment expenses due to $1.6 million of favorable prior year loss reserve development recognized during the first quarter of 2008, partially offset by a lower effective tax rate driven primarily by a $0.8 million reduction in the deferred tax asset valuation allowance during the first three months of 2009.
Hallmark's net loss ratio was 62.0% for the first quarter of 2009 as compared to 59.9% for the first quarter of 2008. Hallmark's net expense ratio was 29.5% for the first quarter of 2009 as compared to 28.9% for the first quarter of 2008. Hallmark maintained a profitable net combined ratio of 91.5% for the first quarter of 2009 as compared to 88.8% for the same period in the prior year.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this Release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
March 31 December 31
ASSETS 2009 2008
------ ---- ----
(unaudited)
Investments:
Debt securities, available-for-sale,
at fair value $ 279,895 $ 268,513
Equity securities, available-for-sale,
at fair value 25,983 25,003
----------- -----------
Total investments 305,878 293,516
Cash and cash equivalents 56,317 59,134
Restricted cash and cash equivalents 6,220 8,033
Premiums receivable 48,932 44,032
Accounts receivable 3,937 4,531
Receivable for securities 1,064 1,031
Prepaid reinsurance premiums 1,671 1,349
Reinsurance recoverable 7,478 8,218
Deferred policy acquisition costs 21,002 19,524
Excess of cost over fair value of net
assets acquired 41,080 41,080
Intangible assets, net 28,255 28,969
Current federal income tax recoverable -- 696
Deferred federal income taxes 5,680 6,696
Prepaid expenses 1,044 1,007
Other assets 22,721 20,582
----------- -----------
$ 551,279 $ 538,398
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable $ 59,650 $ 60,919
Reserves for unpaid losses and loss
adjustment expenses 164,839 156,363
Unearned premiums 112,183 102,192
Unearned revenue 1,170 2,037
Accrued agent profit sharing 751 2,151
Accrued ceding commission payable 8,592 8,605
Pension liability 4,348 4,309
Current federal income tax 1,649 --
Payable for securities 1,115 3,606
Accounts payable and other accrued
expenses 5,603 18,067
----------- -----------
359,900 358,249
----------- -----------
Commitments and Contingencies
Redeemable non-controlling interest 824 737
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 120,200 119,928
Retained earnings 79,032 72,242
Accumulated other comprehensive loss (12,357) (16,432)
Treasury stock, at cost (7,828
shares in 2009 and 2008) (77) (77)
----------- -----------
Total stockholders' equity 190,555 179,412
----------- -----------
$ 551,279 $ 538,398
=========== ===========
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share amounts)
Three Months Ended
March 31
--------------------------
2009 2008
----------- -----------
Gross premiums written $ 71,479 $ 64,237
Ceded premiums written (2,232) (2,004)
----------- -----------
Net premiums written 69,247 62,233
Change in unearned premiums (9,817) (2,989)
----------- -----------
Net premiums earned 59,430 59,244
Investment income, net of expenses 4,269 3,625
Net realized gains (impairments and
realized losses) (348) 859
Finance charges 1,350 1,264
Commission and fees 6,189 6,484
Processing and service fees 15 42
Other income 5 3
----------- -----------
Total revenues 70,910 71,521
Losses and loss adjustment expenses 36,842 35,504
Other operating expenses 23,750 23,465
Interest expense 1,159 1,185
Amortization of intangible assets 714 573
----------- -----------
Total expenses 62,465 60,727
Income before tax 8,445 10,794
Income tax expense 1,662 3,529
----------- -----------
Net income 6,783 7,265
Less: Net loss attributable to
non-controlling interest (7) --
----------- -----------
Net income attributable to Hallmark
Financial Services, Inc. $ 6,790 $ 7,265
=========== ===========
Net income per share attributable to
Hallmark Financial Services, Inc.
common stockholders:
Basic $ 0.33 $ 0.35
=========== ===========
Diluted $ 0.33 $ 0.35
=========== ===========
Hallmark Financial Services, Inc.
Consolidated Segment Data
Three Months Ended March 31, 2009
-----------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-----------------------------------------------------
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-
con-
trolling
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) 27.3% 30.6% 23.1% 29.5%
-------- -------- -------- --------
Net combined
ratio (2) 88.8% 90.4% 89.0% 91.5%
======== ======== ======== ========
Three Months Ended March 31, 2008
-----------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-----------------------------------------------------
Produced
premium (1) $ 21,749 $ 32,020 $ 17,727 $ -- $ 71,496
-------- -------- -------- -------- --------
Gross
premiums
written 21,749 24,761 17,727 -- 64,237
Ceded
premiums
written (1,187) (817) -- -- (2,004)
-------- -------- -------- -------- --------
Net premiums
written 20,562 23,944 17,727 -- 62,233
Change in
unearned
premiums 404 (155) (3,238) -- (2,989)
-------- -------- -------- -------- --------
Net premiums
earned 20,966 23,789 14,489 -- 59,244
Total
revenues 22,006 32,238 15,726 1,551 71,521
Losses and
loss
adjustment
expenses 11,310 15,003 9,191 -- 35,504
Pre-tax
income (loss) 4,058 5,444 2,590 (1,298) 10,794
Net loss
ratio (2) 53.9% 63.1% 63.4% 59.9%
Net expense
ratio (2) 27.2% 30.5% 22.5% 28.9%
-------- -------- -------- --------
Net combined
ratio (2) 81.1% 93.6% 85.9% 88.8%
======== ======== ======== ========
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 assumed by third party
insurance carriers who pay us commission revenue.
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.