FORT WORTH, Texas, Aug. 13, 2009 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported second quarter 2009 net earnings of $4.3 million compared to $7.4 million reported for second quarter 2008. Year to date, Hallmark reported net earnings of $11.1 million, compared to $14.7 million for the same period the prior year. On a fully diluted basis, net earnings were $0.20 per share and $0.53 per share for the second quarter and the first six months of 2009, as compared to $0.35 per share and $0.70 per share for the similar periods of 2008. Total revenues were $70.7 million and $141.7 million for the second quarter and first six months of 2009, as compared to $72.0 million and $143.5 million for the similar periods of 2008.
Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production increased 8% this quarter 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 adherence to underwriting discipline during the 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. Although 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, the greatest factor affecting our premium production is the impact of the economic slowdown on our insureds."
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 91.7% combined ratio for the quarter."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Year-to-date book value per share increased 17% to $10.08 as of June 30, 2009. This follows our flat 2008 growth in book value per share -- a result that occurred despite producing a 91.6% combined ratio, due in large part to recognized impairment losses on certain securities that have since recovered in value. Strong investment performance and solid underwriting profits during the first six months of 2009 generated an annualized return on average equity of 11%, and cash flow from operations of $29 million."
Three Months Ended
June 30,
-----------------------------
%
2009 2008 Change
--------- --------- ------
($ in thousands)
Gross premiums written $ 75,053 $ 63,115 19%
Net premiums written 71,793 61,109 17%
Net premiums earned 62,319 59,764 4%
Commission and fee income 2,627 6,669 -61%
Investment income, net of expenses 3,467 3,957 -12%
Gain on investments 867 232 274%
Total revenues 70,744 71,984 -2%
Net earnings (1) 4,275 7,410 -42%
Net earnings per share - basic $ 0.20 $ 0.36 -44%
Net earnings per share - diluted $ 0.20 $ 0.35 -43%
Annualized return on average equity 8.5% 15.7% -46%
Book value per share $ 10.08 $ 9.24 9%
Cash flow from operations $ 19,931 $ 17,361 15%
Six Months Ended
June 30,
-----------------------------
%
2009 2008 Change
--------- --------- ------
($ in thousands)
Gross premiums written $ 146,532 $ 127,352 15%
Net premiums written 141,040 123,342 14%
Net premiums earned 121,749 119,008 2%
Commission and fee income 8,816 13,153 -33%
Investment income, net of expenses 7,736 7,582 2%
Gain on investments 519 1,091 -52%
Total revenues 141,654 143,505 -1%
Net earnings (1) 11,065 14,675 -25%
Net earnings per share - basic $ 0.53 $ 0.71 -25%
Net earnings per share - diluted $ 0.53 $ 0.70 -24%
Annualized return on average equity 11.4% 15.8% -28%
Book value per share $ 10.08 $ 9.24 9%
Cash flow from operations $ 28,782 $ 29,749 -3%
(1) Net earnings is net income attributable to Hallmark Financial
Services, Inc. as reported in our consolidated statements of
operations.
During the three and six months ended June 30, 2009, our total revenues were $70.7 million and $141.7 million, representing a 2% and 1% decrease from the $72.0 million and $143.5 million in total revenues for the same periods of 2008. This decrease in revenue was primarily attributable to lower commission and fee income in our Standard Commercial and Specialty Commercial Segments due to profit sharing commission adjustments related to adverse loss development on prior accident years as well as a shift in our Specialty Commercial Segment from a third party agency structure to an insurance underwriting structure. This decrease in revenue was partially offset by 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, partially offset by reduced earned premium in our Standard Commercial Segment due to the deterioration of the general economic environment in our major markets.
We reported net earnings of $4.3 million and $11.1 million for the three and six months ended June 30, 2009, which were $3.1 million and $3.6 million lower than the $7.4 million and $14.7 million reported for the same periods in 2008. On a diluted basis per share, net earnings were $0.20 and $0.53 per share for the three months and six months ended June 30, 2009, as compared to $0.35 and $0.70 per share for the same periods in 2008. The decrease in net earnings for the three and six months ended June 30, 2009 was primarily attributable to decreased revenue as discussed above and higher loss and loss adjustment expense due mostly to unfavorable prior year loss development of $1.8 million recognized in both the three months and six months ending June 30, 2009 as compared to favorable development of $0.3 million and $1.8 million recognized during the three months and six months ending June 30, 2008.
Hallmark's net loss ratio was 61.2% and 61.6% for the three and six months ended June 30, 2009 as compared to 60.3% and 60.1% for the same periods of 2008. Hallmark's net expense ratio was 30.5% and 30.6% for the three and six months ended June 30, 2009 as compared to 31.0% and 30.7% for the same periods of 2008. Hallmark maintained profitable net combined ratios of 91.7% and 92.2% for the three and six months ended June 30, 2009 as compared to 91.3% and 90.8% for the same periods in the prior year.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this Release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
June 30 Dec. 31
ASSETS 2009 2008
------ --------- ---------
(unaudited)
Investments:
Debt securities, available-for-sale,
at fair value $ 274,677 $ 268,513
Equity securities, available-for-sale,
at fair value 38,718 25,003
--------- ---------
Total investments 313,395 293,516
Cash and cash equivalents 83,150 59,134
Restricted cash and cash equivalents 9,848 8,033
Premiums receivable 52,598 44,032
Accounts receivable 3,752 4,531
Receivable for securities 71 1,031
Prepaid reinsurance premiums 6,467 1,349
Reinsurance recoverable 14,072 8,218
Deferred policy acquisition costs 23,432 19,524
Excess of cost over fair value of net
assets acquired 41,080 41,080
Intangible assets, net 30,705 28,969
Current federal income tax recoverable 2,169 696
Deferred federal income taxes 3,254 6,696
Prepaid expenses 993 1,007
Other assets 18,498 20,582
--------- ---------
Total assets $ 603,484 $ 538,398
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable $ 59,502 $ 60,919
Reserves for unpaid losses and loss
adjustment expenses 180,366 156,363
Unearned premiums 126,595 102,192
Unearned revenue 605 2,037
Accrued agent profit sharing 1,318 2,151
Accrued ceding commission payable 8,600 8,605
Pension liability 4,388 4,309
Payable for securities 4,246 3,606
Accounts payable and other accrued
expenses 6,749 18,067
--------- ---------
Total liabilities 392,369 358,249
--------- ---------
Commitments and Contingencies
Redeemable non-controlling interest 891 737
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 120,736 119,928
Retained earnings 84,972 72,242
Accumulated other comprehensive income
(loss) 836 (16,432)
Treasury stock, at cost (7,828 shares
in 2009 and 2008) (77) (77)
--------- ---------
Total stockholders' equity 210,224 179,412
--------- ---------
$ 603,484 $ 538,398
========= =========
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
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Gross premiums written $ 75,053 $ 63,115 $146,532 $127,352
Ceded premiums written (3,260) (2,006) (5,492) (4,010)
-------- -------- -------- --------
Net premiums written 71,793 61,109 141,040 123,342
Change in unearned premiums (9,474) (1,345) (19,291) (4,334)
-------- -------- -------- --------
Net premiums earned 62,319 59,764 121,749 119,008
Investment income, net of
expenses 3,467 3,957 7,736 7,582
Net realized gains 867 232 519 1,091
Finance charges 1,449 1,323 2,799 2,587
Commission and fees 2,627 6,669 8,816 13,153
Processing and service fees 11 36 26 78
Other income 4 3 9 6
-------- -------- -------- --------
Total revenues 70,744 71,984 141,654 143,505
Losses and loss adjustment
expenses 38,131 36,029 74,973 71,533
Other operating expenses 23,878 23,608 47,628 47,073
Interest expense 1,150 1,186 2,309 2,371
Amortization of intangible
assets 782 573 1,496 1,146
-------- -------- -------- --------
Total expenses 63,941 61,396 126,406 122,123
Income before tax 6,803 10,588 15,248 21,382
Income tax expense 2,519 3,178 4,181 6,707
-------- -------- -------- --------
Net income 4,284 7,410 11,067 14,675
Less: Net income
attributable to
non-controlling interest 9 -- 2 --
-------- -------- -------- --------
Net income attributable to
Hallmark Financial Services,
Inc. $ 4,275 $ 7,410 $ 11,065 $ 14,675
======== ======== ======== ========
Net income per share
attributable to Hallmark
Financial Services, Inc.
common stockholders:
Basic $ 0.20 $ 0.36 $ 0.53 $ 0.71
======== ======== ======== ========
Diluted $ 0.20 $ 0.35 $ 0.53 $ 0.70
======== ======== ======== ========
Hallmark Financial Services, Inc.
Consolidated Segment Data
Three Months Ended June 30, 2009
-------------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-------------------------------------------------------
Produced
premium (1) $ 20,425 $ 40,252 $ 16,918 $ -- $ 77,595
--------- --------- --------- --------- ---------
Gross premiums
written 20,425 37,710 16,918 -- 75,053
Ceded premiums
written (1,084) (2,176) -- -- (3,260)
--------- --------- --------- --------- ---------
Net premiums
written 19,341 35,534 16,918 -- 71,793
Change in
unearned
premiums (1,614) (8,158) 298 -- (9,474)
--------- --------- --------- --------- ---------
Net premiums
earned 17,727 27,376 17,216 -- 62,319
Total revenues 18,194 32,430 18,701 1,419 70,744
Losses and
loss
adjustment
expenses 11,119 15,848 11,164 -- 38,131
Pre-tax income
(loss), net
of non-
controlling
interest 1,247 5,010 2,894 (2,357) 6,794
Net loss
ratio (2) 62.7% 57.9% 64.8% 61.2%
Net expense
ratio (2) 32.1% 30.2% 20.7% 30.5%
--------- --------- --------- ---------
Net combined
ratio (2) 94.8% 88.1% 85.5% 91.7%
========= ========= ========= =========
Three Months Ended June 30, 2008
------------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
------------------------------------------------------
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 (1,207) (799) -- -- (2,006)
--------- --------- --------- --------- ---------
Net premiums
written 20,417 26,539 14,153 -- 61,109
Change in
unearned
premiums 36 (2,395) 1,014 -- (1,345)
--------- --------- --------- --------- ---------
Net premiums
earned 20,453 24,144 15,167 -- 59,764
Total revenues 22,332 32,134 16,498 1,020 71,984
Losses and loss
adjustment
expenses 11,669 13,976 10,384 -- 36,029
Pre-tax income
(loss) 4,159 6,411 1,913 (1,895) 10,588
Net loss
ratio (2) 57.1% 57.9% 68.5% 60.3%
Net expense
ratio (2) 31.2% 30.3% 21.8% 31.0%
--------- --------- --------- ---------
Net combined
ratio (2) 88.3% 88.2% 90.3% 91.3%
========= ========= ========= =========
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 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 1.9% for
the three months ended June 30, 2008.
Hallmark Financial Services, Inc.
Consolidated Segment Data
Six Months Ended June 30, 2009
-----------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
-----------------------------------------------------
Produced
premium (1) $ 39,572 $ 74,534 $ 37,544 $ -- $ 151,650
--------- --------- --------- --------- ---------
Gross premiums
written 39,572 69,416 37,544 -- 146,532
Ceded premiums
written (2,187) (3,305) -- -- (5,492)
--------- --------- --------- --------- ---------
Net premiums
written 37,385 66,111 37,544 -- 141,040
Change in
unearned
premiums (1,208) (13,784) (4,299) -- (19,291)
--------- --------- --------- --------- ---------
Net premiums
earned 36,177 52,327 33,245 -- 121,749
Total revenues 38,214 65,255 36,236 1,949 141,654
Losses and loss
adjustment
expenses 22,465 30,781 21,727 -- 74,973
Pre-tax income
(loss), net
of non-
controlling
interest 3,823 10,692 5,513 (4,782) 15,246
Net loss
ratio (2) 62.1% 58.8% 65.4% 61.6%
Net expense
ratio (2) 32.2% 30.1% 20.9% 30.6%
--------- --------- --------- ---------
Net combined
ratio (2) 94.3% 88.9% 86.3% 92.2%
========= ========= ========= =========
Six Months Ended June 30, 2008
------------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
------------------------------------------------------
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 (2,394) (1,616) -- -- (4,010)
--------- --------- --------- --------- ---------
Net premiums
written 40,979 50,483 31,880 -- 123,342
Change in
unearned
premiums 440 (2,550) (2,224) -- (4,334)
--------- --------- --------- --------- ---------
Net premiums
earned 41,419 47,933 29,656 -- 119,008
Total revenues 44,338 64,372 32,224 2,571 143,505
Losses and loss
adjustment
expenses 22,979 28,979 19,575 -- 71,533
Pre-tax income
(loss) 8,217 11,855 4,503 (3,193) 21,382
Net loss
ratio (2) 55.5% 60.5% 66.0% 60.1%
Net expense
ratio (2) 31.1% 30.5% 21.6% 30.7%
--------- --------- --------- ---------
Net combined
ratio (2) 86.6% 91.0% 87.6% 90.8%
========= ========= ========= =========
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 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 1.7% for
the six months ended June 30, 2008.