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.