FORT WORTH, Texas, March 24, 2010 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") reported fourth quarter 2009 net earnings of $9.3 million compared to a net loss of $2.4 million reported for fourth quarter 2008. Hallmark reported net earnings of $24.6 million for fiscal 2009, compared to $12.9 million for fiscal 2008. On a fully diluted basis, net earnings were $0.46 per share and $1.19 per share for the fourth quarter and fiscal 2009, as compared to a net loss of $0.12 per share and net earnings of $0.62 per share for the fourth quarter and fiscal 2008. Total revenues were $73.5 million and $287.0 million for the fourth quarter and fiscal 2009, as compared to $60.2 million and $268.7 million for the fourth quarter and fiscal 2008.
Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production remained relatively flat during fiscal 2009 as compared to 2008. Increased premiums attributable to the 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 were offset by a decrease in premium production in our Standard Commercial Segment and the other lines of business in our Specialty Commercial Segment as a result of our continued adherence to underwriting discipline during prolonged soft market conditions. 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 continues to be the impact of the economic slowdown on our insureds. Even with strong retention rates on our existing accounts, our commercial businesses continue to experience 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 91.7% combined ratio for the year."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share is at the highest level in the history of the company, having increased 31% during 2009 to $11.26 per share at December 31, 2009 compared to $8.61 per share a year earlier. Other operating metrics continue to be strong with cash flow from operations of $62 million and comprehensive income of $51 million for fiscal 2009."
Mr. Schwarz continued, "Total investments and cash and cash equivalents of $445 million as of December 31, 2009 were up 23% compared to December 31, 2008. Investment income declined 7% during fiscal 2009 compared to fiscal 2008 due to near zero yields for cash and short term securities. As of year end, Hallmark had $117 million of cash and cash equivalents, plus other securities with short maturities, available to be deployed in higher yielding investments should suitable opportunities arise."
| Financial Highlights | ||||||
|
Three Months Ended December 31, |
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| 2009 | 2008 | % Change | ||||
| ($ in thousands) | ||||||
| Produced premium (1) | $ 66,003 | $ 73,806 | -11% | |||
| Gross premiums written | 67,013 | 57,492 | 17% | |||
| Net premiums written | 57,909 | 55,073 | 5% | |||
| Net premiums earned | 65,085 | 58,384 | 11% | |||
| Commission and fee income | 1,177 | 6,000 | -80% | |||
| Investment income, net of expenses | 3,744 | 4,367 | -14% | |||
| Net realized gain (loss) on investments | 1,916 | (9,856) | -- | |||
| Total revenues | 73,482 | 60,196 | 22% | |||
| Net earnings (2) | 9,296 | (2,407) | -- | |||
| Net earnings per share - basic | $ 0.46 | $ (0.12) | -- | |||
| Net earnings per share - diluted | $ 0.46 | $ (0.12) | -- | |||
| Annualized return on average equity | 16.8% | -5.2% | -- | |||
| Book value per share | $ 11.26 | $ 8.61 | 31% | |||
| Cash flow from operations | $ 17,658 | $ 13,864 | 27% | |||
|
Fiscal Year Ended December 31, |
||||||||||
| 2009 | 2008 | % Change | ||||||||
| ($ in thousands) | ||||||||||
| Produced premium (1) | $ 288,450 | $ 287,081 | 0% | |||||||
| Gross premiums written | 287,558 | 243,849 | 18% | |||||||
| Net premiums written | 261,740 | 234,927 | 11% | |||||||
| Net premiums earned | 251,072 | 236,320 | 6% | |||||||
| Commission and fee income | 12,011 | 22,280 | -46% | |||||||
| Investment income, net of expenses | 14,947 | 16,049 | -7% | |||||||
| Net realized gain (loss) on investments | 3,032 | (11,261) | -- | |||||||
| Total revenues | 287,039 | 268,690 | 7% | |||||||
| Net earnings (2) | 24,575 | 12,899 | 91% | |||||||
| Net earnings per share - basic | $ 1.19 | $ 0.62 | 92% | |||||||
| Net earnings per share - diluted | $ 1.19 | $ 0.62 | 92% | |||||||
| Return on average equity | 12.1% | 7.2% | 68% | |||||||
| Book value per share | $ 11.26 | $ 8.61 | 31% | |||||||
| Cash flow from operations | $ 61,698 | $ 48,712 | 27% | |||||||
| (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 months and year ended December 31, 2009, our total revenues were $73.5 million and $287.0 million, representing a 22% and 7% increase from the $60.2 million and $268.7 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. The increase was also attributable to net gains on our investment portfolio of $1.9 million and $3.0 million for the three months and year ended December 31, 2009 as compared to net losses on our investment portfolio of $9.9 million and $11.3 million for the same periods in 2008. 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 primarily to increased retention of premium.
We reported net earnings of $9.3 million and $24.6 million for the three months and year ended December 31, 2009, which were $11.7 million higher than both the $2.4 million net loss reported for the fourth quarter 2008 and the $12.9 million net earnings reported for the year ended December 31, 2008. On a diluted basis per share, net earnings were $0.46 and $1.19 per share for the three months and year ended December 31, 2009, as compared to a net loss of $0.12 per share and net earnings of $0.62 per share for the same periods in 2008. The increase in net earnings for the three months ended December 31, 2009 was primarily attributable to increased revenue and lower other operating expenses due mostly to decreased production related expenses caused by decreased premium production, partially offset by higher loss and loss adjustment expense due mostly to higher earned premium. Loss and loss adjustment expense included favorable prior year loss development of $1.8 million recognized in the three months ended December 31, 2009 as compared to unfavorable development of $0.2 million recognized during the three months ended December 31, 2008. The increase in net earnings for the year ended December 31, 2009 was primarily attributable to increased revenue partially offset by increased loss and loss adjustment expense due mostly to increased earned premium as well as unfavorable prior year loss development of $1.6 million recognized during the year ended December 31, 2009, as compared to favorable development of $1.8 million recognized during the year ended December 31, 2008.
Hallmark's net loss ratios were 58.5% and 61.2% for the three months and year ended December 31, 2009 as compared to 57.8% and 61.0% for the same periods of 2008. Hallmark's net expense ratio was 29.7% and 30.5% for the three months and year ended December 31, 2009 as compared to 30.7% and 30.6% for the same periods of 2008. Hallmark maintained profitable net combined ratios of 88.2% and 91.7% for the three months and year ended December 31, 2009 as compared to 88.5% and 91.6% for the same periods in the prior year.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this Release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
| Hallmark Financial Services, Inc. and Subsidiaries | |||
| Consolidated Balance Sheets | |||
| ($ in thousands, except per share amounts) | |||
|
December 31 2009 |
December 31 2008 |
||
| ASSETS | |||
| Investments: | |||
| Debt securities, available-for-sale, at fair value | $ 291,876 | $ 268,513 | |
| Equity securities, available-for-sale, at fair value | 35,801 | 25,003 | |
| Total investments | 327,677 | 293,516 | |
| Cash and cash equivalents | 112,270 | 59,134 | |
| Restricted cash and cash equivalents | 5,458 | 8,033 | |
| Prepaid reinsurance premiums | 12,997 | 1,349 | |
| Premiums receivable | 46,635 | 44,032 | |
| Accounts receivable | 3,377 | 4,531 | |
| Receivable for securities | -- | 1,031 | |
| Reinsurance recoverable | 10,008 | 8,218 | |
| Deferred policy acquisition costs | 20,792 | 19,524 | |
| Excess of cost over fair value of net assets acquired | 41,080 | 41,080 | |
| Intangible assets, net | 28,873 | 28,969 | |
| Current federal income tax recoverable | -- | 696 | |
| Deferred federal income taxes | -- | 6,696 | |
| Prepaid expenses | 923 | 1,007 | |
| Other assets | 18,779 | 20,582 | |
| Total assets | $ 628,869 | $ 538,398 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Liabilities: | |||
| Notes payable | $ 59,502 | $ 60,919 | |
| Reserves for unpaid losses and loss adjustment expenses | 184,662 | 156,363 | |
| Unearned premiums | 125,089 | 102,192 | |
| Unearned revenue | 191 | 2,037 | |
| Reinsurance balances payable | 3,281 | -- | |
| Accrued agent profit sharing | 1,790 | 2,151 | |
| Accrued ceding commission payable | 8,600 | 8,605 | |
| Pension liability | 2,628 | 4,309 | |
| Payable for securities | 19 | 3,606 | |
| Deferred federal income taxes | 942 | -- | |
| Federal income tax payable | 1,266 | -- | |
| Accounts payable and other accrued expenses | 13,258 | 18,067 | |
| Total liabilities | 401,228 | 358,249 | |
| Commitments and Contingencies | |||
| Redeemable non-controlling interest | 1,124 | 737 | |
| Stockholders' equity: | |||
| Common stock, $.18 par value (authorized 33,333,333 shares in 2009 and 2008; | |||
| issued 20,872,831 shares in 2009 and 20,841,782 shares in 2008) | 3,757 | 3,751 | |
| Capital in excess of par value | 121,016 | 119,928 | |
| Retained earnings | 98,482 | 72,242 | |
| Accumulated other comprehensive income (loss) | 8,589 | (16,432) | |
| Treasury stock, at cost (757,828 shares in 2009 and 7,828 in 2008) | (5,327) | (77) | |
| Total stockholders' equity | 226,517 | 179,412 | |
| $ 628,869 | $ 538,398 | ||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Operations | ||||||||
| ($ in thousands, except per share amounts) | ||||||||
|
Three Months Ended December 31 |
Fiscal Year Ended December 31 |
|||||||
| 2009 | 2008 | 2009 | 2008 | |||||
| Gross premiums written | $ 67,013 | $ 57,492 | $ 287,558 | $ 243,849 | ||||
| Ceded premiums written | (9,104) | (2,419) | (25,818) | (8,922) | ||||
| Net premiums written | 57,909 | 55,073 | 261,740 | 234,927 | ||||
| Change in unearned premiums | 7,176 | 3,311 | (10,668) | 1,393 | ||||
| Net premiums earned | 65,085 | 58,384 | 251,072 | 236,320 | ||||
| Investment income, net of expenses | 3,744 | 4,367 | 14,947 | 16,049 | ||||
| Net realized gains (losses) | 1,916 | (9,856) | 3,032 | (11,261) | ||||
| Finance charges | 1,550 | 1,280 | 5,874 | 5,174 | ||||
| Commission and fees | 1,177 | 6,000 | 12,011 | 22,280 | ||||
| Processing and service fees | 6 | 16 | 39 | 114 | ||||
| Other income | 4 | 5 | 64 | 14 | ||||
| Total revenues | 73,482 | 60,196 | 287,039 | 268,690 | ||||
| Losses and loss adjustment expenses | 38,067 | 33,730 | 153,619 | 144,244 | ||||
| Other operating expenses | 21,177 | 24,982 | 92,233 | 96,096 | ||||
| Interest expense | 1,146 | 1,188 | 4,602 | 4,745 | ||||
| Amortization of intangible assets | 916 | 715 | 3,328 | 2,481 | ||||
| Total expenses | 61,306 | 60,615 | 253,782 | 247,566 | ||||
| Income (loss) before tax | 12,176 | (419) | 33,257 | 21,124 | ||||
| Income tax expense | 2,864 | 1,953 | 8,630 | 8,175 | ||||
| Net income (loss) | 9,312 | (2,372) | 24,627 | 12,949 | ||||
| Less: Net income attributable to non-controlling interest | 16 | 35 | 52 | 50 | ||||
| Net income (loss) attributable to Hallmark Financial Services, Inc. | $ 9,296 | $ (2,407) | $ 24,575 | $ 12,899 | ||||
|
Net income (loss) per share attributable to Hallmark Financial Services, Inc. common stockholders: |
||||||||
| Basic | $ 0.46 | $ (0.12) | $ 1.19 | $ 0.62 | ||||
| Diluted | $ 0.46 | $ (0.12) | $ 1.19 | $ 0.62 | ||||
| Hallmark Financial Services, Inc. | |||||||||
| Consolidated Segment Data | |||||||||
| Three Months Ended December 31, 2009 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment | Corporate | Consolidated | |||||
| Produced premium (1) | $ 15,631 | $ 33,632 | $ 16,740 | $ -- | $ 66,003 | ||||
| Gross premiums written | 15,631 | 34,642 | 16,740 | -- | 67,013 | ||||
| Ceded premiums written | (1,099) | (8,005) | -- | -- | (9,104) | ||||
| Net premiums written | 14,532 | 26,637 | 16,740 | -- | 57,909 | ||||
| Change in unearned premiums | 2,789 | 4,012 | 375 | -- | 7,176 | ||||
| Net premiums earned | 17,321 | 30,649 | 17,115 | -- | 65,085 | ||||
| Total revenues | 18,713 | 33,903 | 18,814 | 2,052 | 73,482 | ||||
| Losses and loss adjustment expenses | 10,482 | 17,031 | 10,554 | -- | 38,067 | ||||
| Pre-tax income (loss), net of non-controlling interest | 3,279 | 6,603 | 3,262 | (984) | 12,160 | ||||
| Net loss ratio (2) | 60.5% | 55.6% | 61.7% | 58.5% | |||||
| Net expense ratio (2) | 27.8% | 30.4% | 22.1% | 29.7% | |||||
| Net combined ratio (2) | 88.3% | 86.0% | 83.8% | 88.2% | |||||
| Three Months Ended December 31, 2008 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment | Corporate | Consolidated | |||||
| Produced premium (1) | $ 17,863 | $ 41,752 | $ 14,191 | $ -- | $ 73,806 | ||||
| Gross premiums written | 17,863 | 25,438 | 14,191 | -- | 57,492 | ||||
| Ceded premiums written | (1,162) | (1,257) | -- | -- | (2,419) | ||||
| Net premiums written | 16,701 | 24,181 | 14,191 | -- | 55,073 | ||||
| Change in unearned premiums | 2,210 | 674 | 427 | -- | 3,311 | ||||
| Net premiums earned | 18,911 | 24,855 | 14,618 | -- | 58,384 | ||||
| Total revenues | 19,458 | 33,265 | 16,198 | (8,725) | 60,196 | ||||
| Losses and loss adjustment expenses | 13,052 | 10,667 | 10,012 | (1) | 33,730 | ||||
| Pre-tax income (loss), net of non-controlling interest | 579 | 8,727 | 1,942 | (11,702) | (454) | ||||
| Net loss ratio (2) | 69.0% | 42.9% | 68.5% | 57.8% | |||||
| Net expense ratio (2) | 30.1% | 31.0% | 23.0% | 30.7% | |||||
| Net combined ratio (2) | 99.1% | 73.9% | 91.5% | 88.5% | |||||
| (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 loss adjustment expenses 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 December 31, 2008. |
| Hallmark Financial Services, Inc. | |||||||||
| Consolidated Segment Data | |||||||||
| Fiscal Year Ended December 31, 2009 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment | Corporate | Consolidated | |||||
| Produced premium (1) | $ 72,512 | $ 144,230 | $ 71,708 | $ -- | $ 288,450 | ||||
| Gross premiums written | 72,512 | 143,338 | 71,708 | -- | 287,558 | ||||
| Ceded premiums written | (4,430) | (21,388) | -- | -- | (25,818) | ||||
| Net premiums written | 68,082 | 121,950 | 71,708 | -- | 261,740 | ||||
| Change in unearned premiums | 3,208 | (9,680) | (4,196) | -- | (10,668) | ||||
| Net premiums earned | 71,290 | 112,270 | 67,512 | -- | 251,072 | ||||
| Total revenues | 76,496 | 131,504 | 73,785 | 5,254 | 287,039 | ||||
| Losses and loss adjustment expenses | 44,372 | 65,453 | 43,794 | -- | 153,619 | ||||
|
Pre-tax income (loss), net of non-controlling interest |
9,266 | 20,883 | 11,000 | (7,944) | 33,205 | ||||
| Net loss ratio (2) | 62.2% | 58.3% | 64.9% | 61.2% | |||||
| Net expense ratio (2) | 31.3% | 30.1% | 21.6% | 30.5% | |||||
| Net combined ratio (2) | 93.5% | 88.4% | 86.5% | 91.7% | |||||
| Fiscal Year Ended December 31, 2008 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment | Corporate | Consolidated | |||||
| Produced premium (1) | $ 80,193 | $ 146,054 | $ 60,834 | $ -- | $ 287,081 | ||||
| Gross premiums written | 80,190 | 102,825 | 60,834 | -- | 243,849 | ||||
| Ceded premiums written | (4,829) | (4,093) | -- | -- | (8,922) | ||||
| Net premiums written | 75,361 | 98,732 | 60,834 | -- | 234,927 | ||||
| Change in unearned premiums | 4,434 | (1,226) | (1,815) | -- | 1,393 | ||||
| Net premiums earned | 79,795 | 97,506 | 59,019 | -- | 236,320 | ||||
| Total revenues | 84,075 | 127,882 | 64,475 | (7,742) | 268,690 | ||||
| Losses and loss adjustment expenses | 49,270 | 55,933 | 39,042 | (1) | 144,244 | ||||
| Pre-tax income (loss), net of non-controlling interest | 9,683 | 21,328 | 8,989 | (18,926) | 21,074 | ||||
| Net loss ratio (2) | 61.7% | 57.4% | 66.2% | 61.0% | |||||
| Net expense ratio (2) | 30.8% | 30.7% | 22.0% | 30.6% | |||||
| Net combined ratio (2) | 92.5% | 88.1% | 88.2% | 91.6% | |||||
| (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 loss adjustment expenses 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 year ended December 31, 2008. | |||||||||