FORT WORTH, Texas, Aug. 16, 2010 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported second quarter 2010 net loss of $0.4 million compared to net earnings of $4.3 million reported for second quarter 2009. Year to date, Hallmark reported net earnings of $5.9 million, compared to $11.1 million reported for the same period the prior year. On a fully diluted basis, second quarter 2010 net loss was $0.02 per share as compared to net earnings of $0.20 per share for the second quarter of 2009. Year to date, Hallmark reported net earnings of $0.29 per diluted share, compared to $0.53 reported for the same period the prior year. Total revenues were $75.7 million for the second quarter 2010, up 7% from the $70.7 million reported for the second quarter of 2009. Year to date total revenues were $151.5 million, up 7% from the $141.7 million reported for the same period the prior year.
Mark J. Morrison, President and Chief Executive Officer, said, "This has been a disappointing quarter for Hallmark as we missed our targeted combined ratio due to a combination of factors affecting incurred losses in each of our three largest business units. First, we experienced large property losses from two hailstorms in Montana and an aberrant number of large property claims in our Standard Commercial business unit. Second, we set up additional reserves in our E&S Commercial business unit in response to late emerging general liability claims. Finally, we increased our expected loss ratio for the current accident year in our Personal Lines business unit as continued geographic growth and product expansion drive a higher percentage of less seasoned business in the total mix of policies in force. Despite the higher loss experience resulting in a 104.5% combined ratio for the quarter, we have maintained a profitable 99.0% combined ratio year to date."
Mr. Morrison continued, "We are pleased that the geographic and product expansion in our Personal Segment and increased limits offered on policies marketed by our Excess & Umbrella business unit have both fueled our year-to-date premium production growth of 7% as compared to prior year. We continue to find relative strength in the personal lines market as commercial lines continue to experience a difficult underwriting environment. We will look for opportunities to grow and diversify our businesses, as with the recent announcement of our agreement to purchase State Auto National Insurance Company and its non-standard personal automobile book of business. However, underwriting profits, as opposed to premium growth or market share, remains the key component of our strategy. We can only achieve this goal by maintaining our underwriting discipline until market conditions improve."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share is down 2% sequentially from the prior quarter, but remains up 2% year to date and up 14% compared to the year ago quarter. Hallmark continues to be highly cash generative, with cash flow from operations year to date of $17.4 million. This positive cash flow contributed to the 10% increase year to date in total investments and cash and cash equivalents to $490 million, or approximately $24 per share. Within this amount, the portion committed to investments increased $78 million, or 24%, year to date as we continue to redeploy our cash into securities yielding significantly more than was previously being earned on the cash balances. As of the end of the quarter, Hallmark continues to have a significant amount of cash and cash equivalents of $85 million."
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Three Months Ended June 30, |
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| 2010 | 2009 | % Change | |
| ($ in thousands) | |||
| Produced premium (1) | $ 81,768 | $ 77,595 | 5% |
| Gross premiums written | 83,180 | 75,053 | 11% |
| Net premiums written | 73,133 | 71,793 | 2% |
| Net premiums earned | 69,948 | 62,319 | 12% |
| Investment income, net of expenses | 3,276 | 3,467 | -6% |
| Net realized gain (loss) on investments | 1,643 | 867 | 90% |
| Total revenues | 75,687 | 70,744 | 7% |
| Net earnings (2) | (388) | 4,275 | -- |
| Net earnings per share - basic | $ (0.02) | $ 0.20 | -- |
| Net earnings per share - diluted | $ (0.02) | $ 0.20 | -- |
| Annualized return on average equity | -0.7% | 8.5% | -- |
| Book value per share | $11.49 | $10.08 | 14% |
| Cash flow from operations | $ 9,242 | $ 19,931 | -54% |
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Six Months Ended June 30, |
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| 2010 | 2009 | % Change | |
| ($ in thousands) | |||
| Produced premium (1) | $ 162,278 | $ 151,650 | 7% |
| Gross premiums written | 165,039 | 146,532 | 13% |
| Net premiums written | 145,928 | 141,040 | 3% |
| Net premiums earned | 136,963 | 121,749 | 12% |
| Investment income, net of expenses | 6,477 | 7,736 | -16% |
| Net realized gain (loss) on investments | 5,446 | 519 | 949% |
| Total revenues | 151,510 | 141,654 | 7% |
| Net earnings (2) | 5,898 | 11,065 | -47% |
| Net earnings per share - basic | $ 0.29 | $ 0.53 | -45% |
| Net earnings per share - diluted | $ 0.29 | $ 0.53 | -45% |
| Return on average equity | 5.2% | 11.4% | -54% |
| Book value per share | $11.49 | $10.08 | 14% |
| Cash flow from operations | $ 17,449 | $ 28,782 | -39% |
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(1) Produced premium is a non-GAAP measurement that management uses to track total premium produced by Hallmark's operations. Hallmark believes it is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary. |
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(2) Net earnings is net income attributable to Hallmark Financial Services, Inc. as reported in the consolidated statements of operations as determined in accordance with GAAP. |
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During the three and six months ended June 30, 2010, Hallmark's total revenues were $75.7 million and $151.5 million, representing a 7% increase from the $70.7 million and $141.7 million in total revenues for the same periods of 2009. This increase in revenue was primarily attributable to increased earned premium due to increased production by the Personal Segment and gains realized on the investment portfolio. These increases in revenue were partially offset by reduced earned premium in the Standard Commercial Segment due to the deterioration of the general economic environment in our major markets.
Hallmark reported a net loss of $0.4 million and net income of $5.9 million for the three and six months ended June 30, 2010, which was $4.7 million and $5.2 million lower than the $4.3 million and $11.1 million net income reported for the same periods of 2009. On a diluted basis per share, net loss was $0.02 per share and net income was $0.29 per share for the three and six months ended June 30, 2010, respectively, as compared to net income of $0.20 and $0.53 per share for the same periods in 2009. The decrease in net income for the three and six months ending June 30, 2010 was primarily due to increased loss and loss adjustment expenses, including unfavorable prior year loss development of $4.3 million and $6.5 million recognized during the three and six months ended June 30, 2010, respectively, as compared to $1.8 million unfavorable development recognized for the three and six months ended June 30, 2009. Partially offsetting the increased loss and LAE was the increase in revenue for the three and six months ending June 30, 2010, as well as lower operating expenses due to lower production related expenses in the E&S Commercial and General Aviation business units and lower information technology costs in the Standard Commercial Segment.
Hallmark's net loss ratio was 74.4% and 69.5%, respectively, for the three and six months ended June 30, 2010 as compared to 61.2% and 61.6% for the same periods in 2009. Hallmark's net expense ratio was 30.1% and 29.5%, respectively, for the three and six months ended June 30, 2010 as compared to 30.5% and 30.6% for the same periods in 2009. Hallmark's net combined ratio was 104.5% and 99.0% for the three and six months ended June 30, 2010 as compared to 91.7% and 92.2% for the same periods in 2009.
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 share amounts) | ||
|
ASSETS |
June 30 2010 |
December 31 2009 |
| (unaudited) | ||
| Investments: | ||
| Debt securities, available-for-sale, at fair value (cost; $360,374 in 2010 and $287,108 in 2009) | $ 364,694 | $ 291,876 |
| Equity securities, available-for-sale, at fair value (cost; $34,035 in 2010 and $27,251 in 2009) | 40,958 | 35,801 |
| Total investments | 405,652 | 327,677 |
| Cash and cash equivalents | 75,234 | 112,270 |
| Restricted cash and cash equivalents | 9,283 | 5,458 |
| Premiums receivable | 54,393 | 46,635 |
| Accounts receivable | 3,102 | 3,377 |
| Receivable for securities | 17 | -- |
| Ceded unearned premiums | 15,133 | 12,997 |
| Reinsurance recoverable | 16,149 | 10,008 |
| Deferred policy acquisition costs | 22,736 | 20,792 |
| Goodwill | 41,080 | 41,080 |
| Intangible assets, net | 27,040 | 28,873 |
| Federal income tax recoverable | 3,242 | -- |
| Deferred federal income taxes, net | 133 | -- |
| Prepaid expenses | 1,669 | 923 |
| Other assets | 15,662 | 18,779 |
| Total assets | $ 690,525 | $ 628,869 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Liabilities: | ||
| Note payable | $ 2,800 | $ 2,800 |
| Subordinated debt securities | 56,702 | 56,702 |
| Reserves for unpaid losses and loss adjustment expenses | 214,448 | 184,662 |
| Unearned premiums | 136,190 | 125,089 |
| Unearned revenue | 169 | 191 |
| Reinsurance balances payable | 2,816 | 3,281 |
| Accrued agent profit sharing | 1,232 | 1,790 |
| Accrued ceding commission payable | 4,235 | 8,600 |
| Pension liability | 2,587 | 2,628 |
| Deferred federal income taxes, net | -- | 942 |
| Federal income tax payable | -- | 1,266 |
| Payable for securities | 25,621 | 19 |
| Accounts payable and other accrued expenses | 11,302 | 13,258 |
| Total liabilities | 458,102 | 401,228 |
| Commitments and Contingencies | ||
| Redeemable non-controlling interest | 1,179 | 1,124 |
| Stockholders' equity: | ||
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Common stock, $0.18 par value (authorized 33,333,333 shares in 2010 and 2009; issued 20,872,831 in 2010 and 2009) |
3,757 | 3,757 |
| Additional paid-in capital | 121,403 | 121,016 |
| Retained earnings | 104,380 | 98,482 |
| Accumulated other comprehensive income | 6,966 | 8,589 |
| Treasury stock, at cost (748,662 shares in 2010 and 757,828 in 2009) | (5,262) | (5,327) |
| Total stockholders' equity | 231,244 | 226,517 |
| $ 690,525 | $ 628,869 | |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||
| Consolidated Statements of Operations | ||||
| (Unaudited) | ||||
| ($ in thousands, except per share amounts) | ||||
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Three Months Ended June 30 |
Six Months Ended June 30 |
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| 2010 | 2009 | 2010 | 2009 | |
| Gross premiums written | $ 83,180 | $ 75,053 | $ 165,039 | $ 146,532 |
| Ceded premiums written | (10,047) | (3,260) | (19,111) | (5,492) |
| Net premiums written | 73,133 | 71,793 | 145,928 | 141,040 |
| Change in unearned premiums | (3,185) | (9,474) | (8,965) | (19,291) |
| Net premiums earned | 69,948 | 62,319 | 136,963 | 121,749 |
| Investment income, net of expenses | 3,276 | 3,467 | 6,477 | 7,736 |
| Net realized gains | 1,643 | 867 | 5,446 | 519 |
| Finance charges | 1,771 | 1,449 | 3,414 | 2,799 |
| Commission and fees | (963) | 2,627 | (812) | 8,816 |
| Other income | 12 | 15 | 22 | 35 |
| Total revenues | 75,687 | 70,744 | 151,510 | 141,654 |
| Losses and loss adjustment expenses | 52,058 | 38,131 | 95,156 | 74,973 |
| Other operating expenses | 22,872 | 23,878 | 44,354 | 47,628 |
| Interest expense | 1,150 | 1,150 | 2,296 | 2,309 |
| Amortization of intangible assets | 916 | 782 | 1,832 | 1,496 |
| Total expenses | 76,996 | 63,941 | 143,638 | 126,406 |
| Income (loss) before tax | (1,309) | 6,803 | 7,872 | 15,248 |
| Income tax expense (benefit) | (953) | 2,519 | 1,937 | 4,181 |
| Net income (loss) | (356) | 4,284 | 5,935 | 11,067 |
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Less: Net income attributable to non-controlling interest |
32 | 9 | 37 | 2 |
| Net income (loss) attributable to Hallmark Financial Services, Inc. | $ (388) | $ 4,275 | $ 5,898 | $ 11,065 |
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Net income (loss) per share attributable to Hallmark Financial Services, Inc. common stockholders: |
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| Basic | $ (0.02) | $ 0.20 | $ 0.29 | $ 0.53 |
| Diluted | $ (0.02) | $ 0.20 | $ 0.29 | $ 0.53 |
| Hallmark Financial Services, Inc. | |||||
| Consolidated Segment Data | |||||
| (Unaudited, $ in thousands) | |||||
| Three Months Ended June 30, 2010 | |||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
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| Produced premium (1) | $ 18,804 | $ 40,351 | $ 22,613 | $ -- | $ 81,768 |
| Gross premiums written | 18,792 | 41,775 | 22,613 | -- | 83,180 |
| Ceded premiums written | (909) | (9,123) | (15) | -- | (10,047) |
| Net premiums written | 17,883 | 32,652 | 22,598 | -- | 73,133 |
| Change in unearned premiums | (1,246) | (2,036) | 97 | -- | (3,185) |
| Net premiums earned | 16,637 | 30,616 | 22,695 | -- | 69,948 |
| Total revenues | 17,265 | 32,124 | 24,754 | 1,544 | 75,687 |
| Losses and loss adjustment expenses | 13,652 | 21,231 | 17,175 | -- | 52,058 |
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Pre-tax income (loss), net of non-controlling interest |
(1,870) | 967 | 1,132 | (1,570) | (1,341) |
| Net loss ratio (2) | 82.1% | 69.3% | 75.7% | 74.4% | |
| Net expense ratio (2) | 32.5% | 29.5% | 22.5% | 30.1% | |
| Net combined ratio (2) | 114.6% | 98.8% | 98.2% | 104.5% | |
| Three Months Ended June 30, 2009 | |||||
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Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
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| 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 |
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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% | |
| (1) Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark's operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary. | |||||
| (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 Hallmark changed the method in which the net expense ratio is calculated. The net expense ratio is now calculated for the business 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 business 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. | |||||
| Hallmark Financial Services, Inc. | |||||
| Consolidated Segment Data | |||||
| (Unaudited, $ in thousands) | |||||
| Six Months Ended June 30, 2010 | |||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
|
| Produced premium (1) | $ 36,901 | $ 75,633 | $ 49,744 | $ -- | $ 162,278 |
| Gross premiums written | 36,889 | 78,406 | 49,744 | -- | 165,039 |
| Ceded premiums written | (1,945) | (17,147) | (19) | -- | (19,111) |
| Net premiums written | 34,944 | 61,259 | 49,725 | -- | 145,928 |
| Change in unearned premiums | (1,426) | 80 | (7,619) | -- | (8,965) |
| Net premiums earned | 33,518 | 61,339 | 42,106 | -- | 136,963 |
| Total revenues | 35,299 | 64,611 | 45,968 | 5,632 | 151,510 |
| Losses and loss adjustment expenses | 27,268 | 37,627 | 30,261 | -- | 95,156 |
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Pre-tax income (loss), net of non-controlling interest |
(2,809) | 7,314 | 3,782 | (452) | 7,835 |
| Net loss ratio (2) | 81.4% | 61.3% | 71.9% | 69.5% | |
| Net expense ratio (2) | 31.7% | 28.8% | 22.1% | 29.5% | |
| Net combined ratio (2) | 113.1% | 90.1% | 94.0% | 99.0% | |
| Six Months Ended June 30, 2009 | |||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
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| 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 |
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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% | |
| (1) Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark's operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary. | |||||
| (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 Hallmark changed the method in which the net expense ratio is calculated. The net expense ratio is now calculated for the business 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 business 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. | |||||