FORT WORTH, Texas, Nov. 12, 2008 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported net income of $0.6 million for the third quarter of 2008 compared to $6.8 million reported for the third quarter of 2007. Year to date, Hallmark reported net income of $15.3 million compared to $20.6 million reported for the first nine months of 2007. On a fully diluted basis, net income was $0.03 per share and $0.73 per share for the third quarter and nine months ended September 30, 2008, as compared to $0.33 per share and $0.99 per share for the similar periods of 2007. Total revenues were $65.0 million and $208.5 million for the third quarter and first nine months of 2008, representing a 10% decrease and a 2% increase from the $72.6 million and $205.3 million reported for the similar periods of 2007.
Mark J. Morrison, President and Chief Executive Officer, said, "Although the operating margins in our core books of business continue to perform well, our quarter and year-to-date results have been adversely affected by the industry-wide impact of hurricane losses and an impaired investment holding related to the ongoing credit crisis. We also experienced lower premium volume due to general economic conditions and our continued underwriting discipline in a competitive marketplace. Hurricanes Dolly and Ike struck Texas during the third quarter resulting in incurred losses and reduced profit sharing commissions of $7.2 million, or $0.23 per diluted share. We also incurred pre-tax impairment charges of $3.2 million, or $0.10 per diluted share, during the quarter predominately related to Washington Mutual senior bank notes."
Mr. Morrison continued, "Despite these challenging conditions, Hallmark continues to make progress with operating initiatives aimed at driving increased long-term value, including geographic expansion, new product development and the previously announced acquisition during the quarter of The Heath Group, which has historically produced in excess of $40 million of commercial automobile and commercial umbrella risks on an annual basis. This acquisition is expected to be immediately accretive to earnings and is complementary to existing Hallmark operations."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Even with the hurricanes and extraordinary market turmoil experienced this quarter, Hallmark posted a net combined ratio of 95% for the quarter and 91% for the three quarters year-to-date. Book value per share of $9.11 has increased 10% compared to a year ago and is up 5.6% compared to 2007 year-end book value per share of $8.63. However, I am disappointed by the impairment we realized this quarter on our Washington Mutual senior bank notes. Fortunately, this has been the only material impairment of our debt portfolio related to the current credit crisis. Our portfolio has otherwise performed comparatively well during what has been an extremely difficult market environment. Net investment income increased 9% in the quarter and is up 19% year-to-date. Hallmark continues to maintain a diversified portfolio, with fixed income investments representing 88% of invested assets. 91% of the fixed income securities are investment grade rated, 82% are tax-exempt securities and 38% are short-term investments. As of the end of the third quarter, the portfolio had a modified duration of 3.4 years and a tax-equivalent yield over 7%. Hallmark entered 2008 with a significant amount of cash and short-term investments and has benefited from current market opportunities to invest in higher yielding securities of high quality. Hallmark has not owned CDOs, CLOs, CMOs or other securitizations and has not owned any securities issued by Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, Wachovia or AIG, other than a single AAA-rated Fannie Mae debt security that is due to mature in January 2009."
Mr. Schwarz continued, "Hallmark's relatively modest net loss experience this quarter in the face of Hurricane Ike, which may prove to be one of the most costly hurricanes on record, is a testament to our approach to managing catastrophe risk. In general, Hallmark remains financially strong and has ample liquidity, with excess capital held at the holding company and year-to-date cash flow from operations of over $37 million. We remain focused on underwriting discipline and growth in book value per share as a measure of increase in long-term shareholder value."
Three Months Ended
September 30,
---------------------------------------
2008 2007 % Change
---------- ---------- --------
($ in thousands)
Gross premiums written $ 59,005 $ 62,304 -5%
Net premiums written 56,512 61,863 -9%
Net premiums earned 58,928 59,763 -1%
Commission and fee
income 3,127 7,280 -57%
Investment income, net
of expenses 4,100 3,774 9%
Net realized gains
(impairments and
realized losses) (2,496) 418 -697%
Total revenues 64,989 72,556 -10%
Net income 631 6,802 -91%
Common EPS - basic $ 0.03 $ 0.33 -91%
Common EPS - diluted $ 0.03 $ 0.33 -91%
Annualized return on
average equity 1.3% 16.2% -92%
Book value per share $ 9.11 $ 8.30 10%
Cash flow from
operations $ 7,409 $ 17,173 -57%
Nine Months Ended
September 30,
---------------------------------------
2008 2007 % Change
---------- ---------- --------
($ in thousands)
Gross premiums written $ 186,357 $ 193,539 -4%
Net premiums written 179,854 184,930 -3%
Net premiums earned 177,936 166,721 7%
Commission and fee
income 16,280 23,344 -30%
Investment income, net
of expenses 11,682 9,811 19%
Net realized gains
(impairments and
realized losses) (1,405) 1,299 -208%
Total revenues 208,494 205,250 2%
Net income 15,306 20,587 -26%
Common EPS - basic $ 0.74 $ 0.99 -25%
Common EPS - diluted $ 0.73 $ 0.99 -26%
Annualized return on
average equity 11.1% 17.0% -35%
Book value per share $ 9.11 $ 8.30 10%
Cash flow from
operations $ 37,158 $ 61,767 -40%
The decrease in total revenue for the three months ended September 30, 2008 was primarily due to a reduction in earned premium, recognized net losses on our investment portfolio and lower commission income. The increase in revenue for the nine months ended September 30, 2008 was primarily due to increased earned premium and investment income, partially offset by lower commission income and recognized losses on our investment portfolio. The recognized losses on the investment portfolio included a $3.0 million impairment for a Washington Mutual senior debt security.
Standard Commercial Segment revenues decreased $3.4 million and $0.9 million, or 14% and 1%, during the three and nine months ended September 30, 2008 as compared to the same periods during 2007, due primarily to lower earned premium as a result of general economic conditions and our continued underwriting discipline in an increasingly competitive marketplace. Specialty Commercial Segment revenues decreased $2.7 million, or 8%, and increased $0.6 million, or 1%, during the three months and nine months ended September 30, 2008 as compared to the same periods of 2007, due to lower commission income primarily as a result of retaining a higher percentage of the business produced by an agency subsidiary, partially offset by increased net premiums earned as a result of the increased retention of business. Revenues from the Personal Segment increased $0.9 million and $4.6 million, or 6% and 11%, during the three and nine months ended September 30, 2008 as compared to the same periods during 2007, due largely to geographic expansion into new states. Corporate revenue decreased $2.3 million and $1.1 million for the three and nine months ended September 30, 2008 primarily due to recognized losses on our investment portfolio of $2.5 million and $1.4 million during the three and nine months ended September 30, 2008 as compared to recognized gains on our investment portfolio of $0.4 million and $1.3 million during the same period the prior year, offset by investment income of $0.6 million and $1.6 million for the same periods due to changes in capital allocation.
On a diluted basis per share, net income was $0.03 and $0.73 per share, respectively, for the three months and nine months ended September 30, 2008 as compared to $0.33 and $0.99 per share for the same periods in 2007. The decrease in net income for the three and nine months ended September 30, 2008 was primarily attributable to decreased revenue for the three month period and increased losses and loss adjustment expense for both the three and nine month periods primarily attributable to third quarter net hurricane losses.
Hallmark's net loss ratio was 66.2% for the third quarter of 2008 as compared to 61.4% for the third quarter of 2007. For the year to date, Hallmark's net loss ratio was 62.1% as compared to 59.8% for the same period the prior year. Hallmark's net expense ratio was 28.8% for the third quarter of 2008 as compared to 27.5% for the third quarter of 2007. For the year to date, Hallmark's net expense ratio was 28.9% as compared to 27.9% for the same period the prior year. Hallmark maintained a profitable net combined ratio of 95.0% for the third quarter of 2008 and 91.0% for the year to date as compared to 88.9% and 87.7% 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's business is geographically concentrated in the south central and northwest regions of the United States, except for its general aviation business which is written on a national basis. 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 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 periodic report filings with the Securities and Exchange Commission.
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
September 30 December 31
ASSETS 2008 2007
------ ---- ----
(unaudited)
Investments:
Debt securities, available-for-sale,
at fair value $ 180,954 $ 248,069
Equity securities, available-for-
sale, at fair value 41,568 15,166
Short-term investments, available-
for-sale, at fair value 112,965 2,625
------------- -------------
Total investments 335,487 265,860
Cash and cash equivalents 24,191 145,884
Restricted cash and cash equivalents 8,963 16,043
Premiums receivable 47,052 46,026
Accounts receivable 5,243 5,219
Receivable for securities -- 27,395
Prepaid reinsurance premiums 2,636 942
Reinsurance recoverable 11,525 4,952
Deferred policy acquisition costs 20,149 19,757
Excess of cost over fair value of
net assets acquired 37,738 30,025
Intangible assets 29,683 23,781
Current federal income tax recoverable 1,586 --
Deferred federal income taxes 4,371 275
Prepaid expenses 941 1,240
Other assets 20,115 19,583
------------- -------------
Total assets $ 549,680 $ 606,982
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable $ 61,760 $ 60,814
Structured settlements -- 10,000
Reserves for unpaid losses and loss
adjustment expenses 155,288 125,338
Unearned premiums 105,293 102,998
Unearned revenue 2,126 2,949
Accrued agent profit sharing 1,935 2,844
Accrued ceding commission payable 12,193 12,099
Pension liability 1,017 1,669
Current federal income tax -- 864
Payable for securities 5,504 91,401
Accounts payable and other accrued
expenses 14,439 16,385
------------- -------------
Total liabilities 359,555 427,361
------------- -------------
Commitments and Contingencies (Note 17)
Redeemable minority interest 619 --
------------- -------------
Stockholders' equity:
Common stock, $.18 par value
(authorized 33,333,333 shares in
2008 and 2007; issued 20,816,782 in
2008 and 20,776,080 shares in 2007) 3,747 3,740
Capital in excess of par value 119,649 118,459
Retained earnings 74,649 59,343
Accumulated other comprehensive loss (8,462) (1,844)
Treasury stock, at cost (7,828 shares
in 2008 and 2007) (77) (77)
------------- -------------
Total stockholders' equity 189,506 179,621
------------- -------------
------------- -------------
$ 549,680 $ 606,982
============= =============
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
------------------ --------------------
2008 2007 2008 2007
-------- -------- --------- ---------
Gross premiums written $ 59,005 $ 62,304 $ 186,357 $ 193,539
Ceded premiums written (2,493) (441) (6,503) (8,609)
-------- -------- --------- ---------
Net premiums written 56,512 61,863 179,854 184,930
Change in unearned
premiums 2,416 (2,100) (1,918) (18,209)
-------- -------- --------- ---------
Net premiums earned 58,928 59,763 177,936 166,721
Investment income, net
of expenses 4,100 3,774 11,682 9,811
Net realized gains
(impairments and
realized losses) (2,496) 418 (1,405) 1,299
Finance charges 1,307 1,206 3,894 3,477
Commission and fees 3,127 7,280 16,280 23,344
Processing and service
fees 20 111 98 586
Other income 3 4 9 12
-------- -------- --------- ---------
Total revenues 64,989 72,556 208,494 205,250
Losses and loss
adjustment expenses 38,981 36,723 110,514 99,620
Other operating
expenses 24,041 24,087 71,114 70,511
Interest expense 1,186 1,026 3,557 2,608
Amortization of
intangible assets 620 573 1,766 1,719
-------- -------- --------- ---------
Total expenses 64,828 62,409 186,951 174,458
Income before tax and
minority interest 161 10,147 21,543 30,792
Income tax expense
(benefit) (485) 3,345 6,222 10,205
-------- -------- --------- ---------
Income before minority
interest 646 6,802 15,321 20,587
Minority interest 15 -- 15 --
-------- -------- --------- ---------
Net income $ 631 $ 6,802 $ 15,306 $ 20,587
======== ======== ========= =========
Common stockholders net
income per share:
Basic $ 0.03 $ 0.33 $ 0.74 $ 0.99
======== ======== ========= =========
Diluted $ 0.03 $ 0.33 $ 0.73 $ 0.99
======== ======== ========= =========
Hallmark Financial Services, Inc.
Consolidated Segment Data
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 unear-
ned 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
minority
interest 887 745 2,544 (4,030) 146
Net loss ratio
(2) 68.0% 65.9% 64.1% 66.2%
Net expense
ratio (2) 27.4% 31.1% 22.6% 28.8%
--------- --------- --------- ---------
Net combined
ratio (2) 95.4% 97.0% 86.7% 95.0%
========= ========= ========= =========
Three Months Ended September 30, 2007
-----------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
--------- --------- --------- --------- ---------
Produced
premium (1) $ 21,945 $ 37,919 $ 14,854 $ -- $ 74,718
--------- --------- --------- --------- ---------
Gross premiums
written 21,918 25,531 14,855 -- 62,304
Ceded premiums
written 386 (827) -- -- (441)
--------- --------- --------- --------- ---------
Net premiums
written 22,304 24,704 14,855 -- 61,863
Change in unear-
ned premiums (311) (870) (919) -- (2,100)
--------- --------- --------- --------- ---------
Net premiums
earned 21,993 23,834 13,936 -- 59,763
Total revenues 23,718 32,910 15,185 743 72,556
Losses and loss
adjustment
expenses 13,513 13,682 9,532 (4) 36,723
Pre-tax income
(loss) 3,702 6,500 1,854 (1,909) 10,147
Net loss ratio
(2) 61.4% 57.4% 68.4% 61.4%
Net expense
ratio (2) 27.1% 30.6% 22.9% 27.5%
--------- --------- --------- ---------
Net combined
ratio (2) 88.5% 88.0% 91.3% 88.9%
========= ========= ========= =========
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 retained by third party insurance carriers
where we receive 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.
Hallmark Financial Services, Inc.
Consolidated Segment Data
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), net of
minority
interest 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) 27.2% 30.7% 22.2% 28.9%
--------- --------- --------- ---------
Net combined
ratio (2) 86.7% 93.0% 87.6% 91.0%
========= ========= ========= =========
Nine Months Ended September 30, 2007
-----------------------------------------------------
Standard Specialty
Commercial Commercial Personal
Segment Segment Segment Corporate Consolidated
--------- --------- --------- --------- ---------
Produced
premium (1) $ 70,246 $ 118,232 $ 43,228 $ -- $ 231,706
--------- --------- -------- --------- ---------
Gross premiums
written 70,139 80,172 43,228 -- 193,539
Ceded premiums
written (5,053) (3,556) -- -- (8,609)
--------- --------- -------- --------- ---------
Net premiums
written 65,086 76,616 43,228 -- 184,930
Change in unear-
ned premiums (2,966) (12,100) (3,143) -- (18,209)
--------- --------- -------- --------- ---------
Net premiums
earned 62,120 64,516 40,085 -- 166,721
Total revenues 65,488 93,986 43,654 2,122 205,250
Losses and loss
adjustment
expenses 37,621 35,398 26,612 (11) 99,620
Pre-tax income
(loss) 9,125 20,627 6,148 (5,108) 30,792
Net loss ratio
(2) 60.6% 54.9% 66.4% 59.8%
Net expense
ratio (2) 27.3% 31.4% 23.1% 27.9%
--------- --------- -------- ---------
Net combined
ratio (2) 87.9% 86.3% 89.5% 87.7%
========= ========= ======== =========
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 retained by third party insurance carriers
where we receive 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.