For Immediate Release
Contact: Michael O. Banks — 570-200-1340
RESULTS ENDED JUNE 30, 2010 AND ANNOUNCES SHARE REPURCHASE PLAN
• | The Company had an operating loss after taxes from continuing operations, which excludes after-tax realized investment gains or losses, of $2.1 million in the second quarter 2010 compared to income of $0.1 million for the same quarter last year. |
• | The $2.2 million decline in operating income resulted primarily from a $2.2 million increase in after-tax losses from catastrophes as we incurred the highest level of catastrophe losses for any one quarter in at least the past ten years. | ||
• | We had net favorable after-tax prior year development of $0.6 million for the second quarter of 2010 compared to net unfavorable after-tax development, including the effects of our stop loss reinsurance contract, of $0.1 million in the same period of 2009. | ||
• | We recognized a one-time, after-tax benefit of $0.4 million from the termination of our Supplemental Executive Retirement Plan (“SERP”). | ||
• | This favorable development and the effect of the SERP termination helped offset the combined net impact of a decline in earned premiums and associated losses as we have strategically repositioned our commercial business book by exiting unprofitable agents and classes of business. |
• | The increased operating loss was partially offset by an after-tax increase in realized investment gains of $1.0 million. We sold investments and recognized $1.3 million of pre-tax capital gains in order to recoup the tax benefits on capital losses taken in 2008. |
• | The Company had an operating loss after taxes from continuing operations, which excludes after-tax realized investment gains or losses, of $2.6 million in the first six months of 2010 compared to income of $0.7 million for the same period last year. |
• | The $3.3 million decline in operating income was primarily driven by a $2.7 million increase in after-tax losses from catastrophes as our year to date catastrophe losses of $5.9 million have already exceeded our highest full year total for at least the previous ten years. | ||
• | We were also adversely affected by first quarter losses from winter storms that were not declared catastrophes. For the first six months of 2010, we have experienced $0.4 million more in after-tax, non-catastrophe related weather losses than the same period in 2009. | ||
• | Additionally, our results were adversely impacted by a $0.3 million after-tax decline in favorable development for the first six months of 2010 compared to the same period of 2009. For the first six months of 2010, favorable prior year development was $0.6 million, after taxes, compared to net after-tax favorable development, including the effects of our stop loss reinsurance contract, of $0.9 million in 2009. |
• | We recognized a one-time, after-tax benefit of $0.4 million from the termination of our SERP, which has helped offset increased costs related to being a public company. |
• | The decrease in operating income was also partially offset by an after-tax increase in realized investment gains of $1.2 million, most of which occurred in the second quarter. | ||
• | Net income for the same period in 2009 was adversely impacted by a net after-tax loss from discontinued operations of $0.8 million resulting from the tax impact of the sale of Eastern Insurance Group. |
Share Repurchase Plan:
On August 11, 2010, the Company’s Board of Directors authorized the repurchase of 245,662 shares of the Company’s issued and outstanding shares of common stock, from time to time during the twelve month period commencing on August 18, 2010, on the open market or in privately negotiated transactions as, in management’s sole discretion, market conditions warrant, provided that all such purchases are effected in accordance with applicable securities laws, including Rule 10b-18 of the Securities and Exchange Act of 1934, and all other legal requirements. The amount remaining available to be repurchased under the Company’s May 12, 2010 share repurchase plan is 25,900 shares.
Financial Highlights
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
U.S. GAAP ratios: | ||||||||||||||||
Loss and loss adjustment expense ratio | 95.2 | % | 73.6 | % | 86.7 | % | 70.0 | % | ||||||||
Underwriting expense ratio | 35.2 | % | 33.6 | % | 35.2 | % | 34.7 | % | ||||||||
Combined ratio | 130.4 | % | 107.2 | % | 121.9 | % | 104.7 | % | ||||||||
Return on average shareholders’ equity, continuing operations (1) | -5.1 | % | -0.4 | % | -3.1 | % | 2.5 | % | ||||||||
Return on average equity (1) | -5.1 | % | -0.4 | % | -3.1 | % | -0.7 | % | ||||||||
Basic earnings per share (2) | ($0.27 | ) | N/A | ($0.32 | ) | N/A | ||||||||||
Diluted earnings per share (2) | ($0.27 | ) | N/A | ($0.32 | ) | N/A | ||||||||||
Net book value per share (2) | $ | 21.44 | N/A |
(1) | Return on average equity is annualized. | |
(2) | 2009 results are not applicable as our public offering did not occur until October 2009. |
Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
(Dollars in thousands, except share data)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturities available for sale, at fair value (amortized cost $158,781 in 2010 and $161,730 in 2009) | $ | 165,246 | 167,155 | |||||
Equity securities available for sale, at fair value (cost $11,084 in 2010 and $0 in 2009) | 9,964 | — | ||||||
Total investments | 175,210 | 167,155 | ||||||
Cash and cash equivalents | 10,931 | 20,220 | ||||||
Premiums and fees receivable | 25,894 | 29,526 | ||||||
Reinsurance receivables and recoverables | 24,219 | 19,502 | ||||||
Deferred policy acquisition costs | 9,504 | 10,053 | ||||||
Prepaid reinsurance premiums | 3,860 | 4,076 | ||||||
Accrued investment income | 1,690 | 1,810 | ||||||
Property and equipment, net of accumulated depreciation | 3,519 | 3,769 | ||||||
Income taxes receivable | 1,260 | — | ||||||
Deferred income taxes | 3,554 | 3,518 | ||||||
Other | 2,083 | 3,821 | ||||||
Total assets | $ | 261,724 | 263,450 | |||||
Liabilities and Shareholders’ Equity | ||||||||
Liabilities: | ||||||||
Losses and loss adjustment expense reserves | $ | 116,240 | 106,710 | |||||
Unearned premiums | 40,136 | 43,313 | ||||||
Accounts payable and accrued expenses | 10,262 | 12,762 | ||||||
Income taxes payable | — | 617 | ||||||
Total liabilities | 166,638 | 163,402 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, no par value, authorized 1,000,000; no shares issued or outstanding | — | — | ||||||
Common stock, $0.01 par value, authorized 10,000,000; issued 5,444,022; outstanding 4,435,131 and 4,695,262 shares | 54 | 54 | ||||||
Additional paid-in capital | 50,671 | 50,520 | ||||||
Accumulated other comprehensive income | 2,808 | 2,519 | ||||||
Retained earnings | 52,964 | 54,481 | ||||||
Unearned ESOP, 503,999 and 530,999 shares | (5,040 | ) | (5,310 | ) | ||||
Treasury stock, at cost, 504,892 and 217,761 shares | (6,371 | ) | (2,216 | ) | ||||
Total shareholders’ equity | 95,086 | 100,048 | ||||||
Total liabilities and shareholders’ equity | $ | 261,724 | 263,450 | |||||
Consolidated Statements of Operations
(Unaudited)
Three months ended June 30, 2010 and 2009
(Dollars in thousands, except share data)
2010 | 2009 | |||||||
Revenues: | ||||||||
Premiums earned | $ | 16,679 | 18,869 | |||||
Investment income, net of investment expense | 1,452 | 1,410 | ||||||
Realized investment gains (losses), net: | ||||||||
Total other-than-temporary impairment losses | — | (197 | ) | |||||
Portion of loss recognized in other comprehensive income | — | — | ||||||
Other realized investment gains, net | 1,294 | 35 | ||||||
Total realized investment gains (losses), net | 1,294 | (162 | ) | |||||
Other income | 88 | 91 | ||||||
Total revenues | 19,513 | 20,208 | ||||||
Losses and expenses: | ||||||||
Losses and loss adjustment expenses | 15,885 | 13,896 | ||||||
Amortization of deferred policy acquisition costs | 5,159 | 5,447 | ||||||
Underwriting and administrative expenses | 712 | 893 | ||||||
Interest expense | — | 80 | ||||||
Other expense, net | 37 | 43 | ||||||
Total losses and expenses | 21,793 | 20,359 | ||||||
Loss from continuing operations, before income taxes | (2,280 | ) | (151 | ) | ||||
Income tax benefit | (1,005 | ) | (98 | ) | ||||
Loss from continuing operations | (1,275 | ) | (53 | ) | ||||
Discontinued operations: | ||||||||
Gain from discontinued operations, before income taxes | — | 4 | ||||||
Income tax expense | — | — | ||||||
Gain from discontinued operations | — | 4 | ||||||
Net loss | $ | (1,275 | ) | (49 | ) | |||
Basic earnings per common share: | ||||||||
Loss from continuing operations | $ | (0.27 | ) | |||||
Loss from discontinued operations | — | |||||||
Net loss per common share | $ | (0.27 | ) | |||||
Diluted earnings per common share: | ||||||||
Loss from continuing operations | $ | (0.27 | ) | |||||
Loss from discontinued operations | — | |||||||
Net loss per common share | $ | (0.27 | ) | |||||
Consolidated Statements of Operations
(Unaudited)
Six months ended June 30, 2010 and 2009
(Dollars in thousands, except share data)
2010 | 2009 | |||||||
Revenues: | ||||||||
Premiums earned | $ | 33,735 | 36,926 | |||||
Investment income, net of investment expense | 3,024 | 2,769 | ||||||
Realized investment gains (losses), net: | ||||||||
Total other-than-temporary impairment losses | — | (197 | ) | |||||
Portion of loss recognized in other comprehensive income | — | — | ||||||
Other realized investment gains, net | 1,666 | 64 | ||||||
Total realized investment gains (losses), net | 1,666 | (133 | ) | |||||
Other income | 180 | 111 | ||||||
Total revenues | 38,605 | 39,673 | ||||||
Losses and expenses: | ||||||||
Losses and loss adjustment expenses | 29,257 | 25,866 | ||||||
Amortization of deferred policy acquisition costs | 10,036 | 10,953 | ||||||
Underwriting and administrative expenses | 1,831 | 1,869 | ||||||
Interest expense | — | 156 | ||||||
Other expense, net | 70 | 90 | ||||||
Total losses and expenses | 41,194 | 38,934 | ||||||
(Loss) income from continuing operations, before income taxes | (2,589 | ) | 739 | |||||
Income tax (benefit) expense | (1,072 | ) | 107 | |||||
(Loss) income from continuing operations | (1,517 | ) | 632 | |||||
Discontinued operations: | ||||||||
Loss from discontinued operations, before income taxes | — | (12 | ) | |||||
Income tax expense | — | 804 | ||||||
Loss from discontinued operations | — | (816 | ) | |||||
Net loss | $ | (1,517 | ) | (184 | ) | |||
Basic earnings per common share: | ||||||||
Loss from continuing operations | $ | (0.32 | ) | |||||
Loss from discontinued operations | — | |||||||
Net loss per common share | $ | (0.32 | ) | |||||
Diluted earnings per common share: | ||||||||
Loss from continuing operations | $ | (0.32 | ) | |||||
Loss from discontinued operations | — | |||||||
Net loss per common share | $ | (0.32 | ) | |||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Operating (loss) income from continuing operations | $ | (2,129 | ) | 54 | $ | (2,617 | ) | $ | 720 | |||||||
Net realized gains (losses) on investments, net of income taxes | 854 | (107 | ) | 1,100 | (88 | ) | ||||||||||
(Loss) income from continuing operations | $ | (1,275 | ) | (53 | ) | $ | (1,517 | ) | $ | 632 | ||||||