FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC. ANNOUNCES FIRST QUARTER 2008 RESULTS HIGHLIGHTED BY A 42 PERCENT INCREASE IN NET INCOME AND REVENUE GROWTH OF 11 PERCENT OVER PRIOR YEAR FIRST QUARTER
FORT WORTH, Texas, (May 15, 2008) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported net income of $7.1 million for the first quarter of 2008, a 42% increase over the $5.0 million reported for the first quarter of 2007. On a fully diluted basis, net income was $0.34 per share for the first quarter of 2008 as compared to $0.24 per share for the first quarter of 2007. Total revenues for the first quarter of 2008 were $71.2 million, representing an 11% increase from the $64.0 million reported for the first quarter of 2007.
Mark J. Morrison, President and Chief Executive Officer, said, “Our results for the quarter were strong despite the continued impact from the general economic slow-down on premium renewals from our smaller commercial construction accounts and ongoing rate competition on our larger accounts. However, premium production from our Personal Segment has seen a significant 40% increase from the fourth quarter of 2007 due to our continued focus on geographic expansion into markets with less competitive pricing. We believe that our underwriting discipline in this soft rate environment will enable us to deliver superior results to the average of our peers in our specialty and niche markets of the property/casualty segment.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Our quarterly net combined ratio of 89%, an annualized return on average equity of 16% and cash flow from operations of over $12 million generated for the quarter reflect our continued underwriting discipline and focus on bottom-line results. Our solid investment performance contributed to a 19% increase in book value per share since the end of the first quarter of 2007.”
Three Months Ended March 31, | ||||||||||
2008 | 2007 | % Change | ||||||||
($ in thousands) | ||||||||||
Gross premiums written | $ | 64,237 | $ | 64,658 | -1 | % | ||||
Net premiums written | 61,905 | 60,771 | 2 | % | ||||||
Net premiums earned | 58,916 | 51,648 | 14 | % | ||||||
Commission and fees | 6,484 | 7,905 | -18 | % | ||||||
Investment income, net of expenses | 3,625 | 2,990 | 21 | % | ||||||
Gain on investments | 859 | 53 | NM | |||||||
Total revenues | 71,193 | 63,958 | 11 | % | ||||||
Net income | 7,052 | 4,970 | 42 | % | ||||||
Common EPS - basic | $ | 0.34 | $ | 0.24 | 42 | % | ||||
Common EPS - diluted | $ | 0.34 | $ | 0.24 | 42 | % | ||||
Annualized return on average equity | 15.5 | % | 13.0 | % | 19 | % | ||||
Book value per share | $ | 8.93 | $ | 7.52 | 19 | % | ||||
Cash flow from operations | $ | 12,388 | $ | 18,962 | -35 | % |
The increase in net income for the quarter was favorably impacted by increased retention of business produced by our Specialty Commercial Segment, increased production from our Personal Segment, increased investment income from a larger investment portfolio and favorable prior year loss reserve development of $1.6 million during the first quarter of 2008. We did not recognize any prior year development during the first quarter of 2007. Specialty Commercial Segment revenues increased $4.0 million, or 14%, during the quarter as compared to the first quarter of 2007. Revenues from the Personal Segment increased $1.9 million, or 14%, during the quarter due largely to geographic expansion into new states. An increased recognized gain on our investment portfolio was the primary reason for the increase in revenue for Corporate.
Hallmark's net loss ratio was 60.3% for the first quarter of 2008 as compared to 62.3% for the first quarter of 2007. Hallmark's net expense ratio was 29.0% for the first quarter of 2008 as compared to 28.2% for the first quarter of 2007. As a result, Hallmark maintained a strong net combined ratio of 89.3% for the first quarter of 2008 as compared to 90.5% for the first quarter of 2007.
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. Our business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. Our business is geographically concentrated in the south central and northwest regions of the United States, except for our general aviation business which is written on a national basis. The Company is headquartered in Fort Worth, Texas and its common stock is presently listed on NASDAQ under the symbol "HALL."
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, 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.
For further information, please contact:
Mark J. Morrison, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
Consolidated Balance Sheets | ||||||||
($ in thousands) |
March 31 2008 | December 31 2007 | ||||||
ASSETS | (unaudited) | ||||||
Investments: | |||||||
Debt securities, available-for-sale, at fair value | $ | 167,108 | $ | 248,069 | |||
Equity securities, available-for-sale, at fair value | 35,566 | 15,166 | |||||
Short-term investments, available-for-sale, at fair value | 95,060 | 2,625 | |||||
Total investments | 297,734 | 265,860 | |||||
Cash and cash equivalents | 61,303 | 145,884 | |||||
Restricted cash and cash equivalents | 4,682 | 16,043 | |||||
Premiums receivable | 47,740 | 46,026 | |||||
Accounts receivable | 5,344 | 5,219 | |||||
Receivable for securities | - | 27,395 | |||||
Prepaid reinsurance premiums | 2,197 | 274 | |||||
Reinsurance recoverable | 4,469 | 4,952 | |||||
Deferred policy acquisition costs | 20,416 | 19,757 | |||||
Excess of cost over fair value of net assets acquired | 30,025 | 30,025 | |||||
Intangible assets | 23,208 | 23,781 | |||||
Deferred federal income taxes | 1,075 | 275 | |||||
Prepaid expenses | 1,319 | 1,240 | |||||
Other assets | 19,541 | 19,583 | |||||
Total assets | $ | 519,053 | $ | 606,314 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Liabilities: | |||||||
Notes payable | $ | 60,921 | $ | 60,814 | |||
Structured settlements | - | 10,000 | |||||
Reserves for unpaid losses and loss adjustment expenses | 133,748 | 125,338 | |||||
Unearned premiums | 106,009 | 102,998 | |||||
Unearned revenue | 2,447 | 2,949 | |||||
Accrued agent profit sharing | 667 | 2,844 | |||||
Accrued ceding commission payable | 12,185 | 12,099 | |||||
Pension liability | 1,584 | 1,669 | |||||
Current federal income tax payable | 3,418 | 630 | |||||
Payable for securities | - | 91,401 | |||||
Accounts payable and other accrued expenses | 12,410 | 16,385 | |||||
Total liabilities | 333,389 | 427,127 | |||||
Commitments and Contingencies | |||||||
Stockholders' equity: | |||||||
Common stock, $.18 par value (authorized 33,333,333 shares in 2008 and 2007; | |||||||
issued 20,809,415 and 20,776,080 shares in 2008 and 2007) | 3,746 | 3,740 | |||||
Capital in excess of par value | 119,120 | 118,459 | |||||
Retained earnings | 65,961 | 58,909 | |||||
Accumulated other comprehensive loss | (3,086 | ) | (1,844 | ) | |||
Treasury stock, at cost (7,828 shares in 2008 and 2007) | (77 | ) | (77 | ) | |||
Total stockholders' equity | 185,664 | 179,187 | |||||
$ | 519,053 | $ | 606,314 | ||||
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations | |||||||||
(Unaudited) | |||||||||
($ in thousands, except per share amounts) |
Three Months Ended March 31 | |||||||
2008 | 2007 | ||||||
Gross premiums written | $ | 64,237 | $ | 64,658 | |||
Ceded premiums written | (2,332 | ) | (3,887 | ) | |||
Net premiums written | 61,905 | 60,771 | |||||
Change in unearned premiums | (2,989 | ) | (9,123 | ) | |||
Net premiums earned | 58,916 | 51,648 | |||||
Investment income, net of expenses | 3,625 | 2,990 | |||||
Gain on investments | 859 | 53 | |||||
Finance charges | 1,264 | 1,086 | |||||
Commission and fees | 6,484 | 7,905 | |||||
Processing and service fees | 42 | 272 | |||||
Other income | 3 | 4 | |||||
Total revenues | 71,193 | 63,958 | |||||
Losses and loss adjustment expenses | 35,504 | 32,185 | |||||
Other operating expenses | 23,465 | 22,701 | |||||
Interest expense | 1,185 | 786 | |||||
Amortization of intangible asset | 573 | 573 | |||||
Total expenses | 60,727 | 56,245 | |||||
Income before tax | 10,466 | 7,713 | |||||
Income tax expense | 3,414 | 2,743 | |||||
Net income | $ | 7,052 | $ | 4,970 | |||
Net income per share: | |||||||
Basic | $ | 0.34 | $ | 0.24 | |||
Diluted | $ | 0.34 | $ | 0.24 |
Hallmark Financial Services, Inc.
Consolidated Segment Data
Three Months Ended March 31, 2008 | ||||||||||||||||
Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||
Produced premium | $ | 21,749 | $ | 32,020 | $ | 17,727 | $ | - | $ | 71,496 | ||||||
Gross premiums written | 21,749 | 24,761 | 17,727 | - | 64,237 | |||||||||||
Ceded premiums written | (1,364 | ) | (968 | ) | - | - | (2,332 | ) | ||||||||
Net premiums written | 20,385 | 23,793 | 17,727 | - | 61,905 | |||||||||||
Change in unearned premiums | 404 | (155 | ) | (3,238 | ) | - | (2,989 | ) | ||||||||
Net premiums earned | 20,789 | 23,638 | 14,489 | - | 58,916 | |||||||||||
Total revenues | 21,829 | 32,087 | 15,726 | 1,551 | 71,193 | |||||||||||
Losses and loss adjustment expenses | 11,310 | 15,003 | 9,191 | - | 35,504 | |||||||||||
Pre-tax income (loss) | 3,881 | 5,293 | 2,590 | (1,298 | ) | 10,466 | ||||||||||
Net loss ratio (1) | 54.4 | % | 63.5 | % | 63.4 | % | 60.3 | % | ||||||||
Net expense ratio (1) | 27.4 | % | 30.7 | % | 22.5 | % | 29.0 | % | ||||||||
Net combined ratio (1) | 81.8 | % | 94.2 | % | 85.9 | % | 89.3 | % |
Three Months Ended March 31, 2007 | ||||||||||||||||
Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||
Produced premium | $ | 23,550 | $ | 39,357 | $ | 15,076 | $ | - | $ | 77,983 | ||||||
Gross premiums written | 23,481 | 26,101 | 15,076 | - | 64,658 | |||||||||||
Ceded premiums written | (2,635 | ) | (1,252 | ) | - | - | (3,887 | ) | ||||||||
Net premiums written | 20,846 | 24,849 | 15,076 | - | 60,771 | |||||||||||
Change in unearned premiums | (924 | ) | (5,756 | ) | (2,443 | ) | - | (9,123 | ) | |||||||
Net premiums earned | 19,922 | 19,093 | 12,633 | - | 51,648 | |||||||||||
Total revenues | 21,767 | 28,098 | 13,773 | 320 | 63,958 | |||||||||||
Losses and loss adjustment expenses | 12,841 | 11,081 | 8,267 | (4 | ) | 32,185 | ||||||||||
Pre-tax income (loss) | 2,759 | 4,686 | 2,118 | (1,850 | ) | 7,713 | ||||||||||
Net loss ratio (1) | 64.5 | % | 58.0 | % | 65.4 | % | 62.3 | % | ||||||||
Net expense ratio (1) | 28.0 | % | 31.5 | % | 23.6 | % | 28.2 | % | ||||||||
Net combined ratio (1) | 92.5 | % | 89.5 | % | 89.0 | % | 90.5 | % |
1 | Net loss ratio is calculated as total net losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. Net expense ratio is calculated as total underwriting expenses of our insurance company subsidiaries, including 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. |