Mark J. Morrison
President and Chief Executive Officer
817.348.1600
www.hallmarkgrp.com
FORT WORTH, Texas, May 15, 2008 – Hallmark Financial Services, Inc. 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.
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
March 31 Dec. 31
ASSETS 2008 2007
(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 Specialty
Commercial Commercial Personal
Segment Segment 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 Specialty
Commercial Commercial Personal
Segment Segment 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.
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