001-11252
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87-0447375
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(Commission File Number)
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(IRS Employer Identification No.)
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777 Main Street, Suite 1000, Fort Worth, Texas
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76102
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(Address of Principal Executive Offices)
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(Zip Code)
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99.1
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Press release dated March 14, 2011
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HALLMARK FINANCIAL SERVICES, INC.
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Date: March 15, 2011
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By:
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/s/ Jeffrey R. Passmore
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Jeffrey R. Passmore, Chief Accounting Officer
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Three Months Ended
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December 31,
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||||||||||||
2010
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2009
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% Change
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||||||||||
($ in thousands, unaudited)
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||||||||||||
Produced premium (1)
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$ | 72,152 | $ | 66,003 | 9 | % | ||||||
Gross premiums written
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73,735 | 67,013 | 10 | % | ||||||||
Net premiums written
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63,666 | 57,909 | 10 | % | ||||||||
Net premiums earned
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70,902 | 65,085 | 9 | % | ||||||||
Investment income, net of expenses
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4,336 | 3,744 | 16 | % | ||||||||
Net realized gain on investments
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2,645 | 1,916 | 38 | % | ||||||||
Total revenues
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79,333 | 73,482 | 8 | % | ||||||||
Net earnings (2)
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420 | 9,296 | -95 | % | ||||||||
Net earnings per share - basic
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$ | 0.02 | $ | 0.46 | -96 | % | ||||||
Net earnings per share - diluted
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$ | 0.02 | $ | 0.46 | -96 | % | ||||||
Annualized return on average equity
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0.7 | % | 16.8 | % | -96 | % | ||||||
Book value per share
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$ | 11.72 | $ | 11.26 | 4 | % | ||||||
Cash flow from operations
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$ | 7,426 | $ | 16,003 | -54 | % |
Fiscal Year Ended
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December 31,
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||||||||||||
2010
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2009
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% Change
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||||||||||
($ in thousands, unaudited)
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||||||||||||
Produced premium (1)
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$ | 314,857 | $ | 288,450 | 9 | % | ||||||
Gross premiums written
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320,973 | 287,558 | 12 | % | ||||||||
Net premiums written
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281,641 | 261,740 | 8 | % | ||||||||
Net premiums earned
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278,271 | 251,072 | 11 | % | ||||||||
Investment income, net of expenses
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14,849 | 14,947 | -1 | % | ||||||||
Net realized gain on investments
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8,402 | 3,032 | 177 | % | ||||||||
Total revenues
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307,060 | 287,039 | 7 | % | ||||||||
Net earnings (2)
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7,334 | 24,575 | -70 | % | ||||||||
Net earnings per share - basic
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$ | 0.36 | $ | 1.19 | -70 | % | ||||||
Net earnings per share - diluted
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$ | 0.36 | $ | 1.19 | -70 | % | ||||||
Return on average equity
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3.2 | % | 12.1 | % | -74 | % | ||||||
Book value per share
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$ | 11.72 | $ | 11.26 | 4 | % | ||||||
Cash flow from operations
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$ | 36,360 | $ | 61,698 | -41 | % |
2010
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2009
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ASSETS
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Investments:
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Debt securities, available-for-sale, at fair value (cost; $383,530 in 2010 and $287,108 in 2009)
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$ | 388,399 | $ | 291,876 | ||||
Equity securities, available-for-sale, at fair value (cost; $32,469 in 2010 and $27,251 in 2009)
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44,042 | 35,801 | ||||||
Total investments
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432,441 | 327,677 | ||||||
Cash and cash equivalents
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60,519 | 112,270 | ||||||
Restricted cash
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5,277 | 5,458 | ||||||
Ceded unearned premiums
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25,504 | 12,997 | ||||||
Premiums receivable
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47,337 | 46,635 | ||||||
Accounts receivable
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7,051 | 3,377 | ||||||
Receivable for securities
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2,215 | - | ||||||
Reinsurance recoverable
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39,505 | 10,008 | ||||||
Deferred policy acquisition costs
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21,679 | 20,792 | ||||||
Goodwill
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43,564 | 41,080 | ||||||
Intangible assets, net
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30,241 | 28,873 | ||||||
Federal income tax recoverable
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4,093 | - | ||||||
Prepaid expenses
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1,987 | 923 | ||||||
Other assets
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15,207 | 18,779 | ||||||
$ | 736,620 | $ | 628,869 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Note payable
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$ | 2,800 | $ | 2,800 | ||||
Subordinated debt securities
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56,702 | 56,702 | ||||||
Reserves for unpaid losses and loss adjustment expenses
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251,677 | 184,662 | ||||||
Unearned premiums
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140,965 | 125,089 | ||||||
Unearned revenue
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116 | 191 | ||||||
Reinsurance balances payable
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3,122 | 3,281 | ||||||
Accrued agent profit sharing
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1,301 | 1,790 | ||||||
Accrued ceding commission payable
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4,231 | 8,600 | ||||||
Pension liability
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2,833 | 2,628 | ||||||
Payable for securities
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2,493 | 19 | ||||||
Payable for acquisition
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14,000 | - | ||||||
Deferred federal income taxes, net
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3,471 | 942 | ||||||
Federal income tax payable
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- | 1,266 | ||||||
Accounts payable and other accrued expenses
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15,786 | 13,258 | ||||||
499,497 | 401,228 | |||||||
Commitments and contingencies
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Redeemable non-controlling interest
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1,360 | 1,124 | ||||||
Stockholders’ equity:
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Common stock, $.18 par value, authorized 33,333,333 shares in 2010 and 2009; issued 20,872,831 shares in 2010 and 2009
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3,757 | 3,757 | ||||||
Additional paid-in capital
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121,815 | 121,016 | ||||||
Retained earnings
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105,816 | 98,482 | ||||||
Accumulated other comprehensive income
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9,637 | 8,589 | ||||||
Treasury stock, (748,662 shares in 2010 and 757,828 in 2009), at cost
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(5,262 | ) | (5,327 | ) | ||||
Total stockholders’ equity
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235,763 | 226,517 | ||||||
$ | 736,620 | $ | 628,869 |
Three Months Ended
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Fiscal Year Ended
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December 31
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December 31
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2010
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2009
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2010
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2009
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|||||||||||||
Gross premiums written
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$ | 73,735 | $ | 67,013 | $ | 320,973 | $ | 287,558 | ||||||||
Ceded premiums written
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(10,069 | ) | (9,104 | ) | (39,332 | ) | (25,818 | ) | ||||||||
Net premiums written
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63,666 | 57,909 | 281,641 | 261,740 | ||||||||||||
Change in unearned premiums
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7,236 | 7,176 | (3,370 | ) | (10,668 | ) | ||||||||||
Net premiums earned
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70,902 | 65,085 | 278,271 | 251,072 | ||||||||||||
Investment income, net of expenses
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4,336 | 3,744 | 14,849 | 14,947 | ||||||||||||
Net realized gains
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2,645 | 1,916 | 8,402 | 3,032 | ||||||||||||
Finance charges
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1,807 | 1,550 | 7,054 | 5,874 | ||||||||||||
Commission and fees
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(371 | ) | 1,177 | (1,575 | ) | 12,011 | ||||||||||
Other income
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14 | 10 | 59 | 103 | ||||||||||||
Total revenues
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79,333 | 73,482 | 307,060 | 287,039 | ||||||||||||
Losses and loss adjustment expenses
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56,095 | 38,067 | 202,544 | 153,619 | ||||||||||||
Operating expenses
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22,033 | 21,177 | 87,989 | 92,233 | ||||||||||||
Interest expense
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1,151 | 1,146 | 4,598 | 4,602 | ||||||||||||
Amortization of intangible assets
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916 | 916 | 3,665 | 3,328 | ||||||||||||
Total expenses
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80,195 | 61,306 | 298,796 | 253,782 | ||||||||||||
Income before tax
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(862 | ) | 12,176 | 8,264 | 33,257 | |||||||||||
Income tax expense
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(1,317 | ) | 2,864 | 825 | 8,630 | |||||||||||
Net income
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455 | 9,312 | 7,439 | 24,627 | ||||||||||||
Less: Net income attributable to non-controlling interest
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35 | 16 | 105 | 52 | ||||||||||||
Net income attributable to Hallmark Financial Services, Inc.
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$ | 420 | $ | 9,296 | $ | 7,334 | $ | 24,575 | ||||||||
Net income per share attributable to Hallmark Financial Services, Inc. common stockholders:
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Basic
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$ | 0.02 | $ | 0.46 | $ | 0.36 | $ | 1.19 | ||||||||
Diluted
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$ | 0.02 | $ | 0.46 | $ | 0.36 | $ | 1.19 |
Three Months Ended December 31, 2010
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 15,357 | $ | 36,435 | $ | 20,360 | $ | - | $ | 72,152 | ||||||||||
Gross premiums written
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15,357 | 38,018 | 20,360 | - | 73,735 | |||||||||||||||
Ceded premiums written
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(1,168 | ) | (8,814 | ) | (87 | ) | - | (10,069 | ) | |||||||||||
Net premiums written
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14,189 | 29,204 | 20,273 | - | 63,666 | |||||||||||||||
Change in unearned premiums
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1,799 | 2,413 | 3,024 | - | 7,236 | |||||||||||||||
Net premiums earned
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15,988 | 31,617 | 23,297 | - | 70,902 | |||||||||||||||
Total revenues
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17,160 | 33,573 | 25,355 | 3,245 | 79,333 | |||||||||||||||
Losses and loss adjustment expenses
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12,017 | 20,496 | 23,582 | - | 56,095 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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727 | 3,486 | (5,230 | ) | 120 | (897 | ) | |||||||||||||
Net loss ratio (2)
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75.2 | % | 64.8 | % | 101.2 | % | 79.1 | % | ||||||||||||
Net expense ratio (2)
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27.0 | % | 30.9 | % | 24.3 | % | 29.9 | % | ||||||||||||
Net combined ratio (2)
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102.2 | % | 95.7 | % | 125.5 | % | 109.0 | % |
Three Months Ended December 31, 2009
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 15,631 | $ | 33,632 | $ | 16,740 | $ | - | $ | 66,003 | ||||||||||
Gross premiums written
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15,631 | 34,642 | 16,740 | - | 67,013 | |||||||||||||||
Ceded premiums written
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(1,099 | ) | (8,005 | ) | - | - | (9,104 | ) | ||||||||||||
Net premiums written
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14,532 | 26,637 | 16,740 | - | 57,909 | |||||||||||||||
Change in unearned premiums
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2,789 | 4,012 | 375 | - | 7,176 | |||||||||||||||
Net premiums earned
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17,321 | 30,649 | 17,115 | - | 65,085 | |||||||||||||||
Total revenues
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18,713 | 33,903 | 18,814 | 2,052 | 73,482 | |||||||||||||||
Losses and loss adjustment expenses
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10,482 | 17,031 | 10,554 | - | 38,067 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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3,279 | 6,603 | 3,262 | (984 | ) | 12,160 | ||||||||||||||
Net loss ratio (2)
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60.5 | % | 55.6 | % | 61.7 | % | 58.5 | % | ||||||||||||
Net expense ratio (2)
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27.8 | % | 30.4 | % | 22.1 | % | 29.7 | % | ||||||||||||
Net combined ratio (2)
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88.3 | % | 86.0 | % | 83.8 | % | 88.2 | % |
1
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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.
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2
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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.
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Fiscal Year Ended December 31, 2010
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 67,844 | $ | 151,721 | $ | 95,292 | $ | - | $ | 314,857 | ||||||||||
Gross premiums written
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67,832 | 157,849 | 95,292 | - | 320,973 | |||||||||||||||
Ceded premiums written
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(4,260 | ) | (34,876 | ) | (196 | ) | - | (39,332 | ) | |||||||||||
Net premiums written
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63,572 | 122,973 | 95,096 | - | 281,641 | |||||||||||||||
Change in unearned premiums
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1,999 | 1,125 | (6,494 | ) | - | (3,370 | ) | |||||||||||||
Net premiums earned
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65,571 | 124,098 | 88,602 | - | 278,271 | |||||||||||||||
Total revenues
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69,670 | 131,076 | 96,741 | 9,573 | 307,060 | |||||||||||||||
Losses and loss adjustment expenses
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51,468 | 78,911 | 72,165 | - | 202,544 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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(2,316 | ) | 13,315 | (705 | ) | (2,135 | ) | 8,159 | ||||||||||||
Net loss ratio (2)
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78.5 | % | 63.6 | % | 81.4 | % | 72.8 | % | ||||||||||||
Net expense ratio (2)
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30.7 | % | 29.7 | % | 22.4 | % | 29.6 | % | ||||||||||||
Net combined ratio (2)
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109.2 | % | 93.3 | % | 103.8 | % | 102.4 | % |
Fiscal Year Ended December 31, 2009
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 72,512 | $ | 144,230 | $ | 71,708 | $ | - | $ | 288,450 | ||||||||||
Gross premiums written
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72,512 | 143,338 | 71,708 | - | 287,558 | |||||||||||||||
Ceded premiums written
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(4,430 | ) | (21,388 | ) | - | - | (25,818 | ) | ||||||||||||
Net premiums written
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68,082 | 121,950 | 71,708 | - | 261,740 | |||||||||||||||
Change in unearned premiums
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3,208 | (9,680 | ) | (4,196 | ) | - | (10,668 | ) | ||||||||||||
Net premiums earned
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71,290 | 112,270 | 67,512 | - | 251,072 | |||||||||||||||
Total revenues
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76,496 | 131,504 | 73,785 | 5,254 | 287,039 | |||||||||||||||
Losses and loss adjustment expenses
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44,372 | 65,453 | 43,794 | - | 153,619 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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9,266 | 20,883 | 11,000 | (7,944 | ) | 33,205 | ||||||||||||||
Net loss ratio (2)
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62.2 | % | 58.3 | % | 64.9 | % | 61.2 | % | ||||||||||||
Net expense ratio (2)
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31.3 | % | 30.1 | % | 21.6 | % | 30.5 | % | ||||||||||||
Net combined ratio (2)
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93.5 | % | 88.4 | % | 86.5 | % | 91.7 | % |
1
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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.
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2
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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.
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