Nevada
|
87-0447375
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
Incorporation
or organization)
|
Identification
No.)
|
|
777
Main Street, Suite 1000, Fort Worth, Texas
|
76102
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Accelerated filer ¨
|
|
Non-accelerated filer ¨
|
Smaller reporting company x
|
INDEX
TO FINANCIAL STATEMENTS
|
Page Number
|
|
Consolidated Balance
Sheets at June 30, 2008 (unaudited) and December 31, 2007
|
3
|
Consolidated
Statements of Operations (unaudited) for the three months and six
months
ended June 30, 2008 and June 30, 2007
|
4
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income (unaudited)
for the three months and six months ended June 30, 2008 and June
30,
2007
|
5
|
Consolidated
Statements of Cash Flows (unaudited) for the six months ended June
30,
2008 and June 30, 2007
|
6
|
Notes
to Consolidated Financial Statements (unaudited)
|
7
|
June 30
|
December 31
|
||||||
|
2008
|
2007
|
|||||
(unaudited)
|
|||||||
ASSETS
|
|||||||
Investments:
|
|||||||
Debt
securites, available-for-sale, at fair value
|
$
|
164,137
|
$
|
248,069
|
|||
Equity
securites, available-for-sale, at fair value
|
51,694
|
15,166
|
|||||
Short-Term
investments, available-for-sale, at fair value
|
121,440
|
2,625
|
|||||
Total
investments
|
337,271
|
265,860
|
|||||
Cash
and cash equivalents
|
33,599
|
145,884
|
|||||
Restricted
cash and cash equivalents
|
11,588
|
16,043
|
|||||
Premiums
receivable
|
47,090
|
46,026
|
|||||
Accounts
receivable
|
5,257
|
5,219
|
|||||
Receivable
for securities
|
200
|
27,395
|
|||||
Prepaid
reinsurance premiums
|
682
|
274
|
|||||
Reinsurance
recoverable
|
3,791
|
4,952
|
|||||
Deferred
policy acquisition costs
|
20,652
|
19,757
|
|||||
Excess
of cost over fair value of net assets acquired
|
30,025
|
30,025
|
|||||
Intangible
assets
|
22,634
|
23,781
|
|||||
Current
federal income tax recoverable
|
724
|
-
|
|||||
Deferred
federal income taxes
|
2,413
|
275
|
|||||
Prepaid
expenses
|
1,212
|
1,240
|
|||||
Other
assets
|
21,402
|
19,583
|
|||||
Total
assets
|
$
|
538,540
|
$
|
606,314
|
|||
LIABILITES
AND STOCKHOLDERS' EQUITY
|
|||||||
Liabilites:
|
|||||||
Notes
payable
|
$
|
60,592
|
60,814
|
||||
Structured
settlements
|
-
|
10,000
|
|||||
Reserves
for unpaid losses and loss adjustment expenses
|
144,374
|
125,338
|
|||||
Unearned
premiums
|
107,369
|
102,998
|
|||||
Unearned
revenue
|
2,253
|
2,949
|
|||||
Accrued
agent profit sharing
|
1,335
|
2,844
|
|||||
Accrued
ceding commission payable
|
12,189
|
12,099
|
|||||
Pension
liability
|
1,432
|
1,669
|
|||||
Current
federal income tax
|
-
|
630
|
|||||
Payable
for securities
|
3,401
|
91,401
|
|||||
Accounts
payable and other accrued expenses
|
14,150
|
16,385
|
|||||
Total
liabilities
|
347,095
|
427,127
|
|||||
Commitments
and Contingencies (Note 16)
|
|||||||
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
|
119,369
|
118,459
|
|||||
Retained
earnings
|
73,162
|
58,909
|
|||||
Accumulated
other comprehensive loss
|
(4,756
|
)
|
(1,844
|
)
|
|||
Treasury
stock, at cost (7,828 shares in 2008 and 2007)
|
(77
|
)
|
(77
|
)
|
|||
Total
stockholders' equity
|
191,445
|
179,187
|
|||||
$
|
538,540
|
$
|
606,314
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30
|
June 30
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Gross
premiums written
|
$
|
63,115
|
$
|
66,577
|
$
|
127,352
|
$
|
131,235
|
|||||
Ceded
premiums written
|
(2,327
|
)
|
(4,281
|
)
|
(4,659
|
)
|
(8,168
|
)
|
|||||
Net
premiums written
|
60,788
|
62,296
|
122,693
|
123,067
|
|||||||||
Change
in unearned premiums
|
(1,345
|
)
|
(6,986
|
)
|
(4,334
|
)
|
(16,109
|
)
|
|||||
Net
premiums earned
|
59,443
|
55,310
|
118,359
|
106,958
|
|||||||||
Investment
income, net of expenses
|
3,957
|
3,047
|
7,582
|
6,037
|
|||||||||
Realized
gain
|
232
|
828
|
1,091
|
881
|
|||||||||
Finance
charges
|
1,323
|
1,185
|
2,587
|
2,271
|
|||||||||
Commission
and fees
|
6,669
|
8,159
|
13,153
|
16,064
|
|||||||||
Processing
and service fees
|
36
|
203
|
78
|
475
|
|||||||||
Other
income
|
3
|
4
|
6
|
8
|
|||||||||
Total
revenues
|
71,663
|
68,736
|
142,856
|
132,694
|
|||||||||
Losses
and loss adjustment expenses
|
36,029
|
30,712
|
71,533
|
62,897
|
|||||||||
Other
operating expenses
|
23,608
|
23,723
|
47,073
|
46,424
|
|||||||||
Interest
expense
|
1,186
|
796
|
2,371
|
1,582
|
|||||||||
Amortization
of intangible assets
|
573
|
573
|
1,146
|
1,146
|
|||||||||
Total
expenses
|
61,396
|
55,804
|
122,123
|
112,049
|
|||||||||
Income
before tax
|
10,267
|
12,932
|
20,733
|
20,645
|
|||||||||
Income
tax expense
|
3,066
|
4,117
|
6,480
|
6,860
|
|||||||||
Net
income
|
$
|
7,201
|
$
|
8,815
|
$
|
14,253
|
$
|
13,785
|
|||||
Common
stockholders net income per share:
|
|||||||||||||
Basic
|
$
|
0.35
|
$
|
0.42
|
$
|
0.69
|
$
|
0.66
|
|||||
Diluted
|
$
|
0.34
|
$
|
0.42
|
$
|
0.68
|
$
|
0.66
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Common
Stock
|
|||||||||||||
Balance,
beginning of period
|
$
|
3,746
|
$
|
3,740
|
$
|
3,740
|
$
|
3,740
|
|||||
Issuance
of common stock upon option exercises
|
1
|
-
|
7
|
-
|
|||||||||
Balance,
end of period
|
3,747
|
3,740
|
3,747
|
3,740
|
|||||||||
Additional
Paid-In Capital
|
|||||||||||||
Balance,
beginning of period
|
119,120
|
117,983
|
118,459
|
117,932
|
|||||||||
Equity
based compensation
|
226
|
102
|
773
|
153
|
|||||||||
Exercise
of stock options
|
23
|
-
|
137
|
-
|
|||||||||
Balance,
end of period
|
119,369
|
118,085
|
119,369
|
118,085
|
|||||||||
Retained
Earnings
|
|||||||||||||
Balance,
beginning of period
|
65,961
|
36,450
|
58,909
|
31,480
|
|||||||||
Net
income
|
7,201
|
8,815
|
14,253
|
13,785
|
|||||||||
Balance,
end of period
|
73,162
|
45,265
|
73,162
|
45,265
|
|||||||||
Accumulated
Other Comprehensive Loss
|
|||||||||||||
Balance,
beginning of period
|
(3,086
|
)
|
(1,982
|
)
|
(1,844
|
)
|
(2,344
|
)
|
|||||
Additional
minimum pension liability, net of tax
|
11
|
64
|
21
|
64
|
|||||||||
Unrealized
losses on securities, net of tax
|
(1,681
|
)
|
(828
|
)
|
(2,933
|
)
|
(466
|
)
|
|||||
Balance,
end of period
|
(4,756
|
)
|
(2,746
|
)
|
(4,756
|
)
|
(2,746
|
)
|
|||||
Treasury
Stock
|
|||||||||||||
Balance,
beginning of period
|
(77
|
)
|
(77
|
)
|
(77
|
)
|
(77
|
)
|
|||||
Acquisition
of treasury shares
|
-
|
-
|
-
|
-
|
|||||||||
Exercise
of stock options
|
-
|
-
|
-
|
-
|
|||||||||
Balance,
end of period
|
(77
|
)
|
(77
|
)
|
(77
|
)
|
(77
|
)
|
|||||
Stockholders'
Equity
|
$
|
191,445
|
$
|
164,267
|
$
|
191,445
|
$
|
164,267
|
|||||
Net
income
|
$
|
7,201
|
$
|
8,815
|
$
|
14,253
|
$
|
13,785
|
|||||
Additional
minimum pension liability, net of tax
|
11
|
64
|
21
|
64
|
|||||||||
Unrealized
losses on securities, net of tax
|
(1,681
|
)
|
(828
|
)
|
(2,933
|
)
|
(466
|
)
|
|||||
Comprehensive
Income
|
$
|
5,531
|
$
|
8,051
|
$
|
11,341
|
$
|
13,383
|
Six Months Ended
|
|||||||
June 30
|
|||||||
2008
|
2007
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
14,253
|
$
|
13,785
|
|||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
|||||||
Depreciation
and amortization expense
|
1,517
|
1,564
|
|||||
Amortization
of discount on structured settlement
|
-
|
207
|
|||||
Deferred
federal income tax benefit
|
(641
|
)
|
(916
|
)
|
|||
Realized
gain on investments
|
(1,091
|
)
|
(881
|
)
|
|||
Change
in prepaid reinsurance premiums
|
(408
|
)
|
(144
|
)
|
|||
Change
in premiums receivable
|
(1,064
|
)
|
(9,925
|
)
|
|||
Change
in accounts receivable
|
(38
|
)
|
796
|
||||
Change
in deferred policy acquisition costs
|
(895
|
)
|
(3,069
|
)
|
|||
Change
in unpaid losses and loss adjustment expenses
|
19,036
|
26,824
|
|||||
Change
in unearned premiums
|
4,371
|
16,253
|
|||||
Change
in unearned revenue
|
(696
|
)
|
(1,957
|
)
|
|||
Change
in accrued agent profit sharing
|
(1,509
|
)
|
(528
|
)
|
|||
Change
in reinsurance recoverable
|
1,161
|
(575
|
)
|
||||
Change
in current federal income tax payable
|
(1,354
|
)
|
2,520
|
||||
Change
in accrued ceding commission payable
|
90
|
3,103
|
|||||
Change
in all other liabilities
|
(4,258
|
)
|
2,059
|
||||
Change
in all other assets
|
1,275
|
(4,522
|
)
|
||||
Net
cash provided by operating activities
|
29,749
|
44,594
|
|||||
Cash
flows from investing activities:
|
|||||||
Purchases
of property and equipment
|
(273
|
)
|
(269
|
)
|
|||
Change
in restricted cash
|
6,241
|
14,527
|
|||||
Purchases
of debt and equity securities
|
(218,022
|
)
|
(106,636
|
)
|
|||
Maturities
and redemptions of investment securities
|
198,914
|
62,506
|
|||||
Net
purchases of short-term investments
|
(118,815
|
)
|
(38,771
|
)
|
|||
Net
cash used in investing activities
|
(131,955
|
)
|
(68,643
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from exercise of employee stock options
|
143
|
-
|
|||||
Note
payable
|
(222
|
)
|
(633
|
)
|
|||
Payment
of structured settlement
|
(10,000
|
)
|
(15,000
|
)
|
|||
Net
cash used by financing activities
|
(10,079
|
)
|
(15,633
|
)
|
|||
Decrease
in cash and cash equivalents
|
(112,285
|
)
|
(39,682
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
145,884
|
81,474
|
|||||
Cash
and cash equivalents at end of period
|
$
|
33,599
|
$
|
41,792
|
|||
Supplemental
cash flow information:
|
|||||||
Interest
paid
|
$
|
2,387
|
$
|
1,372
|
|||
Taxes
paid
|
$
|
8,402
|
$
|
5,256
|
|||
Supplemental
schedule of non cash investing activities:
|
|||||||
Change
in receivable for securities for investment disposals that settled
after
the balance sheet date
|
$
|
27,195
|
$
|
(14
|
)
|
||
Change
in payable for securities for investment purchases that settled after
the
balance sheet date
|
$
|
(88,000
|
)
|
$
|
8,878
|
·
|
Level
1: quoted prices in active markets for identical assets;
|
·
|
Level
2: inputs to the valuation methodology include quoted prices for
similar
assets and liabilities in active markets, inputs of identical assets
for
less active markets, and inputs that are observable for the asset
or
liability, either directly or indirectly, for substantially the full
term
of the instrument; and
|
·
|
Level
3: inputs to the valuation methodology are unobservable for the asset
or
liability.
|
Quoted Prices in
|
Other
|
||||||||||||
Active Markets for
|
Observable
|
Unobservable
|
|||||||||||
Identical Assets
|
Inputs
|
Inputs
|
|||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
||||||||||
Debt
securities
|
$
|
-
|
$
|
164,137
|
$
|
-
|
$
|
164,137
|
|||||
Equity
securities
|
51,694
|
-
|
-
|
51,694
|
|||||||||
Short-term
investments
|
-
|
121,440
|
-
|
121,440
|
|||||||||
Total
|
$
|
51,694
|
$
|
285,577
|
$
|
-
|
$
|
337,271
|
Beginning
balance as of January 1, 2008
|
$
|
4,000
|
||
Purchases,
issuances, sales and settlements
|
(4,000
|
)
|
||
Total
realized/unrealized gains/(losses) included in net income
|
-
|
|||
Net
gains/(losses) included on other comprehensive income
|
-
|
|||
Transfers
in and/or out of Level 3
|
-
|
|||
Ending
balance as of June 30, 2008
|
$
|
-
|
As
of June 30, 2008
|
|
||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
||||||||||||
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
||||||
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
||||||
Corporate
debt securities
|
$
|
18,036
|
$
|
708
|
$
|
21,958
|
$
|
1,775
|
$
|
39,994
|
$
|
2,483
|
|||||||
Municipal
bonds
|
74,537
|
1,589
|
4,508
|
89
|
79,045
|
1,678
|
|||||||||||||
Equity
securities
|
29,569
|
3,044
|
-
|
-
|
29,569
|
3,044
|
|||||||||||||
Short
term securities
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
Total
|
$
|
122,142
|
$
|
5,341
|
$
|
26,466
|
$
|
1,864
|
$
|
148,608
|
$
|
7,205
|
As
of December 31, 2007
|
|
||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
||||||||||||
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
||||||
|
|
Fair
Value
|
|
Losses
|
|
Fair
Value
|
|
Losses
|
|
Fair
Value
|
|
Losses
|
|||||||
Corporate
debt securities
|
$
|
19,021
|
$
|
840
|
$
|
18,329
|
$
|
896
|
$
|
37,350
|
$
|
1,736
|
|||||||
Municipal
bonds
|
24,392
|
122
|
7,780
|
130
|
32,172
|
252
|
|||||||||||||
Equity
securities
|
6,954
|
318
|
-
|
-
|
6,954
|
318
|
|||||||||||||
Short
term securities
|
352
|
1
|
-
|
-
|
352
|
1
|
|||||||||||||
Total
|
$
|
50,719
|
$
|
1,281
|
$
|
26,109
|
$
|
1,026
|
$
|
76,828
|
$
|
2,307
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||
Number of
|
Exercise
|
Term
|
Value
|
||||||||||
Shares
|
Price
|
(Years)
|
($000)
|
||||||||||
Outstanding
at January 1, 2008
|
848,000
|
$
|
10.41
|
||||||||||
Granted
|
270,000
|
$
|
11.46
|
||||||||||
Exercised
|
(40,702
|
)
|
$
|
3.54
|
|||||||||
Forfeited
or expired
|
-
|
$
|
-
|
||||||||||
Outstanding
at June 30, 2008
|
1,077,298
|
$
|
11.20
|
8.3
|
$
|
786
|
|||||||
Exercisable
at June 30, 2008
|
261,549
|
$
|
8.15
|
5.8
|
$
|
696
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Intrinsic
value of options exercised
|
$
|
59
|
$
|
-
|
$
|
337
|
$
|
-
|
|||||
Cost
of share-based payments (non-cash)
|
$
|
226
|
$
|
102
|
$
|
773
|
$
|
153
|
|||||
Income
tax benefit of share-based
|
|||||||||||||
payments
recognized in income
|
$
|
79
|
$
|
36
|
$
|
270
|
$
|
54
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Grant
date fair value per share
|
$
|
4.74
|
$
|
4.04
|
$
|
4.74
|
$
|
4.04
|
|||||
Expected
term (in years)
|
6.4
|
6.4
|
6.4
|
6.4
|
|||||||||
Expected
volatility
|
35.0
|
%
|
19.4
|
%
|
35.0
|
%
|
19.4
|
%
|
|||||
Risk
free interest rate
|
3.4
|
%
|
4.5
|
%
|
3.4
|
%
|
4.5
|
%
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Revenues:
|
|||||||||||||
Standard
Commercial Segment
|
$
|
22,157
|
$
|
20,003
|
$
|
43,986
|
$
|
41,770
|
|||||
Specialty
Commercial Segment
|
31,988
|
32,978
|
64,075
|
61,076
|
|||||||||
Personal
Segment
|
16,498
|
14,696
|
32,224
|
28,469
|
|||||||||
Corporate
|
1,020
|
1,059
|
2,571
|
1,379
|
|||||||||
Consolidated
|
$
|
71,663
|
$
|
68,736
|
$
|
142,856
|
$
|
132,694
|
|||||
Pre-tax
income (loss):
|
|||||||||||||
Standard
Commercial Segment
|
$
|
3,984
|
$
|
2,664
|
$
|
7,865
|
$
|
5,423
|
|||||
Specialty
Commercial Segment
|
6,265
|
9,441
|
11,558
|
14,127
|
|||||||||
Personal
Segment
|
1,913
|
2,176
|
4,503
|
4,294
|
|||||||||
Corporate
|
(1,895
|
)
|
(1,349
|
)
|
(3,193
|
)
|
(3,199
|
)
|
|||||
Consolidated
|
$
|
10,267
|
$
|
12,932
|
$
|
20,733
|
$
|
20,645
|
June 30,
|
December 31,
|
||||||
2008
|
2007
|
||||||
Assets
|
|||||||
Standard
Commercial Segment
|
$
|
163,521
|
$
|
211,428
|
|||
Specialty
Commercial Segment
|
202,692
|
229,138
|
|||||
Personal
Segment
|
75,710
|
100,986
|
|||||
Corporate
|
96,617
|
64,762
|
|||||
$
|
538,540
|
$
|
606,314
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Ceded
earned premiums
|
$
|
2,312
|
$
|
4,144
|
$
|
4,622
|
$
|
8,024
|
|||||
Reinsurance
recoveries
|
$
|
1,156
|
$
|
2,349
|
$
|
1,263
|
$
|
3,433
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Deferred
|
$
|
(13,613
|
)
|
$
|
(12,606
|
)
|
$
|
(28,018
|
)
|
$
|
(24,966
|
)
|
|
Amortized
|
13,377
|
11,321
|
27,123
|
21,897
|
|||||||||
Net
|
$
|
(236
|
)
|
$
|
(1,285
|
)
|
$
|
(895
|
)
|
$
|
(3,069
|
)
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Weighted
average shares - basic
|
20,806
|
20,768
|
20,794
|
20,768
|
|||||||||
Effect
of dilutive securities
|
78
|
-
|
91
|
-
|
|||||||||
Weighted
average shares - assuming dilution
|
20,884
|
20,768
|
20,885
|
20,768
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Interest
cost
|
$
|
167
|
$
|
180
|
$
|
334
|
$
|
360
|
|||||
Amortization
of net (gain) loss
|
(167
|
)
|
50
|
(335
|
)
|
100
|
|||||||
Expected
return on plan assets
|
16
|
(160
|
)
|
32
|
(321
|
)
|
|||||||
Net
periodic pension cost
|
$
|
16
|
$
|
70
|
$
|
31
|
$
|
139
|
·
|
Standard
Commercial Segment.
Our Standard Commercial Segment includes the standard lines commercial
property/casualty insurance products and services handled by our
HGA
Operating Unit which is comprised of our American Hallmark Insurance
Services, Inc. and Effective Claims Management, Inc. subsidiaries.
|
·
|
Specialty
Commercial Segment.
Our Specialty Commercial Segment includes the excess and surplus
lines
commercial property/casualty insurance products and services handled
by
our TGA Operating Unit and the general aviation insurance products
and
services handled by our Aerospace Operating Unit. Our TGA Operating
Unit
is comprised of our TGA Insurance Managers, Inc., Pan American Acceptance
Corporation (“PAAC”) and TGA Special Risk, Inc. subsidiaries. Our
Aerospace Operating Unit is comprised of our Aerospace Insurance
Managers,
Inc., Aerospace Special Risk, Inc. and Aerospace Claims Management
Group,
Inc. subsidiaries.
|
·
|
Personal
Segment.
Our Personal Segment includes the non-standard personal automobile
insurance products and services handled by our Phoenix Operating
Unit
which is comprised solely of American Hallmark General Agency, Inc.,
which
does business as Phoenix Indemnity Insurance
Company.
|
·
|
American
Hallmark Insurance Company of Texas (“AHIC”) presently
retains all of the risks on the commercial property/casualty policies
marketed by our HGA Operating Unit, retains a portion of the risks
on the
non-standard personal automobile policies marketed by our Phoenix
Operating Unit, assumes a portion of the risks on the commercial
property/casualty policies marketed by our TGA Operating Unit and
assumes
a portion of the risks on the aviation property/casualty products
marketed
by our Aerospace Operating Unit.
|
·
|
Hallmark
Specialty Insurance Company (“HSIC”) presently
assumes a portion of the risks on the commercial property/casualty
policies marketed by our TGA Operating
Unit.
|
·
|
Hallmark
Insurance Company (“HIC”) (formerly known as Phoenix Indemnity Insurance
Company)
presently assumes a portion of the risks on the non-standard personal
automobile policies marketed by our Phoenix Operating Unit and assumes
a
portion of the risks on the aviation property/casualty products marketed
by our Aerospace Operating Unit.
|
Three Months Ended June 30, 2008
|
||||||||||||||||
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
||||||
Produced
premium (1)
|
$
|
21,624
|
$
|
35,986
|
$
|
14,153
|
$
|
-
|
$
|
71,763
|
||||||
Gross
premiums written
|
21,624
|
27,338
|
14,153
|
-
|
63,115
|
|||||||||||
Ceded
premiums written
|
(1,382
|
)
|
(945
|
)
|
-
|
-
|
(2,327
|
)
|
||||||||
Net
premiums written
|
20,242
|
26,393
|
14,153
|
-
|
60,788
|
|||||||||||
Change
in unearned premiums
|
36
|
(2,395
|
)
|
1,014
|
-
|
(1,345
|
)
|
|||||||||
Net
premiums earned
|
20,278
|
23,998
|
15,167
|
-
|
59,443
|
|||||||||||
Total
revenues
|
22,157
|
31,988
|
16,498
|
1,020
|
71,663
|
|||||||||||
Losses
and loss adjustment expenses
|
11,669
|
13,976
|
10,384
|
-
|
36,029
|
|||||||||||
Pre-tax
income (loss)
|
3,984
|
6,265
|
1,913
|
(1,895
|
)
|
10,267
|
||||||||||
Net
loss ratio (2)
|
57.5
|
%
|
58.2
|
%
|
68.5
|
%
|
60.6
|
%
|
||||||||
Net
expense ratio (2)
|
27.3
|
%
|
30.7
|
%
|
21.6
|
%
|
29.2
|
%
|
||||||||
Net
combined ratio (2)
|
84.8
|
%
|
88.9
|
%
|
90.1
|
%
|
89.8
|
%
|
Three Months Ended June 30, 2007
|
||||||||||||||||
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
||||||
Produced
premium (1)
|
$
|
24,751
|
$
|
40,956
|
$
|
13,298
|
$
|
-
|
$
|
79,005
|
||||||
Gross
premiums written
|
24,740
|
28,540
|
13,297
|
-
|
66,577
|
|||||||||||
Ceded
premiums written
|
(2,804
|
)
|
(1,477
|
)
|
-
|
-
|
(4,281
|
)
|
||||||||
Net
premiums written
|
21,936
|
27,063
|
13,297
|
-
|
62,296
|
|||||||||||
Change
in unearned premiums
|
(1,731
|
)
|
(5,474
|
)
|
219
|
-
|
(6,986
|
)
|
||||||||
Net
premiums earned
|
20,205
|
21,589
|
13,516
|
-
|
55,310
|
|||||||||||
Total
revenues
|
20,003
|
32,978
|
14,696
|
1,059
|
68,736
|
|||||||||||
Losses
and loss adjustment expenses
|
11,267
|
10,635
|
8,813
|
(3
|
)
|
30,712
|
||||||||||
Pre-tax
income (loss)
|
2,664
|
9,441
|
2,176
|
(1,349
|
)
|
12,932
|
||||||||||
Net
loss ratio (2)
|
55.8
|
%
|
49.3
|
%
|
65.2
|
%
|
55.5
|
%
|
||||||||
Net
expense ratio (2)
|
27.0
|
%
|
32.0
|
%
|
22.8
|
%
|
27.9
|
%
|
||||||||
Net
combined ratio (2)
|
82.8
|
%
|
81.3
|
%
|
88.0
|
%
|
83.4
|
%
|
(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 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.
|
Six Months Ended June 30, 2008
|
||||||||||||||||
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
||||||
Produced
premium (1)
|
43,373
|
68,006
|
31,880
|
-
|
143,259
|
|||||||||||
Gross
premiums written
|
43,373
|
52,099
|
31,880
|
-
|
127,352
|
|||||||||||
Ceded
premiums written
|
(2,746
|
)
|
(1,913
|
)
|
-
|
-
|
(4,659
|
)
|
||||||||
Net
premiums written
|
40,627
|
50,186
|
31,880
|
-
|
122,693
|
|||||||||||
Change
in unearned premiums
|
440
|
(2,550
|
)
|
(2,224
|
)
|
(4,334
|
)
|
|||||||||
Net
premiums earned
|
41,067
|
47,636
|
29,656
|
-
|
118,359
|
|||||||||||
Total
revenues
|
43,986
|
64,075
|
32,224
|
2,571
|
142,856
|
|||||||||||
Losses
and loss adjustment expenses
|
22,979
|
28,979
|
19,575
|
-
|
71,533
|
|||||||||||
Pre-tax
income (loss)
|
7,865
|
11,558
|
4,503
|
(3,193
|
)
|
20,733
|
||||||||||
Net
loss ratio (2)
|
56.0
|
%
|
60.8
|
%
|
66.0
|
%
|
60.4
|
%
|
||||||||
Net
expense ratio (2)
|
27.3
|
%
|
30.7
|
%
|
22.0
|
%
|
29.1
|
%
|
||||||||
Net
combined ratio (2)
|
83.3
|
%
|
91.5
|
%
|
88.0
|
%
|
89.5
|
%
|
Six Months Ended June 30, 2007
|
||||||||||||||||
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
||||||
Produced
premium (1)
|
48,301
|
80,313
|
28,374
|
-
|
156,988
|
|||||||||||
Gross
premiums written
|
48,221
|
54,641
|
28,373
|
-
|
131,235
|
|||||||||||
Ceded
premiums written
|
(5,439
|
)
|
(2,729
|
)
|
-
|
-
|
(8,168
|
)
|
||||||||
Net
premiums written
|
42,782
|
51,912
|
28,373
|
-
|
123,067
|
|||||||||||
Change
in unearned premiums
|
(2,655
|
)
|
(11,230
|
)
|
(2,224
|
)
|
-
|
(16,109
|
)
|
|||||||
Net
premiums earned
|
40,127
|
40,682
|
26,149
|
-
|
106,958
|
|||||||||||
Total
revenues
|
41,770
|
61,076
|
28,469
|
1,379
|
132,694
|
|||||||||||
Losses
and loss adjustment expenses
|
24,108
|
21,716
|
17,080
|
(7
|
)
|
62,897
|
||||||||||
Pre-tax
income (loss)
|
5,423
|
14,127
|
4,294
|
(3,199
|
)
|
20,645
|
||||||||||
Net
loss ratio (2)
|
60.1
|
%
|
53.4
|
%
|
65.3
|
%
|
58.8
|
%
|
||||||||
Net
expense ratio (2)
|
27.5
|
%
|
31.8
|
%
|
23.2
|
%
|
28.1
|
%
|
||||||||
Net
combined ratio (2)
|
87.6
|
%
|
85.2
|
%
|
88.5
|
%
|
86.9
|
%
|
(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 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.
|
Director
|
Votes For
|
|
Votes Withheld
|
||||
Mark
E. Schwarz
|
15,212,726
|
281,287
|
|||||
Scott
T. Berlin
|
16,258,362
|
281,287
|
|||||
James
H. Graves
|
16,385,389
|
281,287
|
|||||
George
R. Manser
|
16,169,427
|
281,287
|
Exhibit
Number
|
Description
|
|
3(a)
|
Restated
Articles of Incorporation of the registrant, as amended (incorporated
by
reference to Exhibit 3.1 to the registrant’s Registration Statement on
Form S-1 [Registration No. 333-136414] filed September 8,
2006).
|
|
3(b)
|
Amended
and Restated By-Laws of the registrant (incorporated by reference
to
Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed October
1, 2007).
|
|
4(a)
|
Specimen
certificate for Common Stock, $0.18 par value per share, of the registrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed September 8, 2006).
|
|
4(b)
|
Indenture
dated as of June 21, 2005, between Hallmark Financial Services, Inc.
and
JPMorgan Chase Bank, National Association (incorporated by reference
to
Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(c)
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust I dated
as
of June 21, 2005, among Hallmark Financial Services, Inc., as sponsor,
Chase Bank USA, National Association, as Delaware trustee, and JPMorgan
Chase Bank, National Association, as institutional trustee, and Mark
Schwarz and Mark Morrison, as administrators (incorporated by reference
to
Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(d)
|
Form
of Junior Subordinated Debt Security Due 2035 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June
27, 2005).
|
|
4(e)
|
Form
of Capital Security Certificate (incorporated by reference to Exhibit
4.2
to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(f)
|
First
Restated Credit Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and The Frost National Bank (incorporated
by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed February 2, 2006).
|
|
4(g)
|
Form
of Registration Rights Agreement dated January 27, 2006, between
Hallmark
Financial Services, Inc. and Newcastle Special Opportunity Fund I,
L.P.
and Newcastle Special Opportunity Fund II, L.P. (incorporated by
reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed
February 2, 2006).
|
|
4(h)
|
Indenture
dated as of August 23, 2007, between Hallmark Financial Services,
Inc. and
The Bank of New York Trust Company, National Association (incorporated
by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
|
4(i)
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust II
dated as
of August 23, 2007, among Hallmark Financial Services, Inc., as sponsor,
The Bank of New York (Delaware), as Delaware trustee, and The Bank
of New
York Trust Company, National Association, as institutional trustee,
and
Mark Schwarz and Mark Morrison, as administrators (incorporated by
reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
Exhibit
Number
|
Description
|
|
4(j)
|
Form
of Junior Subordinated Debt Security Due 2037 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed August
24, 2007).
|
|
4(k)
|
Form
of Capital Security Certificate (incorporated by reference to Exhibit
4.2
to the registrant’s Current Report on Form 8-K filed August 24,
2007).
|
|
31(a)
|
Certification
of principal executive officer required by Rule 13a-14(a) or
Rule
15d-14(a).
|
|
31(b)
|
Certification
of principal financial officer required by Rule 13a-14(a) or
Rule
15d-14(a).
|
|
32(a)
|
Certification
of principal executive officer Pursuant to 18 U.S.C.
1350.
|
|
32(b)
|
Certification
of principal financial officer Pursuant to 18 U.S.C.
1350.
|
Date:
August 11, 2008
|
/s/ Mark J. Morrison | |
|
Mark
J. Morrison, Chief Executive Officer and President
(Principal
Executive Officer)
|
|
Date:
August 11, 2008
|
/s/ Jeffrey R. Passmore | |
|
Jeffrey
R. Passmore, Chief Accounting Officer and Senior Vice
President
|
|
(Principal
Financial Officer)
|