Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported its operating
results today for the nine months and quarter ended September 30,
2008.
In comparing the current results to the prior year, the reader
should be aware that in the quarter and nine months ended September
30, 2007, the Company recognized non-recurring refunds of state
premium retaliatory taxes, plus interest (collectively, the
"Retaliatory Tax"), in the after-tax amount of $332,000, or $0.05
per diluted share, and $2.8 million, or $0.44 per diluted share,
respectively. Nothing of a comparable nature is recognized in the
current periods. A discussion of this item can be found in the
Liquidity and Capital Resources section of Item 7 of the Form 10-K
for the most recent year.
In the quarter ended September 30, 2008, the Company reported
net income, determined under U.S. generally accepted accounting
principles (GAAP), of $1.8 million, or $0.28 per diluted share.
This result compares to net income of $3.0 million, or $0.47 per
diluted share, for the same quarter in the previous year, which
included the Retaliatory Tax refund described above. Excluding the
impact of the Retaliatory Tax refund from the prior year results,
net income for the third quarter of 2007 was $2.7 million, or $0.42
per diluted share. The decrease in the current year quarter's net
income, as compared to the same quarter in 2007, is attributable to
the inclusion in the prior year's quarter of the Retaliatory Tax
refund, as well as the current year quarter's realized losses,
which are predominantly write-downs of other than temporarily
impaired securities. After-tax realized investment losses included
in net income for the current quarter were $1.5 million, or $0.23
per diluted share, as compared to a realized loss of $238,000, or
$0.04 per diluted share, in the same period in the prior year.
Operating income (a non-GAAP measure defined as net income less
after-tax realized gains or losses) in the third quarter of 2008
was $3.3 million, or $0.51 per diluted share, as compared to $3.2
million, or $0.51 per diluted share, in the same quarter of 2007,
which included the Retaliatory Tax refund. After adjusting to
exclude the Retaliatory Tax refund from the prior period's third
quarter, the operating income of the current year's third quarter
represented an increase of $0.4 million, or $0.05 per diluted
share, from the adjusted operating income of $2.9 million, or $0.46
per diluted share, of the prior year. The Company's GAAP combined
ratio for the third quarter of 2008 was 97.9%, as compared to 96.4%
for the same quarter in 2007, or an adjusted combined ratio of
97.7% for the prior period after excluding the impact of the
Retaliatory Tax refund described above. Book value at September 30,
2008 was $21.39 per share.
Revenues for the third quarter of 2008 were $39.6 million, a
decrease of $0.8 million over the 2007 third quarter revenue of
$40.4 million. Net premiums earned for the quarter were $37.9
million, a $0.6 million increase over net premiums earned of $37.3
million in the same period of 2007. Net investment income was $3.5
million for the quarter, as compared to $2.9 million in the
comparable period in 2007, an increase of $589,000 over the net
investment income in the prior year's quarter. Realized losses in
the current year's quarter were $2.3 million, as compared to
realized losses of $366,000 in the prior year's quarter, with the
increase primarily attributable to write-downs of other than
temporarily impaired securities.
In the nine months ended September 30, 2008, the Company
reported net income of $7.6 million, or $1.19 per diluted share.
This result compares to net income of $11.4 million, or $1.80 per
diluted share, for the same period in the previous year, which
included the Retaliatory Tax refund described above. Excluding the
impact of the Retaliatory Tax refund from the prior year results,
net income for the first nine months of 2007 was $8.6 million, or
$1.36 per diluted share. The decrease in the net income for the
first nine months of 2008, as compared to the same period in 2007,
is attributable to the inclusion in the prior year of the
Retaliatory Tax refund, as well as the current year's realized
losses, which are predominantly write-downs of other than
temporarily impaired securities. After-tax realized investment
losses included in net income for the current period were $1.9
million, or $0.30 per diluted share, as compared to a realized gain
of $174,000, or $0.03 per diluted share, in the same period in the
prior year. Operating income in the nine months ended September 30,
2008, was $9.5 million, or $1.49 per diluted share, as compared to
$11.2 million, or $1.77 per diluted share, in the same period of
2007, which included the Retaliatory Tax refund. After adjusting to
exclude the Retaliatory Tax refund from the prior period's
operating income, the operating income of the current period
represented an increase of $0.9 million, or $0.16 per diluted
share, from the adjusted operating income of $8.6 million, or $1.33
per diluted share, of the prior year. The Company's GAAP combined
ratio for the nine months ended September 30, 2008 was 98.0%, as
compared to 94.7% for the same period in 2007, or an adjusted
combined ratio of 98.1% for the prior period after excluding the
impact of the Retaliatory Tax refund described above.
Revenues for the nine months ended September 30, 2008 were
$124.4 million, an increase of $6.7 million over the 2007 period of
$117.7 million. Net premiums earned for the period were $115.6
million, a $9.2 million increase over net premiums earned of $106.4
million in the same period of 2007. Net investment income was $10.2
million for the period, as compared to $9.6 million in the
comparable period in 2007, an increase of $581,000 over the net
investment income in the prior year's period. The prior period's
net investment income included $720,000 of interest relating to the
Retaliatory Tax refund, without which net investment income for the
prior year period would have been $8.9 million. Realized losses in
the current year quarter were $2.9 million, as compared to realized
gains of $267,000 in the prior year period, with the increase
primarily attributable to write-downs of other than temporarily
impaired securities.
As part of the other than temporary impairment losses recognized
as realized losses this quarter, a $1 million par value debenture
issued by Lehman Brothers was written down by the Company to
estimated fair value. The Company holds no Fannie Mae or Freddie
Mac common or preferred shares, nor any equity or fixed income
obligations of AIG or Washington Mutual.
In commenting on the quarter, Andrew R. Speaker, President and
CEO, noted, "We are obviously disturbed by the volatility in the
capital markets and its current impact on the Company's portfolio
holdings. However, our investment strategy has been to take a
prudent approach to protecting capital while seeking a competitive
return, and we believe this approach has helped minimize the
overall impact of these difficult markets on the Company's
shareholders' equity. We are pleased with our operating earnings
for the quarter, which when combined with our conservative
portfolio strategy limited the decline in book value to 1.8% during
the quarter. Our disciplined approach to underwriting and investing
will continue to be a central focus for us as we compete in this
challenging marketplace."
The Board of Directors of Mercer Insurance Group, Inc. has
approved a dividend of $0.075 per share, to be paid on December 29,
2008 to shareholders of record on December 12, 2008.
Mercer Insurance Group, Inc. offers commercial and personal
lines of insurance to businesses and individuals principally in
seven states through its insurance subsidiaries: Mercer Insurance
Company, Mercer Insurance Company of New Jersey, Inc., Financial
Pacific Insurance Company and Franklin Insurance Company.
Certain of the statements contained herein (other than
statements of historical facts) are forward-looking statements.
Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking
statements are subject to change and uncertainty that are, in many
instances, beyond the company's control and have been made based
upon management's expectations and beliefs concerning future
developments and their potential effect on Mercer Insurance Group,
Inc. There can be no assurance that future developments will be in
accordance with management's expectations so that the effect of
future developments on Mercer Insurance Group, Inc. will be those
anticipated by management. Actual financial results including
premium growth and underwriting results could differ materially
from those anticipated by Mercer Insurance Group, Inc. depending on
the outcome of certain factors, which may include changes in
property and casualty loss trends and reserves; catastrophe losses;
the insurance product pricing environment; changes in applicable
law; government regulation and changes therein that may impede the
ability to charge adequate rates; changes in accounting principles;
performance of the financial markets; fluctuations in interest
rates; availability and price of reinsurance; and the status of the
labor markets in which the company operates.
Consolidated Statements of Income
(in thousands, except per share and share data)
Quarter Ended
September 30,
2008 2007
(unaudited) (unaudited)
Net premiums earned $ 37,869 $ 37,303
Investment income, net of investment expenses 3,469 2,880
Realized investment losses (2,281) (366)
Other revenue 536 587
Total revenue 39,593 40,404
Losses and loss adjustment expenses 22,819 22,768
Amortization of deferred policy acquisition costs 10,460 9,870
Other expenses 3,776 3,315
Interest expense 328 300
Total expenses 37,383 36,253
Income before income taxes 2,210 4,151
Income taxes 430 1,139
Net income $ 1,780 $ 3,012
Net income per common share:
Basic $ 0.29 $ 0.49
Diluted $ 0.28 $ 0.47
Weighted average number of shares outstanding:
Basic 6,237,804 6,174,842
Diluted 6,382,413 6,345,865
Supplementary Financial Data
Net written premiums $ 37,575 $ 41,110
Book value per common share $ 21.39 $ 20.83
GAAP combined ratio 97.9% 96.4%
Consolidated Statements of Income
(in thousands, except per share and share data)
Nine Months Ended
September 30,
2008 2007
(unaudited) (unaudited)
Net premiums earned $ 115,590 $ 106,367
Investment income, net of investment expenses 10,173 9,592
Realized investment (losses) gains (2,944) 267
Other revenue 1,555 1,494
Total revenue 124,374 117,720
Losses and loss adjustment expenses 71,564 65,398
Amortization of deferred policy acquisition costs 31,163 27,829
Other expenses 10,618 7,530
Interest expense 961 911
Total expenses 114,306 101,668
Income before income taxes 10,068 16,052
Income taxes 2,463 4,697
Net income $ 7,605 $ 11,355
Net income per common share:
Basic $ 1.22 $ 1.85
Diluted $ 1.19 $ 1.80
Weighted average number of shares outstanding:
Basic 6,230,476 6,125,654
Diluted 6,382,740 6,318,029
Supplementary Financial Data
Net written premiums $ 115,863 $ 123,116
GAAP combined ratio 98.0% 94.7%
Consolidated Balance Sheet
(in thousands, except share amounts)
September December
30, 2008 31, 2007
(unaudited)
ASSETS
Investments, at fair value:
Fixed income securities, available-for sale $ 328,548 $ 324,238
Equity securities, at fair value 14,730 17,930
Short-term investments, at cost 9,998 -
Total investments 353,276 342,168
Cash and cash equivalents 14,690 21,580
Premiums receivable 39,431 36,339
Reinsurance receivable 89,104 83,844
Prepaid reinsurance premiums 7,460 9,486
Deferred policy acquisition costs 21,202 20,528
Accrued investment income 3,639 3,582
Property and equipment, net 15,357 13,056
Deferred income taxes 11,581 7,670
Goodwill 5,416 5,416
Other assets 3,286 2,766
Total assets $ 564,442 $ 546,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Losses and loss adjustment expenses $ 298,991 $ 274,399
Unearned premiums 86,271 88,024
Accounts payable and accrued expenses 13,549 14,622
Other reinsurance balances 11,824 14,734
Trust preferred securities 15,571 15,559
Advances under line of credit 3,000 3,000
Other liabilities 2,283 2,691
Total liabilities $ 431,489 $ 413,029
Stockholders' Equity:
Preferred Stock, no par value, authorized
5,000,000 shares, no shares issued and
outstanding - -
Common stock, no par value, authorized
15,000,000 shares, issued 7,075,333 shares,
outstanding 6,782,691 and 6,717,693 shares - -
Additional paid-in capital $ 71,163 $ 70,394
Accumulated other comprehensive income (2,073) 4,896
Retained earnings 73,969 67,613
Unearned ESOP shares (2,662) (3,131)
Treasury Stock, 567,158 and 505,814 shares (7,444) (6,366)
Total stockholders' equity 132,953 133,406
Total liabilities and stockholders' equity $ 564,442 $ 546,435
Company Contacts: Andrew R. Speaker President & CEO Mercer
Insurance Group, Inc. (609) 737-0426 David B. Merclean Senior Vice
President & CFO Mercer Insurance Group, Inc. (609) 737-0426
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