Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported its operating
results today for the year and quarter ended December 31, 2008.
4th Quarter highlights:
-- Net income of $0.10 per diluted share versus $0.45 per diluted share
in the prior year's quarter,
-- Operating income of $0.54 per diluted share versus $0.48 per diluted
share in the prior year's quarter,
-- A GAAP combined ratio of 98.4% versus 98.5% in the prior year's
quarter,
-- Book value per diluted share of $22.21.
Andrew R. Speaker, President and CEO, commented, "We are pleased
with the operating results for the quarter which are the strongest
quarterly operating earnings per share ever recorded by the
Company. The strong operating performance was partially offset by
net realized capital losses, which were comprised mostly of a
provision for declines in fair value of securities considered to be
other than temporary, and mark-to-market adjustments for interest
rate swaps on our trust preferred debt. Because the Company carries
investment securities on its balance sheet at fair value,
recognition of other than temporary impairments in realized losses
does not otherwise change the Company's shareholder's equity or
book value per share."
Speaker added, "Economic conditions, particularly the effects of
the downturn in residential housing as it applies to our West Coast
contractors business, have negatively impacted our direct premiums
written. In anticipation of the impact on future net premiums
earned, the Company has taken proactive measures to reduce and
control expenses, including staff reductions and elimination of
other expenses as we focus on maintaining profitable operations and
increasing book value."
Speaker concluded, "We continue to maintain a strong balance
sheet. Our strategy of prudently investing in securities that
provide an adequate return while protecting capital has served us
well during the current volatile investment market. Despite the
significant decline in equity markets, the overall results for our
investment portfolio were strong and helped the Company increase
book value in both the quarter and the year, while many of our
industry competitors saw declines in those periods."
Financial Summary (in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
(unaudited) (unaudited)
-------------------- --------------------
2008 2007 2008 2007 (1)
--------- --------- --------- ---------
Total revenue $ 37,088 $ 43,961 $ 161,462 $ 161,681
Net premiums written 31,488 36,549 147,352 159,666
Net premiums earned 36,987 40,308 152,577 146,675
Net investment income 3,763 3,461 13,936 13,053
Net realized gains (losses) on
investments (4,128) (243) (7,072) 24
Net income 629 2,880 8,234 14,235
Earnings per share - Basic $ 0.10 $ 0.46 $ 1.32 $ 2.32
Earnings per share - Diluted $ 0.10 $ 0.45 $ 1.30 $ 2.25
Combined ratio 98.4 98.5% 98.1 95.8%
Book value per share $ 22.21 $ 21.48
Reconciliation of non-GAAP
financial measures:
Net income $ 629 $ 2,880 $ 8,234 $ 14,235
Net realized gains (losses) on
investments, net of tax (2,724) (158) (4,667) 16
Net operating income 3,353 3,038 12,901 14,219
Operating earnings per share -
Basic $ .54 $ 0.49 $ 2.08 $ 2.31
Operating earnings per share -
Diluted $ .54 $ 0.48 $ 2.03 $ 2.25
(1) See discussion below regarding non-recurring retaliatory tax refund
recognized in 2007
In comparing the results for the twelve months ended December
31, 2008 to the prior year, the reader should be aware that in the
twelve months ended December 31, 2007, the Company recognized
non-recurring refunds of state premium retaliatory taxes, plus
interest (collectively, the "Retaliatory Tax"), in the after-tax
amount of $2.8 million, or $0.44 per diluted share, respectively.
Calculated on a pro-forma basis, after removing the effect of the
non-recurring retaliatory tax refund described above, the combined
ratio for 2007 was 98.3%, operating earnings were $11.4 million and
operating earnings per diluted share were $1.81. 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 year ended
December 21, 2007.
In the quarter ended December 31, 2008, the Company reported
GAAP net income under U.S. generally accepted accounting principles
(GAAP) of $629,000, or $0.10 per diluted share. This result
compares to net income of $2.9 million, or $0.45 per diluted share,
for the same quarter in the previous year. The decrease in the
current year quarter's net income, as compared to the same quarter
in 2007, is attributable primarily to the inclusion of $1.8
million, net of tax, in write-downs of other than temporarily
impaired securities, and an after-tax realized loss of $856,000
related to interest rate swaps on our trust preferred debt.
In the twelve months ended December 31, 2008, the Company
reported GAAP net income of $8.2 million, or $1.30 per diluted
share. This result compares to net income of $14.2 million, or
$2.25 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 2007 was $11.4 million, or $1.81 per
diluted share. The decrease in net income for 2008, as compared to
2007, is attributable primarily to inclusion in the prior year of
the retaliatory tax refund, and the impact on 2008 of write-downs
of other than temporarily impaired securities in the after-tax
amount of $4.1 million, and an after-tax realized loss of $990,000
related to interest rate swaps on our trust preferred debt.
The Board of Directors of Mercer Insurance Group, Inc. has
approved a dividend of $0.075 per share, to be paid on March 30,
2009 to shareholders of record on March 13, 2009.
Operating income and operating earnings per share are non-GAAP
financial measures that we present because we believe they enhance
an investor's understanding of Mercer's core operating performance.
Operating income and operating earnings per share consist of net
earnings adjusted for after-tax net realized investment gains and
losses.
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 in this press release (other than
statements of historical facts) are forward-looking statements.
Such forward-looking statements 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
December 31,
2008 2007
(unaudited) (unaudited)
Net premiums earned $ 36,987 $ 40,308
Investment income,
net of investment expenses 3,763 3,461
Realized investment losses (4,128) (243)
Other revenue 466 435
Total revenue 37,088 43,961
Losses and loss adjustment expenses 23,655 25,788
Amortization of deferred policy
acquisition costs 10,521 10,934
Other expenses 2,233 2,998
Interest expense 357 304
Total expenses 36,766 40,024
Income before income taxes 322 3,937
Income taxes (307) 1,057
Net income $ 629 $ 2,880
Net income per common share:
Basic $ 0.10 $ 0.46
Diluted $ 0.10 $ 0.45
Weighted average number of
shares outstanding:
Basic 6,176,851 6,198,741
Diluted 6,212,856 6,374,106
Supplementary Financial Data
Net written premiums $ 31,488 $ 36,549
Book value per common share $ 22.21 $ 21.48
GAAP combined ratio 98.4% 98.5%
Consolidated Statements of Income
(in thousands, except per share and share data)
Year Ended
December 31,
2008 2007
(unaudited)
Net premiums earned $ 152,577 $ 146,675
Investment income,
net of investment expenses 13,936 13,053
Realized investment (losses) gains (7,072) 24
Other revenue 2,021 1,929
Total revenue 161,462 161,681
Losses and loss adjustment expenses 95,219 91,186
Amortization of deferred policy
acquisition costs 41,684 38,763
Other expenses 12,851 10,528
Interest expense 1,318 1,215
Total expenses 151,072 141,692
Income before income taxes 10,390 19,989
Income taxes 2,156 5,754
Net income $ 8,234 $ 14,235
Net income per common share:
Basic $ 1.32 $ 2.32
Diluted $ 1.30 $ 2.25
Weighted average number of
shares outstanding:
Basic 6,217,092 6,144,075
Diluted 6,343,522 6,325,348
Supplementary Financial Data
Net written premiums $ 147,352 $ 159,666
GAAP combined ratio 98.1% 95.8%
Consolidated Balance Sheet
(in thousands, except share amounts)
December 31, December 31,
2008 2007
(unaudited)
ASSETS
Investments, at fair value:
Fixed income securities, available-for-
sale $ 334,087 $ 324,238
Equity securities, at fair value 10,203 17,930
Total investments 344,290 342,168
Cash and cash equivalents 37,043 21,580
Premiums receivable 34,165 36,339
Reinsurance receivable 86,443 83,844
Prepaid reinsurance premiums 7,096 9,486
Deferred policy acquisition costs 20,193 20,528
Accrued investment income 3,901 3,582
Property and equipment, net 16,144 13,056
Deferred income taxes 9,814 7,670
Goodwill 5,416 5,416
Other assets 4,481 2,766
Total assets $ 568,986 $ 546,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Losses and loss adjustment expenses $ 304,000 $ 274,399
Unearned premiums 80,408 88,024
Accounts payable and accrued expenses 13,283 14,622
Other reinsurance balances 11,509 14,734
Trust preferred securities 15,576 15,559
Advances under line of credit 3,000 3,000
Other liabilities 3,940 2,691
Total liabilities $ 431,716 $ 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
7,074,333 and 7,075,333 shares,
outstanding 6,801,095 and 6,717,693 shares - -
Additional paid-in capital $ 71,369 $ 70,394
Accumulated other comprehensive income 2,494 4,896
Retained earnings 74,138 67,613
Unearned ESOP shares (2,505) (3,131)
Treasury Stock, 621,773 and 505,814 shares (8,226) (6,366)
Total stockholders' equity 137,270 133,406
Total liabilities and stockholders' equity $ 568,986 $ 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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