Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

Commission file number 001-11252

Hallmark Financial Services, Inc.

(Exact name of registrant as specified in its charter)

Nevada
 
87-0447375
(State or other jurisdiction of
 
(I.R.S. Employer
Incorporation or organization)
 
Identification No.)

 
76102
     
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code:  (817) 348-1600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x     No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨             Accelerated filer ¨
Non-accelerated filer ¨               Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, par value $.18 per share – 20,124,169 shares outstanding as of August 12, 2010.
 

 
PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS

   
Page Number
     
Consolidated Balance Sheets at June 30, 2010 (unaudited) and December 31, 2009
 
3
     
Consolidated Statements of Operations (unaudited) for the three months and six months ended June 30, 2010 and June 30, 2009
 
4
     
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (unaudited) for the three months and six months ended June 30, 2010 and June 30, 2009
 
5
     
Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2010 and June 30, 2009
 
6
     
Notes to Consolidated Financial Statements (unaudited)
 
7
 
2

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share amounts)

   
June 30
   
December 31
 
   
2010
   
2009
 
   
(unaudited)
       
ASSETS
           
             
Investments:
           
Debt securities, available-for-sale, at fair value (cost; $360,374 in 2010 and $287,108 in 2009)
  $ 364,694     $ 291,876  
Equity securities, available-for-sale, at fair value (cost; $34,035 in 2010 and $27,251 in 2009)
    40,958       35,801  
                 
Total investments
    405,652       327,677  
                 
Cash and cash equivalents
    75,234       112,270  
Restricted cash and cash equivalents
    9,283       5,458  
Premiums receivable
    54,393       46,635  
Accounts receivable
    3,102       3,377  
Receivable for securities
    17       -  
Ceded unearned premiums
    15,133       12,997  
Reinsurance recoverable
    16,149       10,008  
Deferred policy acquisition costs
    22,736       20,792  
Goodwill
    41,080       41,080  
Intangible assets, net
    27,040       28,873  
Federal income tax recoverable
    3,242       -  
Deferred federal income taxes,net
    133       -  
Prepaid expenses
    1,669       923  
Other assets
    15,662       18,779  
                 
Total assets
  $ 690,525     $ 628,869  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Note payable
  $ 2,800     $ 2,800  
Subordinated debt securities
    56,702       56,702  
Reserves for unpaid losses and loss adjustment expenses
    214,448       184,662  
Unearned premiums
    136,190       125,089  
Unearned revenue
    169       191  
Reinsurance balances payable
    2,816       3,281  
Accrued agent profit sharing
    1,232       1,790  
Accrued ceding commission payable
    4,235       8,600  
Pension liability
    2,587       2,628  
Deferred federal income taxes, net
    -       942  
Federal income tax payable
    -       1,266  
Payable for securities
    25,621       19  
Accounts payable and other accrued expenses
    11,302       13,258  
                 
Total liabilities
    458,102       401,228  
                 
Commitments and contingencies (Note 17)
               
                 
Redeemable non-controlling interest
    1,179       1,124  
                 
Stockholders' equity:
               
Common stock, $0.18 par value (authorized 33,333,333 shares in 2010 and 2009; issued 20,872,831 in 2010 and 2009)
    3,757       3,757  
Additional paid-in capital
    121,403       121,016  
Retained earnings
    104,380       98,482  
Accumulated other comprehensive income
    6,966       8,589  
Treasury stock, at cost (748,662 shares in 2010 and 757,828 in 2009)
    (5,262 )     (5,327 )
                 
Total stockholders' equity
    231,244       226,517  
                 
    $ 690,525     $ 628,869  

The accompanying notes are an integral part of the consolidated financial statements
 
3

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share amounts)

   
Three Months Ended
   
Six Months Ended
 
   
June 30
   
June 30
 
   
2010
   
2009
   
2010
   
2009
 
                         
Gross premiums written
  $ 83,180     $ 75,053     $ 165,039     $ 146,532  
Ceded premiums written
    (10,047 )     (3,260 )     (19,111 )     (5,492 )
Net premiums written
    73,133       71,793       145,928       141,040  
Change in unearned premiums
    (3,185 )     (9,474 )     (8,965 )     (19,291 )
Net premiums earned
    69,948       62,319       136,963       121,749  
                                 
Investment income, net of expenses
    3,276       3,467       6,477       7,736  
Net realized gains
    1,643       867       5,446       519  
Finance charges
    1,771       1,449       3,414       2,799  
Commission and fees
    (963 )     2,627       (812 )     8,816  
Other income
    12       15       22       35  
                                 
Total revenues
    75,687       70,744       151,510       141,654  
                                 
Losses and loss adjustment expenses
    52,058       38,131       95,156       74,973  
Other operating expenses
    22,872       23,878       44,354       47,628  
Interest expense
    1,150       1,150       2,296       2,309  
Amortization of intangible assets
    916       782       1,832       1,496  
                                 
Total expenses
    76,996       63,941       143,638       126,406  
                                 
Income (loss) before tax
    (1,309 )     6,803       7,872       15,248  
Income tax expense (benefit)
    (953 )     2,519       1,937       4,181  
Net income (loss)
    (356 )     4,284       5,935       11,067  
Less: Net income attributable to non-controlling  interest
    32       9       37       2  
                                 
Net income (loss) attributable to Hallmark Financial Services, Inc.
  $ (388 )   $ 4,275     $ 5,898     $ 11,065  
                                 
Net income (loss) per share attributable to Hallmark Financial
                               
Services, Inc. common stockholders:
                               
Basic
  $ (0.02 )   $ 0.20     $ 0.29     $ 0.53  
Diluted
  $ (0.02 )   $ 0.20     $ 0.29     $ 0.53  

The accompanying notes are an integral part of the consolidated  financial statements
 
4

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Unaudited)
($ in thousands)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Common Stock
                       
Balance, beginning of period
  $ 3,757     $ 3,757     $ 3,757     $ 3,751  
Issuance of common stock upon option exercises
    -       -       -       6  
Balance, end of period
    3,757       3,757       3,757       3,757  
                                 
Additional Paid-In Capital
                               
Balance, beginning of period
    121,196       120,200       121,016       119,928  
Accretion of redeemable noncontrolling interest
    (84 )     (78 )     (162 )     (172 )
Equity based compensation
    291       614       589       876  
Exercise of stock options
    -       -       (40 )     104  
                                 
Balance, end of period
    121,403       120,736       121,403       120,736  
                                 
Retained Earnings
                               
Balance, beginning of period
    104,768       79,032       98,482       72,242  
Adjustment to opening balance, net of tax (Note 2)
    -       1,665       -       1,665  
      104,768       80,697       98,482       73,907  
Net income (loss) attributable to Hallmark Financial Services, Inc.
    (388 )     4,275       5,898       11,065  
                                 
Balance, end of period
    104,380       84,972       104,380       84,972  
                                 
Accumulated Other Comprehensive Income (Loss)
                               
Balance, beginning of period
    11,083       (12,357 )     8,589       (16,432 )
Adjustment to open ing balance, net of tax (Note 2)
    -       (1,665 )     -       (1,665 )
Adjusted balance, beginning of period
    11,083       (14,022 )     8,589       (18,097 )
Additional minimum pension liability, net of tax
    37       79       73       159  
Net unrealized holding gains (losses) arising during period
    (2,511 )     15,138       3,750       19,324  
Reclassification adjustment for losses included in net income
    (1,643 )     (359 )     (5,446 )     (550 )
                                 
Balance, end of period
    6,966       836       6,966       836  
                                 
Treasury Stock
                               
Balance, beginning of period
    (5,268 )     (77 )     (5,327 )     (77 )
Issuance of treasury stock upon option exercises
    6       -       65       -  
Balance, end of period
    (5,262 )     (77 )     (5,262 )     (77 )
                                 
Total Stockholders' Equity
  $ 231,244     $ 210,224     $ 231,244     $ 210,224  
                                 
Net income (loss)
  $ (356 )   $ 4,284     $ 5,935     $ 11,067  
Additional minimum pension liability, net of tax
    37       79       73       159  
Net unrealized holding gains (losses) arising during period
    (2,511 )     15,138       3,750       19,324  
Reclassification adjustment for losses included in net income
    (1,643 )     (359 )     (5,446 )     (550 )
Comprehensive income (loss)
    (4,473 )     19,142       4,312       30,000  
Less: Comprehensive income attributable to non-controlling interest
    32       9       37       2  
Comprehensive income (loss) attributable to
                               
Hallmark Financial Services, Inc.
  $ (4,505 )   $ 19,133     $ 4,275     $ 29,998  

The accompanying notes are an integral part of the consolidated  financial statements
 
5

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
 
   
Six Months Ended
 
   
June 30
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 5,935     $ 11,067  
                 
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation and amortization expense
    2,326       1,930  
Deferred federal income taxes
    (734 )     (391 )
Realized gains on investments
    (5,446 )     (519 )
Change in ceded unearned premiums
    (2,136 )     (5,118 )
Change in premiums receivable
    (7,758 )     (8,591 )
Change in accounts receivable
    244       791  
Change in deferred policy acquisition costs
    (1,944 )     (3,908 )
Change in reserves for unpaid losses and loss adjustment expenses
    29,786       24,003  
Change in unearned premiums
    11,101       24,403  
Change in unearned revenue
    (22 )     (1,432 )
Change in accrued agent profit sharing
    (558 )     (833 )
Change in reinsurance recoverable
    (6,141 )     (5,854 )
Change in reinsurance balances payable
    (465 )     -  
Change in current federal income tax recoverable/payable
    (4,508 )     (1,473 )
Change in accrued ceding commission payable
    (4,365 )     (5 )
Change in all other liabilities
    (1,996 )     (9,197 )
Change in all other assets
    4,130       3,909  
                 
Net cash provided by operating activities
    17,449       28,782  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (841 )     (634 )
Net transfers into restricted cash and cash equivalents
    (3,825 )     (460 )
Purchases of investment securities
    (123,337 )     (35,833 )
Maturities, sales and redemptions of investment securities
    73,637       40,734  
Payment for acquisition of subsidiaries
    -       (7,246 )
                 
Net cash used in investing activities
    (54,366 )     (3,439 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of employee stock options
    25       110  
Net repayments of notes payable
    -       (1,417 )
Distribution to non-controlling interest
    (144 )     (20 )
                 
Net cash used in financing activities
    (119 )     (1,327 )
                 
Increase (Decrease) in cash and cash equivalents
    (37,036 )     24,016  
Cash and cash equivalents at beginning of period
    112,270       59,134  
Cash and cash equivalents at end of period
  $ 75,234     $ 83,150  
                 
Supplemental cash flow information:
               
Interest paid
  $ 2,303     $ 2,345  
Taxes paid
  $ 7,179     $ 6,045  
                 
Supplemental schedule of non-cash investing activities:
               
Change in receivable for securities related to investment disposals settled after the balance sheet date
  $ 31     $ 961  
Change in payable for securities related to investment purchases settled after the balance sheet date
  $ 25,601     $ (695 )
 
The accompanying notes are an integral part of the consolidated financial statements
 
6

 
Hallmark Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

1. General

Hallmark Financial Services, Inc. (“Hallmark” and, together with subsidiaries, “we,” “us” or “our”) is an insurance holding company engaged in the sale of property/casualty insurance products to businesses and individuals.  Our business involves marketing, distributing, underwriting and servicing our insurance products, as well as providing other insurance related services.

We pursue our business activities through subsidiaries whose operations are organized into five business units, which are supported by our four insurance company subsidiaries.  Our Standard Commercial business unit (formerly known as our AHIS Operating Unit) handles commercial insurance products and services in the standard market.  Our E&S Commercial business unit (formerly known as our TGA Operating Unit) handles primarily commercial insurance products and services in the excess and surplus lines market.  Our General Aviation business unit (formerly known as our Aerospace Operating Unit) handles general aviation insurance products and services.  Our Excess & Umbrella business unit (formerly known as our Heath XS Operating Unit) offers low and middle market commercial umbrella and excess liability insurance on both an admitted and non-admitted basis focusing primarily on trucking, specialty automobile and non-fleet automobile coverage. Our Personal Lines business unit (formerly known as our Personal Lines Operating Unit) handles personal insurance products and services.  Our insurance company subsidiaries supporting these business units are American Hallmark Insurance Company of Texas (“AHIC”), Hallmark Insurance Company (“HIC”), Hallmark Specialty Insurance Company (“HSIC”) and Hallmark County Mutual Insurance Company (“HCM”).

These five business units are segregated into three reportable industry segments for financial accounting purposes.  The Standard Commercial Segment presently consists solely of the Standard Commercial business unit and the Personal Segment presently consists solely of the Personal Lines business unit.  The Specialty Commercial Segment includes the E&S Commercial, General Aviation and Excess & Umbrella business units.

2. Basis of Presentation

Our unaudited consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and the accounts of our subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting.  These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2009 included in our Annual Report on Form 10-K filed with the SEC.

The interim financial data as of June 30, 2010 and 2009 is unaudited.  However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.  The results of operations for the period ended June 30, 2010 are not necessarily indicative of the operating results to be expected for the full year.
 
7

 
Redeemable non-controlling interest

We are accreting the redeemable non-controlling interest to its redemption value from the date of issuance to the earliest determinable redemption date, August 29, 2012, using the interest method.  Changes in redemption value are considered a change in accounting estimate.  We follow the two class method of computing earnings per share.  We treat only the portion of the periodic adjustment to the redeemable non-controlling interest carrying amount that reflects a redemption in excess of fair value as being akin to an actual dividend.  (See Note 3, “Business Combinations.”)

Reclassification

Certain previously reported amounts have been reclassified in order to conform to our current year presentation.  Such reclassification had no effect on net income or stockholders’ equity.

Income Taxes

We file a consolidated federal income tax return.  Deferred federal income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end.  Deferred taxes are recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes in effect for the year in which these temporary differences are expected to be recovered or settled.

Use of Estimates in the Preparation of the Financial Statements

  Our preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting period.  Refer to “Critical Accounting Estimates and Judgments” in our Annual Report on Form 10-K for the year ended December 31, 2009 for information on accounting policies that we consider critical in preparing our consolidated financial statements. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates are made at a point in time, based on relevant market data as well as the best information available about the financial instruments.  Fair value estimates for financial instruments for which no or limited observable market data is available are based on judgments regarding current economic conditions, credit and interest rate risk.  These estimates involve significant uncertainties and judgments and cannot be determined with precision.  As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument.  In addition, changes in the underlying assumptions used in the fair value measurement technique, including discount rate and estimates of future cash flows, could significantly affect these fair value estimates.

Investment Securities:  Fair values for debt securities and equity securities are obtained from an independent pricing service or based on quoted market prices. (See Note 4, “Fair Values” and Note 5, “Investments.”)
 
8

 
Cash and Cash Equivalents:  The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Restricted Cash and Cash Equivalents:  The carrying amount for restricted cash reported in the balance sheet approximates the fair value.

Notes Payable:  The carrying value of our bank credit facility of $2.8 million approximates the fair value based on the current interest rate.

Subordinated Debt Securities:  Our trust preferred securities have a carried value of $56.7 million and a fair value of $54.6 million as of June 30, 2010.  The fair value of our trust preferred securities is based on discounted cash flows using a current yield to maturity of 8.25% based on similar issues to discount future cash flows.

For accrued investment income, amounts recoverable from reinsurers, federal income tax recoverable/payable and other liabilities, the carrying amounts approximate fair value because of the short maturity of such financial instruments.

Variable Interest Entities

On June 21, 2005, we formed Hallmark Statutory Trust I (“Trust I”), an unconsolidated trust subsidiary, for the sole purpose of issuing $30.0 million in trust preferred securities.  Trust I used the proceeds from the sale of these securities and our initial capital contribution to purchase $30.9 million of subordinated debt securities from Hallmark.  The debt securities are the sole assets of Trust I, and the payments under the debt securities are the sole revenues of Trust I.

On August 23, 2007, we formed Hallmark Statutory Trust II (“Trust II”), an unconsolidated trust subsidiary, for the sole purpose of issuing $25.0 million in trust preferred securities.  Trust II used the proceeds from the sale of these securities and our initial capital contribution to purchase $25.8 million of subordinated debt securities from Hallmark.  The debt securities are the sole assets of Trust II, and the payments under the debt securities are the sole revenues of Trust II.

In 2009, the Financial Accounting Standards Board (“FASB”) issued revised accounting standards regarding consolidation of variable interest entities, which was effective for us on January 1, 2010.  Accordingly, we reevaluated our investments in Trust I and II (collectively the “Trusts”) and determined that, while the Trusts continue to be variable interest entities, we are not the primary beneficiary.  Therefore, the Trusts are not included in our consolidated financial statements.

Recently Issued Accounting Standards

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (the “Codification”).  The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setters into a single source of authoritative accounting principles arranged by topic.  The Codification supersedes all existing U.S. accounting standards. All other accounting literature not included in the Codification (other than SEC guidance for publicly-traded companies) is considered non-authoritative.  The Codification was effective on a prospective basis for interim and annual reporting periods ending after September 15, 2009.  The adoption of the Codification changed our references to GAAP accounting standards but did not impact our financial position or results of operations.
 
9

 
In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” which was codified into FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”).  ASC 820 establishes a separate framework for determining fair values of assets and liabilities that are required by other authoritative GAAP pronouncements to be measured at fair value.  In addition, ASC 820 incorporates and clarifies the guidance in FASB Concepts Statement 7 regarding the use of present value techniques in measuring fair value.  ASC 820 does not require any new fair value measurements. ASC 820 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  In January 2010, the FASB updated ASC 820 requiring additional disclosures about fair value measurements regarding transfers between fair value categories as well as purchases, sales, issuances and settlements related to fair value measurements of financial instruments with non-observable inputs.  This update was effective for interim and annual periods beginning after December 15, 2009 except for disclosures about purchases, sales, issuances and settlements of financial instruments with non-observable inputs, which are effective for years beginning after December 15, 2010. The adoption of ASC 820 had no impact on our financial position or results of operations but did require additional disclosures.  (See Note 4, “Fair Value.”)

In February 2007, FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Liabilities,” which was codified into FASB ASC Topic 825, “Financial Instruments” (“ASC 825”).   ASC 825 permits entities to choose to measure many financial instruments and certain other items at fair value with changes in fair value included in current earnings.  The election is made on specified election dates, can be made on an instrument–by–instrument basis, and is irrevocable.  ASC 825 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of ASC 825 had no impact on our financial position or results of operations as we did not elect to apply ASC 825 to any eligible items.

In December 2007, the FASB issued Revised Statement of Financial Accounting Standards No. 141R, “Business Combinations,” which was codified into FASB ASC Topic 805, “Business Combinations” (“ ASC 805”).  ASC 805 provides revised guidance on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, it provides revised guidance on the recognition and measurement of goodwill acquired in the business combination. ASC 805 also provides guidance specific to the recognition, classification, and measurement of assets and liabilities related to insurance and reinsurance contracts acquired in a business combination. ASC 805 applies to business combinations for acquisitions occurring on or after January 1, 2009. The adoption of ASC 805 did not have a material effect on our financial position or results of operations.  However, ASC 805 will impact the accounting for any future acquisitions.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51,” which was codified into FASB ASC Topic 810, “Noncontrolling Interests” (“ASC 810”).  ASC 810 amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  In addition, it clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements.  ASC 810 is effective on a prospective basis beginning January 1, 2009, except for the presentation and disclosure requirements which are applied on a retrospective basis for all periods presented. The adoption of ASC 810 did not have a significant impact on our financial position or results of operations.
 
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In April 2009, FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which was codified into ASC 820. ASC 820  provides guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that may indicate that a transaction is not orderly.   ASC 820 is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The adoption of this guidance did not have a significant impact on our financial position or results of operations.

In April 2009, FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” which was codified into FASB ASC Topic 320, “Investment Securities” (“ASC 320”), amending prior other-than-temporary impairment guidance for debt in order to make the guidance more operational and improve the presentation and disclosure of other-than-temporary impairments in the financial statements. ASC 320 did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of  ASC 320 are effective for interim periods ending after June 15, 2009.  We adopted ASC 320 effective April 1, 2009 which resulted in a cumulative effect adjustment to the beginning balances of retained earnings and accumulated other comprehensive income of approximately $2.6 million before tax and $1.7 million net of tax.

In April 2009, FASB issued FASB Staff Position No. FAS 107-1 and APB Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which was codified into ASC 825.   ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This guidance is effective for interim periods ending after June 15, 2009 but did not impact our financial position or results of operations.  However, additional footnote disclosures to our interim and annual financial statements were required.

In May 2009, FASB issued Statement of Financial Accounting Standard No. 165, “Subsequent Events,” which was codified into FASB ASC Topic 855, “Subsequent Events” (“ASC 855”), which provides authoritative accounting literature for a topic previously addressed only in the auditing literature.  The provisions of ASC 855 are effective for interim financial periods ending after June 15, 2009. The adoption of ASC 855 did not have a significant impact on our financial position or results of operations.

In June 2009, FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which was codified into ASC 810.  ASC 810 addresses the effects of eliminating the qualifying special-purpose entity concept and responds to concerns about the application of certain key provisions of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” including concerns over the transparency of enterprises’ involvement with variable interest entities.  SFAS 167 is effective for calendar year end companies beginning on January 1, 2010 with earlier application prohibited.  The adoption of ASC Topic 810 did not have a material impact on our financial position or results of operations.
 
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3. Business Combinations

We account for business combinations using the purchase method of accounting pursuant to ASC 805. The cost of an acquired entity is allocated to the assets acquired (including identified intangible assets) and liabilities assumed based on their estimated fair values.  The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed is an asset referred to as “goodwill.” Indirect and general expenses related to business combinations are expensed as incurred for acquisitions in 2009 and after.  Prior to 2009, indirect and general expenses were capitalized.

            Effective August 29, 2008, we acquired 80% of the issued and outstanding membership interests in the subsidiaries now comprising our Excess & Umbrella business unit for consideration of $15.0 million.  In connection with the acquisition, we executed an operating agreement for each subsidiary.  The operating agreements grant us the right to purchase the remaining 20% membership interests in the subsidiaries and grant to an affiliate of the seller the right to require us to purchase such remaining membership interests (the “Put/Call Option”).  The Put/Call Option becomes exercisable by either us or the affiliate of the seller upon the earlier of August 29, 2012, the termination of the employment of the seller by the Excess & Umbrella business unit or a change of control of Hallmark. If the Put/Call Option is exercised, we will have the right or obligation to purchase the remaining 20% membership interests in the Excess & Umbrella business unit  for an amount equal to nine times the average Pre-Tax Income (as defined in the operating agreements) for the previous 12 fiscal quarters.  We estimate the ultimate redemption value of the Put/Call Option to be $2.2 million at June 30, 2010.
Effective June 5, 2009, we acquired all of the issued and outstanding shares of CYR Insurance Management Company (“CYR”).  CYR has as its primary asset a management agreement with Hallmark County Mutual Insurance Company, (“HCM”), which provides for CYR to have management and control of HCM.  We acquired all of the issued and outstanding shares of CYR for consideration of a base purchase price of $4.0 million paid at closing plus an override commission in an amount equal to 1% of the net premiums and net policy fees of HCM for the years 2010 and 2011 subject to a maximum of $1.25 million.  The override commission is paid monthly as the subject premiums and policy fees are written.  The fair value of the management agreement acquired is $3.2 million and is being amortized over four years.  HCM is used to front certain lines of business in our Specialty Commercial and Personal Segments in Texas where we previously produced policies for third party county mutual insurance companies and reinsured 100% for a fronting fee.

4. Fair Value

                  ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820, among other things, requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, ASC 820 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities.

We determine the fair value of our financial instruments based on the fair value hierarchy established in ASC 820.  In accordance with ASC 820, we utilize the following fair value hierarchy:

 
·
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
 
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·
Level 3: inputs to the valuation methodology that are unobservable for the asset or liability.

This hierarchy requires the use of observable market data when available.

Under ASC 820, we determine fair value based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.  It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy described above.  Fair value measurements for assets and liabilities where there exists limited or no observable market data are calculated based upon our pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other factors as appropriate.  These estimated fair values may not be realized upon actual sale or immediate settlement of the asset or liability.

           Where quoted prices are available on active exchanges for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy.  Level 1 investment securities include common and preferred stock.  

Level 2 investment securities include corporate bonds, municipal bonds and U.S. Treasury securities for which quoted prices are not available on active exchanges for identical instruments.  We use a third party pricing service to determine fair values for each Level 2 investment security in all asset classes.  Since quoted prices in active markets for identical assets are not available, these prices are determined by the pricing service using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other things. We have reviewed the processes used by the pricing service and have determined that they result in fair values consistent with the requirements of  ASC 820 for Level 2 investment securities.

In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.  Level 3 investments are valued based on the best available data in order to approximate fair value.  This data may be internally developed and consider risk premiums that a market participant would require.  Investment securities classified within Level 3 include other less liquid investment securities.
 
The following table presents for each of the fair value hierarchy levels, our assets that are measured at fair value on a recurring basis at June 30, 2010 (in thousands):
 
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Quoted Prices in
   
Other
             
   
Active Markets for
   
Observable
   
Unobservable
       
   
Identical Assets
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
                         
U.S. Treasury securities and obligations of U.S. Government
  $ -     $ 6,540     $ -     $ 6,540  
Corporate debt securities
    -       198,551       -       198,551  
Municipal bonds
    -       135,493       23,500       158,993  
Asset backed
    -       610       -       610  
Total debt securities
    -       341,194       23,500       364,694  
                                 
Financial services
    20,067       -       -       20,067  
All other
    20,891       -       -       20,891  
Total equity securities
    40,958       -       -       40,958  
Total debt and equity securities
  $ 40,958     $ 341,194     $ 23,500     $ 405,652  
 
Due to significant unobservable inputs into the valuation model for certain municipal bonds in illiquid markets, we classified these as Level 3 in the fair value hierarchy.  We used an income approach in order to derive an estimated fair value of such securities, which included inputs such as expected holding period, benchmark swap rate, benchmark discount rate and a discount rate premium for illiquidity.

The following table summarizes the changes in fair value for all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2010 (in thousands):

Beginning balance as of January 1, 2010
  $ 25,272  
         
Net purchases, issuances, sales and settlements
    (2,125 )
Total realized/unrealized gains included in net income
    -  
Net gains included in other comprehensive income
    353  
Transfers in and/or out of Level 3
    -  
         
Ending balance as of June 30, 2010
  $ 23,500  

5. Investments

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary. All securities with an unrealized loss are reviewed.  We recognize an impairment loss when an investment’s value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary.
 
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Equity Investments:  Some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include: (1) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; (2) the recoverability of cost; (3) the length of time and extent to which the fair value has been less than cost; and (4) the financial condition and near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. When it is determined that an equity investment is other-than-temporarily impaired, the security is written down to fair value, and the amount of the impairment is included in earnings as a realized investment loss. The fair value then becomes the new cost basis of the investment, and any subsequent recoveries in fair value are recognized at disposition. We recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made. When we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale, the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made.
 
Debt Investments:   We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses.  For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors.  The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows.  The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.
 
15

 
Major categories of recognized gains on investments are summarized as follows (in thousands):
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30
   
June 30
 
   
2010
   
2009
   
2010
   
2009
 
                         
U.S. Treasury securities and obligations of U.S. Government
  $ -     $ -     $ -     $ -  
Corporate debt securities
    74       894       3,368       1,022  
Municipal bonds
    24       (44 )     (72 )     (40 )
Equity securities-financial services
    1,201       (23 )     1,767       27  
Equity securities-all other
    344       40       383       48  
Net realized gain before other-than-temporary impairments
    1,643       867       5,446       1,057  
Other-than-temporary impairments
    -       -       -       (538 )
Net realized gain
  $ 1,643     $ 867     $ 5,446     $ 519  
 
We realized gross gains on investments of $1.6 million and $1.1 million during the three months ended June 30, 2010 and 2009, respectively, and $5.5 and $1.3 million for the six months ended June 30, 2010 and 2009, respectively. We did not realize any gross losses on investments for the three months ended June 30, 2010 and realized gross losses of $0.2 million during the three months ended June 30, 2009 and $0.1 million and $0.8 million for the six months ended June 30, 2010 and 2009, respectively. We recorded proceeds from the sale of investment securities of $26.5 million and $28.2 million during the three months ended June 30, 2010 and 2009, respectively, and $73.6 million and $40.9 million for the six months ended June 30, 2010 and 2009, respectively. Realized investment gains and losses are recognized in operations on the specific identification method.
 
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The amortized cost and estimated fair value of investments in debt and equity securities  by category is as follows (in thousands):
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
As of June 30, 2010
                       
                         
U.S. Treasury securities and obligations of U.S. Government
  $ 6,510     $ 29     $ -     $ 6,539  
Corporate debt securities
    195,796       4,475       (1,720 )     198,551  
Municipal bonds
    157,483       3,170       (1,659 )     158,994  
Asset backed
    585       25       -       610  
                                 
Total debt securities
    360,374       7,699       (3,379 )     364,694  
                                 
Financial services
    16,530       3,765       (228 )     20,067  
All other
    17,505       4,178       (792 )     20,891  
                                 
Total equity securities
    34,035       7,943       (1,020 )     40,958  
                                 
Total debt and equity securities
  $ 394,409     $ 15,642     $ (4,399 )   $ 405,652  
                                 
As of December 31, 2009
                               
                                 
U.S. Treasury securities and obligations of U.S. Government
  $ 6,830     $ 23     $ (17 )   $ 6,836  
Corporate debt securities
    94,560       7,190       (2,201 )     99,549  
Municipal bonds
    185,036       2,543       (2,786 )     184,793  
Asset backed
    682       17       (1 )     698  
                                 
Total debt securities
    287,108       9,773       (5,005 )     291,876  
                                 
Financial services
    17,156       5,008       (232 )     21,932  
All other
    10,095       3,790       (16 )     13,869  
                                 
Total equity securities
    27,251       8,798       (248 )     35,801  
                                 
Total debt and equity securities
  $ 314,359     $ 18,571     $ (5,253 )   $ 327,677  
 
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The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2010 and December 31, 2009 (in thousands):

   
As of June 30, 2010
 
   
12 months or less
   
Longer than 12 months
   
Total
 
         
Unrealized
         
Unrealized
         
Unrealized
 
   
Fair Value
   
Losses
   
Fair Value
   
Losses
   
Fair Value
   
Losses
 
                                     
U.S. Treasury securities and obligations of U.S. Government
  $ -     $ -     $ -     $ -     $ -     $ -  
Corporate debt securities
    73,817       (788 )     5,412       (932 )     79,229       (1,720 )
Municipal bonds
    27,371       (1,059 )     37,740       (600 )     65,111       (1,659 )
Total debt securities
    101,188       (1,847 )     43,152       (1,532 )     144,340       (3,379 )
                                                 
Financial services
    2,489       (228 )     -       -       2,489       (228 )
All other
    10,104       (792 )     -       -       10,104       (792 )
Total equity securities
    12,593       (1,020 )     -       -       12,593       (1,020 )
                                                 
Total debt and equity securities
  $ 113,781     $ (2,867 )   $ 43,152     $ (1,532 )   $ 156,933     $ (4,399 )

   
As of December 31, 2009
 
   
12 months or less
   
Longer than 12 months
   
Total
 
         
Unrealized
         
Unrealized
         
Unrealized
 
   
Fair Value
   
Losses
   
Fair Value
   
Losses
   
Fair Value
   
Losses
 
                                     
U.S. Treasury securities and obligations of U.S. Government
  $ 3,202     $ (17 )   $ -     $ -     $ 3,202     $ (17 )
Corporate debt securities
    18,924       (166 )     9,642       (2,035 )     28,566       (2,201 )
Municipal bonds
    28,940       (1,524 )     42,183       (1,262 )     71,123       (2,786 )
Asset backed
    51       (1 )     -       -       51       (1 )
Total debt securities
    51,117       (1,708 )     51,825       (3,297 )     102,942       (5,005 )
                                                 
Financial services
    1,417       (232 )     -       -       1,417       (232 )
All other
    658       (16 )     -       -       658       (16 )
Equity securities
    2,075       (248 )     -       -       2,075       (248 )
                                                 
Total debt and equity securities
  $ 53,192     $ (1,956 )   $ 51,825     $ (3,297 )   $ 105,017     $ (5,253 )

 At June 30, 2010, the gross unrealized losses more than twelve months old were attributable to 33 bond positions.  At December 31, 2009, the gross unrealized losses more than twelve months old were attributable to 60 bond positions.  We consider these losses as a temporary decline in value as they are predominately on bonds that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis.  We see no other indications that the decline in values of these securities is other-than-temporary.
 
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Based on evidence gathered through our normal credit evaluation process, we presently expect that all debt securities held in our investment portfolio will be paid in accordance with their contractual terms.  Nonetheless, it is at least reasonably possible that the performance of certain issuers of these debt securities will be worse than currently expected resulting in additional future write-downs within our portfolio of debt securities.

Also, as a result of the challenging market conditions, we expect the volatility in the valuation of our equity securities to continue in the foreseeable future. This volatility may lead to additional impairments on our equity securities portfolio or changes regarding retention strategies for certain equity securities.

The amortized cost and estimated fair value of debt securities at June 30, 2010 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

   
Amortized
   
Fair
 
   
Cost
   
Value
 
   
(in thousands)
 
             
Due in one year or less
  $ 38,209     $ 38,728  
Due after one year through five years
    193,268       197,738  
Due after five years through ten years
    82,786       82,532  
Due after ten years
    45,526       45,086  
Asset backed
    585       610  
    $ 360,374     $ 364,694  

Activity related to the credit component recognized in earnings for the six months ended June 30, 2010, on debt securities held by us for which a portion of other-than-temporary impairment was previously recognized in other comprehensive income is as follows (in thousands):

Balance, January 1, 2010
  $ 1,168  
         
Reductions for securities sold or matured during the period
    (1,168 )
         
Balance, June 30, 2010
  $ -  
 
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6. Pledged Investments

We have certain of our securities pledged for the benefit of various state insurance departments and reinsurers.  These securities are included with our available-for-sale debt securities because we have the ability to trade these securities.  We retain the interest earned on these securities.  These securities had a carrying value of $31.8 million at June 30, 2010 and a carrying value of $29.7 million at December 31, 2009.

7. Share-Based Payment Arrangements

Our 2005 Long Term Incentive Plan (“2005 LTIP”) is a stock compensation plan for key employees and non-employee directors that was approved by the shareholders on May 26, 2005.  There are 2,000,000 shares authorized for issuance under the 2005 LTIP.  Our 1994 Key Employee Long Term Incentive Plan (the “1994 Employee Plan”) and 1994 Non-Employee Director Stock Option Plan (the “1994 Director Plan”) both expired in 2004 but have unexercised options outstanding.

As of June 30, 2010, there were incentive stock options to purchase 1,286,666 shares of our common stock outstanding and non-qualified stock options to purchase 320,000 shares of our common stock outstanding and there were 392,501 shares reserved for future issuance under the 2005 LTIP.  As of June 30, 2010, there were incentive stock options to purchase 2,500 shares outstanding under the 1994 Employee Plan and non-qualified stock options to purchase 20,834 shares outstanding under the 1994 Director Plan.  The exercise price of all such outstanding stock options is equal to the fair market value of our common stock on the date of grant.

Options granted under the 1994 Employee Plan prior to October 31, 2003, vest 40% six months from the date of grant and an additional 20% on each of the first three anniversary dates of the grant and terminate ten years from the date of grant.  Incentive stock options granted under the 2005 LTIP prior to 2009 and the 1994 Employee Plan after October 31, 2003, vest 10%, 20%, 30% and 40% on the first, second, third and fourth anniversary dates of the grant, respectively, and terminate five to ten years from the date of grant.  Incentive stock options granted in 2009 under the 2005 LTIP vest in equal annual increments on each of the first seven anniversary dates and terminate ten years from the date of grant.  There was one grant of 25,000 incentive stock options in 2010 under the 2005 LTIP that vests in equal annual increments on each of the first three anniversary dates and terminates ten years from the date of grant.  Non-qualified stock options granted under the 2005 LTIP generally vest 100% six months after the date of grant and terminate ten years from the date of grant.  There was one grant of 200,000 non-qualified stock options in 2009 under the 2005 LTIP that vests in equal annual increments on each of the first seven anniversary dates and terminates ten years from the date of grant.  All non-qualified stock options granted under the 1994 Director Plan vested 40% six months from the date of grant and an additional 10% on each of the first six anniversary dates of the grant and terminate ten years from the date of grant.
 
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A summary of the status of our stock options as of and changes during the six months ended June 30, 2010 is presented below:

         
Average
   
Contractual
   
Intrinsic
 
   
Number of
   
Exercise
   
Term
   
Value
 
   
Shares
   
Price
   
(Years)
   
($000)
 
                           
Outstanding at January 1, 2010
    1,614,166     $ 9.62                
Granted
    25,000     $ 9.12                
Exercised
    (9,166 )   $ 2.69                
Forfeited or expired
    -     $ -                
Outstanding at June 30, 2010
    1,630,000     $ 9.65       7.5     $ 2,390  
Exercisable at June 30, 2010
    773,427     $ 10.32       6.8     $ 837  

The following table details the intrinsic value of options exercised, total cost of share-based payments charged against income before income tax benefit and the amount of related income tax benefit recognized in income for the periods indicated (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Intrinsic value of options exercised
  $ 3     $ -     $ 47     $ 107  
                                 
Cost of share-based payments (non-cash)
  $ 291     $ 614     $ 589     $ 876  
                                 
Income tax benefit of share-based payments recognized in income
  $ 7     $ 30     $ 15     $ 30  

As of June 30, 2010, there was $2.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our plans, of which $0.5 million is expected to be recognized during the remainder of 2010, $0.8 million is expected to be recognized in 2011, $0.4 million is expected to be recognized in 2012, $0.2 million is expected to be recognized each year from 2013 through 2015 and $0.1 million is expected to be recognized in 2016.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model.  Expected volatilities are based on the historical volatility of the Company’s and similar companies’ common stock for a period equal to the expected term.  The risk-free interest rates for periods within the contractual term of the options are based on rates for U.S. Treasury Notes with maturity dates corresponding to the options’ expected lives on the dates of grant.  Expected term is determined based on the simplified method as we do not have sufficient historical exercise data to provide a basis for estimating the expected term.
 
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The following table details the weighted average grant date fair value and related assumptions for the periods indicated:

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Grant date fair value per share
  $ 3.62     $ 2.84     $ 3.62     $ 2.84  
                                 
Expected term (in years)
    6.0       6.2       6.0       6.2  
Expected volatility
    35.0 %     40.0 %     35.0 %     40.0 %
Risk free interest rate
    3.2 %     2.5 %     3.2 %     2.5 %

8. Segment Information

The following is business segment information for the three and six months ended June 30, 2010 and 2009 (in thousands):
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues:
                       
Standard Commercial Segment
  $ 17,265     $ 18,194     $ 35,299     $ 38,214  
Specialty Commercial Segment
    32,124       32,430       64,611       65,255  
Personal Segment
    24,754       18,701       45,968       36,236  
Corporate
    1,544       1,419       5,632       1,949  
Consolidated
  $ 75,687     $ 70,744     $ 151,510     $ 141,654  
                                 
Pre-tax income (loss), net of non-controlling interest:
                               
Standard Commercial Segment
  $ (1,870 )   $ 1,247     $ (2,809 )   $ 3,823  
Specialty Commercial Segment
    967       5,010       7,314       10,692  
Personal Segment
    1,132       2,894       3,782       5,513  
Corporate
    (1,570 )     (2,357 )     (452 )     (4,782 )
Consolidated
  $ (1,341 )   $ 6,794     $ 7,835     $ 15,246  
 
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The following is additional business segment information as of the dates indicated (in thousands):

   
June 30,
   
December 31,
 
   
2010
   
2009
 
Assets