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| 8-K - CURRENT REPORT - HALLMARK FINANCIAL SERVICES INC | v359754_8k.htm |
| 777 Main Street, Suite 1000 | |
| Fort Worth, Texas 76102 | |
| P | 817.348.1600 F | 817.348.1815 | |
| www.hallmarkgrp.com |
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES THIRD QUARTER 2013 EARNINGS RESULTS
FORT WORTH, Texas, (November 7, 2013) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported third quarter 2013 net income of $6.3 million, or $0.32 per diluted share, compared to net income of $3.4 million, or $0.18 per diluted share, reported for third quarter 2012. Year to date, Hallmark reported net income of $4.8 million, or $0.25 per diluted share, compared to net income of $1.7 million, or $0.09 per diluted share, for the same period the prior year. Total revenues were $108.6 million for the third quarter of 2013 as compared to $85.6 million for the third quarter of 2012. Year to date total revenues for 2013 were $301.1 million, up 19% from the $253.2 million reported for the same period the prior year.
“Operating results for the third quarter reflect our ongoing strategy of growing existing lines of business where we can do so profitably and contracting in those where we have experienced unacceptable underwriting performance. Our year-to-date gross written premium growth of 18% is driven largely by near double-digit rate increases in our Specialty and Standard commercial segments coupled with increased insured exposures on renewal policies as a result of improving economic conditions,” said Mark J. Morrison, President and Chief Executive Officer. “Our quarterly combined ratio of 98.8% reflects an improvement in current accident year underwriting profitability. While we are not yet satisfied with our overall underwriting profitability, we are confident the underwriting and pricing actions we have taken will continue to improve operating margins going forward and help us to achieve our targeted financial goals.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $11.94 at the end of the quarter, an increase of 5% over prior year and an increase of 4% over prior year end. Cash flow from operations was $29.5 million in the third quarter, up from $11.0 million in the third quarter of 2012. Total cash and investments have increased 12% during the year to $603.0 million, or $31.30 per share. Hallmark’s cash balances totaled $160.4 million as of September 30, 2013.”
| Third Quarter | ||||||||||||
| 2013 | 2012 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 123,664 | 99,448 | 24 | % | ||||||||
| Net premiums written | 102,889 | 85,005 | 21 | % | ||||||||
| Net premiums earned | 97,452 | 80,481 | 21 | % | ||||||||
| Investment income, net of expenses | 2,965 | 3,795 | -22 | % | ||||||||
| Net realized gains | 6,950 | 982 | 608 | % | ||||||||
| Total revenues | 108,613 | 85,620 | 27 | % | ||||||||
| Net income (1) | 6,274 | 3,413 | 84 | % | ||||||||
| Net income per share - basic | $ | 0.33 | $ | 0.18 | 83 | % | ||||||
| Net income per share - diluted | $ | 0.32 | $ | 0.18 | 78 | % | ||||||
| Book value per share | $ | 11.94 | $ | 11.37 | 5 | % | ||||||
| Cash flow from operations | 29,487 | 10,965 | 169 | % | ||||||||
| Year to Date | ||||||||||||
| 2013 | 2012 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 351,278 | 297,658 | 18 | % | ||||||||
| Net premiums written | 296,330 | 255,104 | 16 | % | ||||||||
| Net premiums earned | 276,784 | 235,938 | 17 | % | ||||||||
| Investment income, net of expenses | 9,871 | 11,573 | -15 | % | ||||||||
| Net realized gains | 9,723 | 1,854 | 424 | % | ||||||||
| Total revenues | 301,053 | 253,177 | 19 | % | ||||||||
| Net income (1) | 4,817 | 1,741 | 177 | % | ||||||||
| Net income per share - basic | $ | 0.25 | $ | 0.09 | 178 | % | ||||||
| Net income per share - diluted | $ | 0.25 | $ | 0.09 | 178 | % | ||||||
| Book value per share | $ | 11.94 | $ | 11.37 | 5 | % | ||||||
| Cash flow from operations | 53,520 | 28,187 | 90 | % | ||||||||
(1) Net income for each period is net income attributable to Hallmark Financial Services, Inc. as reported in the consolidated statements of operations as determined in accordance with U.S. generally accepted accounting principles (GAAP).
Third Quarter 2013 Commentary
During the three and nine months ended September 30, 2013, total revenues were $108.6 million and $301.1 million, representing a 27% and 19% increase, respectively, from the $85.6 million and $253.2 million in total revenues for the same period of 2012. The growth in revenue was primarily attributable to increased premium production and resulting earned premium driven largely from the Specialty Commercial Segment and the Standard Commercial Segment. Further contributing to the increase in revenue were higher net realized gains on the investment portfolio and a lower adverse profit share commission revenue adjustment in the Standard Commercial Segment. These increases in revenue were partially offset by lower net investment income and lower year to date earned premium in the Personal Segment due mostly to the impact of discontinued products and a reduction of premium written in underperforming states.
As a result, Hallmark reported net income of $6.3 million and $4.8 million for the three and nine months ended September 30, 2013 as compared to net income of $3.4 million and $1.7 million for the same periods during 2012. On a diluted basis per share, Hallmark reported net income of $0.32 per share for the three months ended September 30, 2013, as compared to $0.18 per share for the same period in 2012. On a diluted basis per share, net income per share was $0.25 for the nine months ended September 30, 2013 as compared to $0.09 for the same period during 2012.
Hallmark's consolidated net loss ratio was 69.9% and 74.0% for the three and nine months ended September 30, 2013 as compared to 65.7% and 71.6% for the same periods in 2012. The net loss ratios were impacted by $0.5 million and $8.0 million of unfavorable prior year loss reserve development for the three and nine months ended September 30, 2013 as compared to $2.2 million and $3.6 million of favorable prior year loss reserve development for the same periods of 2012. Also impacting the current quarter’s gross and net loss ratios was $2.3 million of additional loss development, or 2.4% net loss ratio points, on catastrophe weather events that occurred in the first half of 2013. Hallmark's net expense ratio was 28.9% and 29.2% for the three and nine months ended September 30, 2013 as compared to 30.1% and 30.4% for the same periods in 2012. Hallmark’s net combined ratio was 98.8% and 103.2% for the three and nine months ended September 30, 2013 as compared to 95.8% and 102.0% for the same periods in 2012.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mark J. Morrison, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except share amounts) | Sept. 30 | Dec. 31 | ||||||
| ASSETS | 2013 | 2012 | ||||||
| Investments: | (unaudited) | |||||||
| Debt securities, available-for-sale, at fair value (cost: $395,860 in 2013 and $397,800 in 2012) | $ | 396,647 | $ | 401,435 | ||||
| Equity securities, available-for-sale, at fair value (cost: $24,033 in 2013 and $31,502 in 2012) | 45,940 | 43,925 | ||||||
| Total investments | 442,587 | 445,360 | ||||||
| Cash and cash equivalents | 151,698 | 85,145 | ||||||
| Restricted cash | 8,700 | 8,707 | ||||||
| Ceded unearned premiums | 31,731 | 22,411 | ||||||
| Premiums receivable | 77,749 | 66,683 | ||||||
| Accounts receivable | 3,209 | 3,110 | ||||||
| Receivable for securities | 19 | 3 | ||||||
| Reinsurance recoverable | 61,193 | 51,970 | ||||||
| Deferred policy acquisition costs | 26,943 | 24,911 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 20,647 | 23,068 | ||||||
| Deferred federal income taxes, net | - | 1,940 | ||||||
| Prepaid expenses | 1,611 | 1,480 | ||||||
| Other assets | 8,935 | 10,985 | ||||||
| Total Assets | $ | 879,717 | $ | 790,468 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Revolving credit facility payable | $ | 1,473 | $ | 1,473 | ||||
| Subordinated debt securities | 56,702 | 56,702 | ||||||
| Reserves for unpaid losses and loss adjustment expenses | 360,248 | 313,416 | ||||||
| Unearned premiums | 191,367 | 162,502 | ||||||
| Reinsurance balances payable | 11,862 | 7,330 | ||||||
| Pension liability | 3,334 | 3,685 | ||||||
| Payable for securities | 6,380 | - | ||||||
| Deferred federal income taxes, net | 319 | - | ||||||
| Federal income tax payable | 1,075 | 1,518 | ||||||
| Accounts payable and other accrued expenses | 16,879 | 23,305 | ||||||
| Total Liabilities | 649,639 | 569,931 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2013 and 2012 | 3,757 | 3,757 | ||||||
| Additional paid-in capital | 122,720 | 122,475 | ||||||
| Retained earnings | 102,781 | 97,964 | ||||||
| Accumulated other comprehensive income | 12,378 | 7,899 | ||||||
| Treasury stock (1,609,374 shares in 2013 and 2012), at cost | (11,558 | ) | (11,558 | ) | ||||
| Total Stockholders’ Equity | 230,078 | 220,537 | ||||||
| $ | 879,717 | $ | 790,468 | |||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||
| Consolidated Statements of Operations | Three Months Ended | Nine Months Ended | ||||||||||||||
| ($ in thousands, except share amounts; unaudited) | September 30 | September 30 | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Gross premiums written | $ | 123,664 | $ | 99,448 | $ | 351,278 | $ | 297,658 | ||||||||
| Ceded premiums written | (20,775 | ) | (14,443 | ) | (54,948 | ) | (42,554 | ) | ||||||||
| Net premiums written | 102,889 | 85,005 | 296,330 | 255,104 | ||||||||||||
| Change in unearned premiums | (5,437 | ) | (4,524 | ) | (19,546 | ) | (19,166 | ) | ||||||||
| Net premiums earned | 97,452 | 80,481 | 276,784 | 235,938 | ||||||||||||
| Investment income, net of expenses | 2,965 | 3,795 | 9,871 | 11,573 | ||||||||||||
| Net realized gains | 6,950 | 982 | 9,723 | 1,854 | ||||||||||||
| Finance charges | 1,484 | 1,374 | 4,396 | 4,538 | ||||||||||||
| Commission and fees | (251 | ) | (1,029 | ) | 169 | (1,033 | ) | |||||||||
| Other income | 13 | 17 | 110 | 307 | ||||||||||||
| Total revenues | 108,613 | 85,620 | 301,053 | 253,177 | ||||||||||||
| Losses and loss adjustment expenses | 68,158 | 52,839 | 204,955 | 168,859 | ||||||||||||
| Other operating expenses | 29,139 | 25,726 | 83,911 | 77,077 | ||||||||||||
| Interest expense | 1,150 | 1,137 | 3,449 | 3,464 | ||||||||||||
| Amortization of intangible assets | 694 | 897 | 2,420 | 2,690 | ||||||||||||
| Total expenses | 99,141 | 80,599 | 294,735 | 252,090 | ||||||||||||
| Income before tax | 9,472 | 5,021 | 6,318 | 1,087 | ||||||||||||
| Income tax expense (benefit) | 3,198 | 1,350 | 1,501 | (978 | ) | |||||||||||
| Net income | 6,274 | 3,671 | 4,817 | 2,065 | ||||||||||||
| Less: net income attributable to non-controlling interest | - | 258 | - | 324 | ||||||||||||
| Net income attributable to Hallmark Financial Services, Inc. | $ | 6,274 | $ | 3,413 | $ | 4,817 | $ | 1,741 | ||||||||
| Net income per share attributable to Hallmark Financial Services, Inc. common stockholders: | ||||||||||||||||
| Basic | $ | 0.33 | $ | 0.18 | $ | 0.25 | $ | 0.09 | ||||||||
| Diluted | $ | 0.32 | $ | 0.18 | $ | 0.25 | $ | 0.09 | ||||||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||||||||||
| Consolidated Segment Data | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Sept. 30 | (unaudited) | |||||||||||||||||||||||||||||||||||||||
| Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 21,444 | $ | 18,706 | $ | 83,453 | $ | 62,349 | $ | 18,767 | $ | 18,393 | $ | - | $ | - | $ | 123,664 | $ | 99,448 | ||||||||||||||||||||
| Ceded premiums written | (1,837 | ) | (1,876 | ) | (17,932 | ) | (12,385 | ) | (1,006 | ) | (182 | ) | - | - | (20,775 | ) | (14,443 | ) | ||||||||||||||||||||||
| Net premiums written | 19,607 | 16,830 | 65,521 | 49,964 | 17,761 | 18,211 | - | - | 102,889 | 85,005 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 332 | 736 | (7,512 | ) | (6,396 | ) | 1,743 | 1,136 | - | - | (5,437 | ) | (4,524 | ) | ||||||||||||||||||||||||||
| Net premiums earned | 19,939 | 17,566 | 58,009 | 43,568 | 19,504 | 19,347 | - | - | 97,452 | 80,481 | ||||||||||||||||||||||||||||||
| Total revenues | 21,163 | 17,761 | 60,787 | 46,373 | 21,256 | 21,172 | 5,407 | 314 | 108,613 | 85,620 | ||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 13,537 | 12,476 | 37,914 | 25,532 | 16,707 | 14,831 | - | - | 68,158 | 52,839 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss), net of non-controlling interest | 1,163 | (529 | ) | 7,564 | 8,287 | (1,613 | ) | (345 | ) | 2,358 | (2,650 | ) | 9,472 | 4,763 | ||||||||||||||||||||||||||
| Net loss ratio (1) | 67.9 | % | 71.0 | % | 65.4 | % | 58.6 | % | 85.7 | % | 76.7 | % | 69.9 | % | 65.7 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.5 | % | 33.4 | % | 26.8 | % | 27.3 | % | 25.4 | % | 29.3 | % | 28.9 | % | 30.1 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 100.4 | % | 104.4 | % | 92.2 | % | 85.9 | % | 111.1 | % | 106.0 | % | 98.8 | % | 95.8 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 1,408 | 71 | (1,405 | ) | 2,757 | (534 | ) | (651 | ) | - | - | (531 | ) | 2,177 | ||||||||||||||||||||||||||
| 1 | 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 for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||||||||||
| Consolidated Segment Data | ||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended Sept. 30 | (unaudited) | |||||||||||||||||||||||||||||||||||||||
| Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 66,773 | $ | 58,292 | $ | 225,120 | $ | 178,690 | $ | 59,385 | $ | 60,676 | $ | - | $ | - | $ | 351,278 | $ | 297,658 | ||||||||||||||||||||
| Ceded premiums written | (5,934 | ) | (5,063 | ) | (45,232 | ) | (36,948 | ) | (3,782 | ) | (543 | ) | - | - | (54,948 | ) | (42,554 | ) | ||||||||||||||||||||||
| Net premiums written | 60,839 | 53,229 | 179,888 | 141,742 | 55,603 | 60,133 | - | - | 296,330 | 255,104 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | (2,763 | ) | (2,194 | ) | (20,302 | ) | (19,449 | ) | 3,519 | 2,477 | - | - | (19,546 | ) | (19,166 | ) | ||||||||||||||||||||||||
| Net premiums earned | 58,076 | 51,035 | 159,586 | 122,293 | 59,122 | 62,610 | - | - | 276,784 | 235,938 | ||||||||||||||||||||||||||||||
| Total revenues | 62,160 | 53,791 | 168,127 | 129,812 | 64,621 | 68,508 | 6,145 | 1,066 | 301,053 | 253,177 | ||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 42,567 | 39,253 | 113,303 | 76,827 | 49,085 | 52,779 | - | - | 204,955 | 168,859 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss), net of non-controlling interest | 641 | (2,601 | ) | 11,828 | 17,193 | (3,331 | ) | (5,747 | ) | (2,820 | ) | (8,082 | ) | 6,318 | 763 | |||||||||||||||||||||||||
| Net loss ratio (1) | 73.3 | % | 76.9 | % | 71.0 | % | 62.8 | % | 83.0 | % | 84.3 | % | 74.0 | % | 71.6 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.6 | % | 33.8 | % | 27.0 | % | 28.2 | % | 25.7 | % | 28.5 | % | 29.2 | % | 30.4 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 105.9 | % | 110.7 | % | 98.0 | % | 91.0 | % | 108.7 | % | 112.8 | % | 103.2 | % | 102.0 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 3,630 | 2,827 | (10,062 | ) | 3,679 | (1,531 | ) | (2,937 | ) | - | - | (7,963 | ) | 3,569 | ||||||||||||||||||||||||||
| 1 | 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 for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. |