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| 8-K - CURRENT REPORT - HALLMARK FINANCIAL SERVICES INC | v377926_8-k.htm |
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES FIRST QUARTER 2014 EARNINGS RESULTS
FORT WORTH, Texas, (May 8, 2014) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported first quarter 2014 net income of $4.5 million, or $0.23 per diluted share, compared to net income of $1.7 million, or $0.09 per diluted share, reported for first quarter 2013. Total revenues were $87.1 million for the first quarter of 2014 as compared to $93.1 million for the first quarter of 2013.
“I am pleased to report that our strategy of growing existing profitable lines of business and contracting lines of business where we have experienced unacceptable underwriting performance continues to bear fruit in our quarterly earnings. Our combined ratio of 94.3% reflects quarterly underwriting results at a level that we have not experienced in four years, and marks the third consecutive quarter of reported underwriting profits. These results are almost entirely driven by the operating performance of our Specialty Commercial Segment which has delivered outstanding underwriting results nearly every quarter over the past three challenging years,” said Mark J. Morrison, President and Chief Executive Officer. “As market conditions for our Specialty Commercial lines of business rapidly improved in recent years, we have reallocated capital to support our growth in these lines, while contracting in our Personal and Standard Commercial lines. As a result of this strategy, our Specialty Commercial Segment, which produced a combined ratio of 88.8% for the first quarter of 2014, has grown over 50% since 2011 and now accounts for nearly three-fourths of our overall net written premium in 2014.”
“Our quarterly results also reflect an improvement in underwriting profitability for our Personal and Standard Commercial Segments. Subdued weather-related catastrophe events and reduced impact from Personal Segment’s discontinued products and states helped to produce a quarterly underwriting profit on a gross basis in each of these segments. While we are still not satisfied with our overall underwriting profitability in these segments, we remain confident the underwriting and pricing actions we have taken will continue to improve operating margins and help us to achieve our financial goals across all lines of business.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $12.54 at the end of the quarter, an increase of 6% over prior year. Total cash and investments have increased 2% during the quarter to $630.5 million, or $32.73 per share due in part to cash flow from operations of $5.1 million. Hallmark’s cash balances totaled $165.0 million as of March 31, 2014.”
| First Quarter | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 116,082 | 108,147 | 7 | % | ||||||||
| Net premiums written | 82,921 | 93,896 | -12 | % | ||||||||
| Net premiums earned | 82,577 | 86,488 | -5 | % | ||||||||
| Investment income, net of expenses | 3,241 | 3,628 | -11 | % | ||||||||
| Net realized gains | 185 | 1,176 | -84 | % | ||||||||
| Total revenues | 87,109 | 93,141 | -6 | % | ||||||||
| Net income | 4,548 | 1,694 | 168 | % | ||||||||
| Net income per share - basic | $ | 0.24 | $ | 0.09 | 167 | % | ||||||
| Net income per share - diluted | $ | 0.23 | $ | 0.09 | 156 | % | ||||||
| Book value per share | $ | 12.54 | $ | 11.80 | 6 | % | ||||||
| Cash flow from operations | 5,107 | 5,825 | -12 | % | ||||||||
First Quarter 2014 Commentary
During the three months ended March 31, 2014, total revenues were $87.1 million, representing a 6% decrease from the $93.1 million in total revenues for same period of 2013. The decrease in revenue was primarily attributable to lower net premiums earned in the Personal Segment due to quota share reinsurance contracts entered into during 2013. Further contributing to the decrease in revenue were lower net realized gains on the Company’s investment portfolio, lower net investment income and an adverse profit share commission revenue adjustment in the Standard Commercial Segment compared to a favorable profit share commission revenue adjustment for the three months ended March 31, 2013. These decreases in revenue were partially offset by increased premium production and resulting earned premium driven largely from the Specialty Commercial Segment.
The decrease in revenue for the three months ended March 31, 2014 was offset by decreased loss and loss adjustment expenses (“LAE”) of $9.0 million as compared to the same period in 2013. During the three months ended March 31, 2014, the Company recorded $1.2 million of favorable prior year loss reserve development as compared to $2.0 million of unfavorable prior year loss reserve development for the same period of 2013. Further contributing to the lower loss and LAE were lower current accident year loss trends in the Specialty Commercial Segment primarily driven by the Hallmark Select business unit. Other operating expenses also decreased due mostly to lower production related expenses in the Personal Segment, partially offset by increased production related expenses in the Specialty Commercial Segment.
Hallmark reported net income of $4.5 million for three months ended March 31, 2014, as compared to net income of $1.7 million for the same period in 2013. On a diluted per share basis, net income was $0.23 per share for the three months ended March 31, 2014 as compared to net income of $0.09 per share for the same period in 2013.
Hallmark's consolidated net loss ratio was 63.9% for the three months ended March 31, 2014 as compared to 71.4% for the same period in 2013. Hallmark's net expense ratio was 30.4% for the three months ended March 31, 2014 as compared to 30.2% for the same period in 2013. Hallmark’s net combined ratio was 94.3% for the three months ended March 31, 2014 as compared to 101.6% for the same period in 2013.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mark J. Morrison, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except share amounts) | Mar. 31 | Dec. 31 | ||||||
| ASSETS | 2014 | 2013 | ||||||
| Investments: | (unaudited) | |||||||
| Debt securities, available-for-sale, at fair value (cost: $414,555 in 2013 and $408,627 in 2013) | $ | 415,533 | $ | 410,095 | ||||
| Equity securities, available-for-sale, at fair value (cost: $24,910 in 2013 and $24,902 in 2013) | 49,987 | 51,230 | ||||||
| Total investments | 465,520 | 461,325 | ||||||
| Cash and cash equivalents | 153,293 | 141,666 | ||||||
| Restricted cash | 11,712 | 12,190 | ||||||
| Ceded unearned premiums | 46,335 | 44,988 | ||||||
| Premiums receivable | 72,782 | 71,157 | ||||||
| Accounts receivable | 3,308 | 2,382 | ||||||
| Receivable for securities | 1,609 | 1,320 | ||||||
| Reinsurance recoverable | 85,140 | 76,818 | ||||||
| Deferred policy acquisition costs | 22,852 | 22,586 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 19,314 | 19,953 | ||||||
| Prepaid expenses | 2,863 | 1,531 | ||||||
| Other assets | 8,033 | 8,412 | ||||||
| Total Assets | $ | 937,456 | $ | 909,023 | ||||
| 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 | 395,654 | 382,640 | ||||||
| Unearned premiums | 186,994 | 185,303 | ||||||
| Reinsurance balances payable | 20,622 | 20,598 | ||||||
| Pension liability | 1,291 | 1,433 | ||||||
| Payable for securities | 12,315 | 206 | ||||||
| Deferred federal income taxes, net | 2,530 | 2,825 | ||||||
| Federal income tax payable | 1,805 | 719 | ||||||
| Accounts payable and other accrued expenses | 16,458 | 19,006 | ||||||
| Total Liabilities | 695,844 | 670,905 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2014 and 2013 | 3,757 | 3,757 | ||||||
| Additional paid-in capital | 122,937 | 122,827 | ||||||
| Retained earnings | 110,757 | 106,209 | ||||||
| Accumulated other comprehensive income | 15,719 | 16,883 | ||||||
| Treasury stock (1,609,374 shares in 2014 and 2013), at cost | (11,558 | ) | (11,558 | ) | ||||
| Total Stockholders’ Equity | 241,612 | 238,118 | ||||||
| $ | 937,456 | $ | 909,023 | |||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Operations | Three Months Ended | |||||||
| ($ in thousands, except share amounts; unaudited) | March 31 | |||||||
| 2014 | 2013 | |||||||
| Gross premiums written | $ | 116,082 | $ | 108,147 | ||||
| Ceded premiums written | (33,161 | ) | (14,251 | ) | ||||
| Net premiums written | 82,921 | 93,896 | ||||||
| Change in unearned premiums | (344 | ) | (7,408 | ) | ||||
| Net premiums earned | 82,577 | 86,488 | ||||||
| Investment income, net of expenses | 3,241 | 3,628 | ||||||
| Net realized gains | 185 | 1,176 | ||||||
| Finance charges | 1,384 | 1,425 | ||||||
| Commission and fees | (290 | ) | 341 | |||||
| Other income | 12 | 83 | ||||||
| Total revenues | 87,109 | 93,141 | ||||||
| Losses and loss adjustment expenses | 52,770 | 61,738 | ||||||
| Other operating expenses | 26,136 | 27,194 | ||||||
| Interest expense | 1,152 | 1,149 | ||||||
| Amortization of intangible assets | 639 | 897 | ||||||
| Total expenses | 80,697 | 90,978 | ||||||
| Income before tax | 6,412 | 2,163 | ||||||
| Income tax expense | 1,864 | 469 | ||||||
| Net income | 4,548 | 1,694 | ||||||
| Net income per common share: | ||||||||
| Basic | $ | 0.24 | $ | 0.09 | ||||
| Diluted | $ | 0.23 | $ | 0.09 | ||||
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Mar. 31 (unaudited)
| Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 20,981 | $ | 21,642 | $ | 74,922 | $ | 65,306 | $ | 20,179 | $ | 21,199 | $ | - | $ | - | $ | 116,082 | $ | 108,147 | ||||||||||||||||||||
| Ceded premiums written | (1,969 | ) | (1,995 | ) | (14,229 | ) | (10,932 | ) | (16,963 | ) | (1,324 | ) | - | - | (33,161 | ) | (14,251 | ) | ||||||||||||||||||||||
| Net premiums written | 19,012 | 19,647 | 60,693 | 54,374 | 3,216 | 19,875 | - | - | 82,921 | 93,896 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 388 | (1,117 | ) | (1,420 | ) | (5,521 | ) | 688 | (770 | ) | - | - | (344 | ) | (7,408 | ) | ||||||||||||||||||||||||
| Net premiums earned | 19,400 | 18,530 | 59,273 | 48,853 | 3,904 | 19,105 | - | - | 82,577 | 86,488 | ||||||||||||||||||||||||||||||
| Total revenues | 20,341 | 20,288 | 62,482 | 51,680 | 5,592 | 20,978 | (1,306 | ) | 195 | 87,109 | 93,141 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 12,823 | 12,583 | 36,941 | 34,436 | 3,006 | 14,719 | - | - | 52,770 | 61,738 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 1,221 | 1,477 | 9,924 | 3,698 | (31 | ) | (64 | ) | (4,702 | ) | (2,948 | ) | 6,412 | 2,163 | ||||||||||||||||||||||||||
| Net loss ratio (1) | 66.1 | % | 67.9 | % | 62.3 | % | 70.5 | % | 77.0 | % | 77.0 | % | 63.9 | % | 71.4 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.7 | % | 33.7 | % | 26.5 | % | 27.5 | % | 37.5 | % | 27.1 | % | 30.4 | % | 30.2 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 98.8 | % | 101.6 | % | 88.8 | % | 98.0 | % | 114.5 | % | 104.1 | % | 94.3 | % | 101.6 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 1,193 | 726 | (648 | ) | (2,990 | ) | 658 | 253 | - | - | 1,203 | (2,011 | ) | |||||||||||||||||||||||||||
| 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. |