Attached files
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| 8-K - FORM 8-K - HALLMARK FINANCIAL SERVICES INC | v393642_8k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES THIRD QUARTER 2014 EARNINGS RESULTS
FORT WORTH, Texas, (November 7, 2014) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported third quarter 2014 net income of $3.5 million, or $0.18 per diluted share, compared to net income of $6.3 million, or $0.32 per diluted share, reported for third quarter 2013. Year to date, Hallmark reported net income of $9.7 million, or $0.50 per diluted share, compared to net income of $4.8 million, or $0.25 per diluted share for the same period the prior year. Total revenues were $81.4 million for the third quarter of 2014 as compared to $108.6 million for the third quarter of 2013. Year to date total revenues for 2014 were $249.4 million as compared to $301.1 million reported for the same period the prior year.
“I am pleased to report overall continued improving profitable underwriting results as evidenced by our third quarter combined ratio of 96.2% as compared to 97.4% for the second quarter this year and 98.8% for the third quarter the prior year,” said Naveen Anand, President and Chief Executive Officer. “These results are reflective of solid performance across each of our reporting segments driven by continued favorable rate trends and underwriting actions taken across most lines of business.”
Mr. Anand continued, “I am excited for the future prospects of the Company as Hallmark is well positioned with a solid platform to continue to grow into a best-in-class specialty insurance group.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $12.96 at the end of the quarter, an increase of 9% since a year ago. Total cash and investments have increased 4% during the first nine months of 2014 to $642.8 million, or $33.61 per share, due in part to cash flow from operations of $21.7 million. Hallmark’s cash balances totaled $176.9 million as of September 30, 2014.”
| Third Quarter | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 122,723 | 123,664 | -1 | % | ||||||||
| Net premiums written | 84,025 | 102,889 | -18 | % | ||||||||
| Net premiums earned | 77,147 | 97,452 | -21 | % | ||||||||
| Investment income, net of expenses | 2,912 | 2,965 | -2 | % | ||||||||
| Net realized gains (losses) | (23 | ) | 6,950 | NM | ||||||||
| Total revenues | 81,417 | 108,613 | -25 | % | ||||||||
| Net income | 3,463 | 6,274 | -45 | % | ||||||||
| Net income per share - basic | $ | 0.18 | $ | 0.33 | -45 | % | ||||||
| Net income per share - diluted | $ | 0.18 | $ | 0.32 | -44 | % | ||||||
| Book value per share | $ | 12.96 | $ | 11.94 | 9 | % | ||||||
| Cash flow from operations | 2,129 | 29,487 | -93 | % | ||||||||
| Year-to-Date | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 363,245 | 351,278 | 3 | % | ||||||||
| Net premiums written | 240,649 | 296,330 | -19 | % | ||||||||
| Net premiums earned | 237,770 | 276,784 | -14 | % | ||||||||
| Investment income, net of expenses | 9,139 | 9,871 | -7 | % | ||||||||
| Net realized gains (losses) | (122 | ) | 9,723 | NM | ||||||||
| Total revenues | 249,362 | 301,053 | -17 | % | ||||||||
| Net income | 9,662 | 4,817 | 101 | % | ||||||||
| Net income per share - basic | $ | 0.50 | $ | 0.25 | 100 | % | ||||||
| Net income per share - diluted | $ | 0.50 | $ | 0.25 | 100 | % | ||||||
| Book value per share | $ | 12.96 | $ | 11.94 | 9 | % | ||||||
| Cash flow from operations | 21,710 | 53,520 | -59 | % | ||||||||
Third Quarter 2014 Commentary
During the three and nine months ended September 30, 2014, Hallmark’s total revenues were $81.4 million and $249.4 million, representing a decrease of 25% and 17%, respectively, from the $108.6 million and $301.1 million in total revenues for the same periods of 2013. This decrease in revenue was primarily attributable to lower net earned premiums in the Personal Segment due to a quota share reinsurance contract entered into during the fourth quarter of 2013 on non-standard automobile risks produced in certain states. Further contributing to the decrease in revenue were significant net realized gains recognized in the Company’s investment portfolio for the three and nine months ended September 30, 2013, lower net investment income for the three and nine months ended September 30, 2014, and adverse profit share commission revenue adjustments in the Standard Commercial Segment for the nine months ended September 30, 2014.
The decrease in revenue for the three and nine months ended September 30, 2014 was offset by decreased loss and loss adjustment expenses (“LAE”) of $17.6 million and $49.2 million, respectively, as compared to the same periods in 2013. During the three months ended September 30, 2014 and 2013, the Company recorded unfavorable prior year net loss reserve development of $1.5 million and $0.5 million, respectively. During the nine months ended September 30, 2014, the Company recorded $5.4 million of favorable prior year loss reserve development compared to $8.0 million of unfavorable prior year loss reserve development during the nine months ended September 30, 2013. The decrease in loss and LAE occurred despite a $5.4 million increase in net catastrophe losses to $13.9 million during the nine months ended September 30, 2014 from $8.5 million reported for the same period of 2013. Other operating expenses also decreased due mostly to decreased production related expenses in the Specialty Commercial Segment and Personal Segment, partially offset by $0.7 million of one-time CEO transition costs and $0.2 million of costs related to a previously announced public debt offering.
Hallmark reported net income of $3.5 million and $9.7 million for the three and nine months ended September 30, 2014 as compared to net income of $6.3 million and $4.8 million for the three and nine months ended September 30, 2013. On a diluted basis per share, the Company reported net income of $0.18 per share for the three months ended September 30, 2014, as compared to net income of $0.32 per share for the same period in 2013. On a diluted basis per share, net income per share was $0.50 for the nine months ended September 30, 2014 as compared to net income per share of $0.25 for the same period during 2013.
Hallmark's consolidated net loss ratio was 65.5% for both the three and nine months ended September 30, 2014, as compared to 69.9% and 74.0% for the same periods in 2013. Hallmark's net expense ratio was 30.7% and 30.4% for the three and nine months ended September 30, 2014 as compared to 28.9% and 29.2% for the same periods in 2013. Hallmark’s net combined ratio was 96.2% and 95.9% for the three and nine months ended September 30, 2014 as compared to 98.8% and 103.2% for the same periods in 2013.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
| ($ in thousands, except share amounts) | Sept. 30 | Dec. 31 | ||||||
| 2014 | 2013 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments: | ||||||||
| Debt securities, available-for-sale, at fair value (cost: $411,000 in 2014 and $408,627 in 2013) | $ | 411,262 | $ | 410,095 | ||||
| Equity securities, available-for-sale, at fair value (cost: $24,967 in 2014 and $24,902 in 2013) | 54,678 | 51,230 | ||||||
| Total investments | 465,940 | 461,325 | ||||||
| Cash and cash equivalents | 160,027 | 141,666 | ||||||
| Restricted cash | 16,882 | 12,190 | ||||||
| Ceded unearned premiums | 61,989 | 44,988 | ||||||
| Premiums receivable | 82,472 | 71,157 | ||||||
| Accounts receivable | 2,754 | 2,382 | ||||||
| Receivable for securities | 2,825 | 1,320 | ||||||
| Reinsurance recoverable | 105,437 | 76,818 | ||||||
| Deferred policy acquisition costs | 20,665 | 22,586 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 18,044 | 19,953 | ||||||
| Federal income tax recoverable | 688 | - | ||||||
| Prepaid expenses | 2,031 | 1,531 | ||||||
| Other assets | 7,730 | 8,412 | ||||||
| Total Assets | $ | 992,179 | $ | 909,023 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Revolving credit facility payable | $ | - | $ | 1,473 | ||||
| Subordinated debt securities | 56,702 | 56,702 | ||||||
| Reserves for unpaid losses and loss adjustment expenses | 414,752 | 382,640 | ||||||
| Unearned premiums | 205,184 | 185,303 | ||||||
| Reinsurance balances payable | 32,647 | 20,598 | ||||||
| Pension liability | 776 | 1,433 | ||||||
| Payable for securities | 10,086 | 206 | ||||||
| Deferred federal income taxes, net | 3,548 | 2,825 | ||||||
| Federal income tax payable | - | 719 | ||||||
| Accounts payable and other accrued expenses | 20,604 | 19,006 | ||||||
| Total Liabilities | 744,299 | 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 | 122,913 | 122,827 | ||||||
| Retained earnings | 115,871 | 106,209 | ||||||
| Accumulated other comprehensive income | 18,276 | 16,883 | ||||||
| Treasury stock (1,748,840 shares in 2014 and 1,609,374 shares in 2013), at cost | (12,937 | ) | (11,558 | ) | ||||
| Total Stockholders’ Equity | 247,880 | 238,118 | ||||||
| $ | 992,179 | $ | 909,023 | |||||
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 | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Gross premiums written | $ | 122,723 | $ | 123,664 | $ | 363,245 | $ | 351,278 | ||||||||
| Ceded premiums written | (38,698 | ) | (20,775 | ) | (122,596 | ) | (54,948 | ) | ||||||||
| Net premiums written | 84,025 | 102,889 | 240,649 | 296,330 | ||||||||||||
| Change in unearned premiums | (6,878 | ) | (5,437 | ) | (2,879 | ) | (19,546 | ) | ||||||||
| Net premiums earned | 77,147 | 97,452 | 237,770 | 276,784 | ||||||||||||
| Investment income, net of expenses | 2,912 | 2,965 | 9,139 | 9,871 | ||||||||||||
| Net realized (losses) gains | (23 | ) | 6,950 | (122 | ) | 9,723 | ||||||||||
| Finance charges | 1,300 | 1,484 | 4,067 | 4,396 | ||||||||||||
| Commission and fees | 71 | (251 | ) | (1,528 | ) | 169 | ||||||||||
| Other income | 10 | 13 | 36 | 110 | ||||||||||||
| Total revenues | 81,417 | 108,613 | 249,362 | 301,053 | ||||||||||||
| Losses and loss adjustment expenses | 50,509 | 68,158 | 155,781 | 204,955 | ||||||||||||
| Other operating expenses | 24,409 | 29,139 | 75,055 | 83,911 | ||||||||||||
| Interest expense | 1,140 | 1,150 | 3,435 | 3,449 | ||||||||||||
| Amortization of intangible assets | 631 | 694 | 1,909 | 2,420 | ||||||||||||
| Total expenses | 76,689 | 99,141 | 236,180 | 294,735 | ||||||||||||
| Income before tax | 4,728 | 9,472 | 13,182 | 6,318 | ||||||||||||
| Income tax expense | 1,265 | 3,198 | 3,520 | 1,501 | ||||||||||||
| Net income | $ | 3,463 | $ | 6,274 | $ | 9,662 | $ | 4,817 | ||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | 0.18 | $ | 0.33 | $ | 0.50 | $ | 0.25 | ||||||||
| Diluted | $ | 0.18 | $ | 0.32 | $ | 0.50 | $ | 0.25 | ||||||||
| Consolidated Segment Data | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Sept. 30 | (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 | $ | 20,850 | $ | 21,444 | $ | 87,886 | $ | 83,453 | $ | 13,987 | $ | 18,767 | $ | - | $ | - | $ | 122,723 | $ | 123,664 | ||||||||||||||||||||
| Ceded premiums written | (1,639 | ) | (1,837 | ) | (25,534 | ) | (17,932 | ) | (11,525 | ) | (1,006 | ) | - | - | (38,698 | ) | (20,775 | ) | ||||||||||||||||||||||
| Net premiums written | 19,211 | 19,607 | 62,352 | 65,521 | 2,462 | 17,761 | - | - | 84,025 | 102,889 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 614 | 332 | (7,736 | ) | (7,512 | ) | 244 | 1,743 | - | - | (6,878 | ) | (5,437 | ) | ||||||||||||||||||||||||||
| Net premiums earned | 19,825 | 19,939 | 54,616 | 58,009 | 2,706 | 19,504 | - | - | 77,147 | 97,452 | ||||||||||||||||||||||||||||||
| Total revenues | 20,985 | 21,163 | 57,983 | 60,787 | 4,225 | 21,256 | (1,776 | ) | 5,407 | 81,417 | 108,613 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 12,545 | 13,537 | 36,844 | 37,914 | 1,120 | 16,707 | - | - | 50,509 | 68,158 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 2,244 | 1,163 | 7,653 | 7,564 | 662 | (1,613 | ) | (5,831 | ) | 2,358 | 4,728 | 9,472 | ||||||||||||||||||||||||||||
| Net loss ratio (1) | 63.3 | % | 67.9 | % | 67.5 | % | 65.4 | % | 41.4 | % | 85.7 | % | 65.5 | % | 69.9 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.1 | % | 32.5 | % | 25.7 | % | 26.8 | % | 57.9 | % | 25.4 | % | 30.7 | % | 28.9 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 95.4 | % | 100.4 | % | 93.2 | % | 92.2 | % | 99.3 | % | 111.1 | % | 96.2 | % | 98.8 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | (288 | ) | 1,408 | (2,369 | ) | (1,405 | ) | 1,205 | (534 | ) | - | - | (1,452 | ) | (531 | ) | ||||||||||||||||||||||||
| 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 as total underwriting expenses 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) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 64,477 | $ | 66,773 | $ | 248,615 | $ | 225,120 | $ | 50,153 | $ | 59,385 | $ | - | $ | - | $ | 363,245 | $ | 351,278 | ||||||||||||||||||||
| Ceded premiums written | (5,870 | ) | (5,934 | ) | (75,260 | ) | (45,232 | ) | (41,466 | ) | (3,782 | ) | - | - | (122,596 | ) | (54,948 | ) | ||||||||||||||||||||||
| Net premiums written | 58,607 | 60,839 | 173,355 | 179,888 | 8,687 | 55,603 | - | - | 240,649 | 296,330 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 56 | (2,763 | ) | (4,066 | ) | (20,302 | ) | 1,131 | 3,519 | - | - | (2,879 | ) | (19,546 | ) | |||||||||||||||||||||||||
| Net premiums earned | 58,663 | 58,076 | 169,289 | 159,586 | 9,818 | 59,122 | - | - | 237,770 | 276,784 | ||||||||||||||||||||||||||||||
| Total revenues | 60,667 | 62,160 | 179,167 | 168,127 | 14,699 | 64,621 | (5,171 | ) | 6,145 | 249,362 | 301,053 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 41,497 | 42,567 | 109,027 | 113,303 | 5,257 | 49,085 | - | - | 155,781 | 204,955 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 318 | 641 | 27,042 | 11,828 | 1,916 | (3,331 | ) | (16,094 | ) | (2,820 | ) | 13,182 | 6,318 | |||||||||||||||||||||||||||
| Net loss ratio (1) | 70.7 | % | 73.3 | % | 64.4 | % | 71.0 | % | 53.5 | % | 83.0 | % | 65.5 | % | 74.0 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.6 | % | 32.6 | % | 25.8 | % | 27.0 | % | 44.9 | % | 25.7 | % | 30.4 | % | 29.2 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 103.3 | % | 105.9 | % | 90.2 | % | 98.0 | % | 98.4 | % | 108.7 | % | 95.9 | % | 103.2 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 4,847 | 3,630 | (2,600 | ) | (10,062 | ) | 3,112 | (1,531 | ) | - | - | 5,359 | (7,963 | ) | ||||||||||||||||||||||||||
| 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 as total underwriting expenses 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. |