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| 8-K - FORM 8-K - HALLMARK FINANCIAL SERVICES INC | v404358_8k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES FOURTH QUARTER 2014 EARNINGS RESULTS
FORT WORTH, Texas, (March 12, 2015) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported fourth quarter 2014 net income of $3.8 million, or $0.19 per diluted share, compared to net income of $3.4 million, or $0.18 per diluted share, reported for fourth quarter 2013. Hallmark reported net income of $13.4 million, or $0.69 per diluted share, for fiscal 2014 as compared to net income of $8.2 million, or $0.43 per diluted share, for fiscal 2013. Total revenues were $88.0 million for the fourth quarter of 2014 as compared to $88.4 million for the fourth quarter of 2013. Fiscal 2014 total revenues were $337.4 million as compared to $389.4 million reported for fiscal 2013.
“I am pleased to report a solid finish to our 2014 fiscal year with improved quarterly underwriting results evidenced by our combined ratio of 95.9% for the fourth quarter and 95.9% for fiscal 2014 as compared to 96.6% for the fourth quarter the prior year and 101.7% for fiscal 2013,” said Naveen Anand, President and Chief Executive Officer. “The results for fiscal 2014 show marked improvement in each of our reporting segments driven by underwriting actions taken across most lines of business and continued push for rate increases in our key segments.”
Mr. Anand continued, “Hallmark is well positioned with a good platform, talented employees and a strong balance sheet to profitably grow into a consistently high-performing specialty insurance group.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.11 at the end of fiscal 2014, an increase of 6% from the end of fiscal 2013. Total cash and investments have increased 6% during fiscal 2014 to $650.1 million, or $33.83 per share, due predominately to cash flow from operations of $33.7 million. Hallmark’s cash balances totaled $142.9 million as of December 31, 2014.”
| Fourth Quarter | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 109,973 | 108,749 | 1 | % | ||||||||
| Net premiums written | 83,703 | 64,435 | 30 | % | ||||||||
| Net premiums earned | 83,447 | 83,757 | 0 | % | ||||||||
| Investment income, net of expenses | 3,244 | 3,013 | 8 | % | ||||||||
| Net realized gains | 256 | 817 | -69 | % | ||||||||
| Total revenues | 88,004 | 88,375 | 0 | % | ||||||||
| Net income | 3,767 | 3,428 | 10 | % | ||||||||
| Net income per share - basic | $ | 0.20 | $ | 0.18 | 11 | % | ||||||
| Net income per share - diluted | $ | 0.19 | $ | 0.18 | 6 | % | ||||||
| Book value per share | $ | 13.11 | $ | 12.36 | 6 | % | ||||||
| Cash flow from operations | 11,974 | 14,818 | -19 | % | ||||||||
| Fiscal Year | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 473,218 | 460,027 | 3 | % | ||||||||
| Net premiums written | 324,352 | 360,765 | -10 | % | ||||||||
| Net premiums earned | 321,217 | 360,541 | -11 | % | ||||||||
| Investment income, net of expenses | 12,383 | 12,884 | -4 | % | ||||||||
| Net realized gains | 134 | 10,540 | -99 | % | ||||||||
| Total revenues | 337,366 | 389,428 | -13 | % | ||||||||
| Net income | 13,429 | 8,245 | 63 | % | ||||||||
| Net income per share - basic | $ | 0.70 | $ | 0.43 | 63 | % | ||||||
| Net income per share - diluted | $ | 0.69 | $ | 0.43 | 60 | % | ||||||
| Book value per share | $ | 13.11 | $ | 12.36 | 6 | % | ||||||
| Cash flow from operations | 33,684 | 68,338 | -51 | % | ||||||||
Fiscal 2014 Commentary
Hallmark reported net income of $13.4 million for fiscal 2014 as compared to net income of $8.2 million for fiscal 2013. On a diluted basis per share, the Company reported net income of $0.69 per share for fiscal 2014, as compared to net income of $0.43 per share for fiscal 2013.
Hallmark's consolidated net loss ratio was 65.4% for fiscal 2014, as compared to 72.5% for fiscal 2013. Hallmark's net expense ratio was 30.5% for fiscal 2014 as compared to 29.2% for fiscal 2013. Hallmark’s net combined ratio was 95.9% for fiscal 2014 as compared to 101.7% for fiscal 2013.
During fiscal 2014, Hallmark’s total revenues were $337.4 million, representing an approximately 13% decrease over the $389.4 million in total revenues for fiscal 2013. The decrease in revenue was primarily attributable to lower net earned premiums in the Personal Segment due to a new quota share reinsurance contract entered into during the fourth quarter of 2013 on the non-standard automobile risk produced in certain states. Further contributing to the decrease in revenue were significant realized gains recognized in Hallmark’s investment portfolio for the year ended December 21, 2013, lower net investment income and adverse profit share commission revenue adjustments in the Standard Commercial Segment for the year ended December 31, 2014.
The decrease in revenue for the year ended December 31, 2014 was offset by decreased loss and LAE of $51.3 million as compared to the same period of 2013. During the fiscal year ended December 31, 2014, the Company recorded $5.2 million of favorable prior year loss development. During the fiscal year ended December 31, 2013, the Company recorded $10.0 million of unfavorable prior year loss development. The decrease in loss and LAE occurred despite a $4.8 million increase in net catastrophe losses to $15.0 million during the year ended December 31, 2014 from $10.2 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 the Personal Segment, partially offset by $3.0 million of costs related to higher salary and related expenses due mostly to increased incentive compensation accruals compared to the prior period, $0.7 million of CEO transition costs and $0.2 million of costs related to a previously announced public debt offering.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except share amounts) | Dec. 31 | Dec. 31 | ||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| Investments: | ||||||||
| Debt securities, available-for-sale, at fair value (cost: $450,770 in 2014 and $408,627 in 2013) | $ | 450,785 | $ | 410,095 | ||||
| Equity securities, available-for-sale, at fair value (cost: $25,360 in 2014 and $24,902 in 2013) | 56,444 | 51,230 | ||||||
| Total investments | 507,229 | 461,325 | ||||||
| Cash and cash equivalents | 130,985 | 141,666 | ||||||
| Restricted cash | 11,914 | 12,190 | ||||||
| Ceded unearned premiums | 53,376 | 44,988 | ||||||
| Premiums receivable | 71,003 | 71,157 | ||||||
| Accounts receivable | 3,141 | 2,382 | ||||||
| Receivable for securities | 932 | 1,320 | ||||||
| Reinsurance recoverable | 109,719 | 76,818 | ||||||
| Deferred policy acquisition costs | 20,746 | 22,586 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 17,427 | 19,953 | ||||||
| Prepaid expenses | 1,823 | 1,531 | ||||||
| Other assets | 7,879 | 8,412 | ||||||
| Total Assets | $ | 980,869 | $ | 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 | 415,135 | 382,640 | ||||||
| Unearned premiums | 196,826 | 185,303 | ||||||
| Reinsurance balances payable | 26,403 | 20,598 | ||||||
| Pension liability | 2,619 | 1,433 | ||||||
| Payable for securities | 1,321 | 206 | ||||||
| Deferred federal income taxes, net | 3,092 | 2,825 | ||||||
| Federal income tax payable | 968 | 719 | ||||||
| Accounts payable and other accrued expenses | 25,766 | 19,006 | ||||||
| Total Liabilities | 728,832 | 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 | 123,194 | 122,827 | ||||||
| Retained earnings | 119,638 | 106,209 | ||||||
| Accumulated other comprehensive income | 17,801 | 16,883 | ||||||
| Treasury stock (1,655,306 shares in 2014 and 1,609,374 shares in 2013), at cost | (12,353 | ) | (11,558 | ) | ||||
| Total Stockholders’ Equity | 252,037 | 238,118 | ||||||
| Total Liabilities & Stockholders' Equity | $ | 980,869 | $ | 909,023 | ||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||
| Consolidated Statements of Operations | Three Months Ended | Fiscal Year Ended | ||||||||||||||
| ($ in thousands, except share amounts) | December 31 | December 31 | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Gross premiums written | $ | 109,973 | $ | 108,749 | $ | 473,218 | $ | 460,027 | ||||||||
| Ceded premiums written | (26,270 | ) | (44,314 | ) | (148,866 | ) | (99,262 | ) | ||||||||
| Net premiums written | 83,703 | 64,435 | 324,352 | 360,765 | ||||||||||||
| Change in unearned premiums | (256 | ) | 19,322 | (3,135 | ) | (224 | ) | |||||||||
| Net premiums earned | 83,447 | 83,757 | 321,217 | 360,541 | ||||||||||||
| Investment income, net of expenses | 3,244 | 3,013 | 12,383 | 12,884 | ||||||||||||
| Net realized gains | 256 | 817 | 134 | 10,540 | ||||||||||||
| Finance charges | 1,212 | 1,434 | 5,279 | 5,830 | ||||||||||||
| Commission and fees | (166 | ) | (656 | ) | (1,694 | ) | (487 | ) | ||||||||
| Other income | 11 | 10 | 47 | 120 | ||||||||||||
| Total revenues | 88,004 | 88,375 | 337,366 | 389,428 | ||||||||||||
| Losses and loss adjustment expenses | 54,274 | 56,390 | 210,055 | 261,345 | ||||||||||||
| Operating expenses | 26,372 | 25,378 | 101,427 | 109,289 | ||||||||||||
| Interest expense | 1,141 | 1,150 | 4,576 | 4,599 | ||||||||||||
| Amortization of intangible assets | 617 | 695 | 2,526 | 3,115 | ||||||||||||
| Total expenses | 82,404 | 83,613 | 318,584 | 378,348 | ||||||||||||
| Income before tax | 5,600 | 4,762 | 18,782 | 11,080 | ||||||||||||
| Income tax expense | 1,833 | 1,334 | 5,353 | 2,835 | ||||||||||||
| Net income | $ | 3,767 | $ | 3,428 | $ | 13,429 | $ | 8,245 | ||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | 0.20 | $ | 0.18 | $ | 0.70 | $ | 0.43 | ||||||||
| Diluted | $ | 0.19 | $ | 0.18 | $ | 0.69 | $ | 0.43 | ||||||||
| Consolidated Segment Data | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Dec. 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 | $ | 20,202 | $ | 20,374 | $ | 75,932 | $ | 70,988 | $ | 13,839 | $ | 17,387 | $ | - | $ | - | $ | 109,973 | $ | 108,749 | ||||||||||||||||||||
| Ceded premiums written | (1,897 | ) | (1,747 | ) | (18,649 | ) | (15,221 | ) | (5,724 | ) | (27,346 | ) | - | - | (26,270 | ) | (44,314 | ) | ||||||||||||||||||||||
| Net premiums written | 18,305 | 18,627 | 57,283 | 55,767 | 8,115 | (9,959 | ) | - | - | 83,703 | 64,435 | |||||||||||||||||||||||||||||
| Change in unearned premiums | 1,343 | 1,473 | 2,251 | 3,212 | (3,850 | ) | 14,637 | - | - | (256 | ) | 19,322 | ||||||||||||||||||||||||||||
| Net premiums earned | 19,648 | 20,100 | 59,534 | 58,979 | 4,265 | 4,678 | - | - | 83,447 | 83,757 | ||||||||||||||||||||||||||||||
| Total revenues | 20,797 | 21,146 | 62,753 | 61,607 | 5,705 | 6,460 | (1,251 | ) | (838 | ) | 88,004 | 88,375 | ||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 9,633 | 13,576 | 40,934 | 39,243 | 3,707 | 3,571 | - | - | 54,274 | 56,390 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 4,277 | 1,339 | 7,195 | 7,699 | (690 | ) | (85 | ) | (5,182 | ) | (4,191 | ) | 5,600 | 4,762 | ||||||||||||||||||||||||||
| Net loss ratio (1) | 49.0 | % | 67.5 | % | 68.8 | % | 66.5 | % | 86.9 | % | 76.3 | % | 65.0 | % | 67.3 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 35.3 | % | 31.1 | % | 25.0 | % | 25.5 | % | 39.5 | % | 39.4 | % | 30.9 | % | 29.3 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 84.3 | % | 98.6 | % | 93.8 | % | 92.0 | % | 126.4 | % | 115.7 | % | 95.9 | % | 96.6 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 1,186 | 1,605 | (1,121 | ) | (3,319 | ) | (221 | ) | (277 | ) | - | - | (156 | ) | (1,991 | ) | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended Dec. 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 | $ | 84,679 | $ | 87,147 | $ | 324,547 | $ | 296,108 | $ | 63,992 | $ | 76,772 | $ | - | $ | - | $ | 473,218 | $ | 460,027 | ||||||||||||||||||||
| Ceded premiums written | (7,767 | ) | (7,681 | ) | (93,909 | ) | (60,453 | ) | (47,190 | ) | (31,128 | ) | - | - | (148,866 | ) | (99,262 | ) | ||||||||||||||||||||||
| Net premiums written | 76,912 | 79,466 | 230,638 | 235,655 | 16,802 | 45,644 | - | - | 324,352 | 360,765 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 1,399 | (1,290 | ) | (1,815 | ) | (17,090 | ) | (2,719 | ) | 18,156 | - | - | (3,135 | ) | (224 | ) | ||||||||||||||||||||||||
| Net premiums earned | 78,311 | 78,176 | 228,823 | 218,565 | 14,083 | 63,800 | - | - | 321,217 | 360,541 | ||||||||||||||||||||||||||||||
| Total revenues | 81,464 | 83,306 | 241,920 | 229,734 | 20,404 | 71,081 | (6,422 | ) | 5,307 | 337,366 | 389,428 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 51,130 | 56,143 | 149,961 | 152,546 | 8,964 | 52,656 | - | - | 210,055 | 261,345 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 4,595 | 1,980 | 34,237 | 19,527 | 1,226 | (3,416 | ) | (21,276 | ) | (7,011 | ) | 18,782 | 11,080 | |||||||||||||||||||||||||||
| Net loss ratio (1) | 65.3 | % | 71.8 | % | 65.5 | % | 69.8 | % | 63.7 | % | 82.5 | % | 65.4 | % | 72.5 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 33.3 | % | 32.2 | % | 25.6 | % | 26.6 | % | 43.3 | % | 26.7 | % | 30.5 | % | 29.2 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 98.6 | % | 104.0 | % | 91.1 | % | 96.4 | % | 107.0 | % | 109.2 | % | 95.9 | % | 101.7 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 6,033 | 5,235 | (3,721 | ) | (13,381 | ) | 2,891 | (1,808 | ) | - | - | 5,203 | (9,954 | ) | ||||||||||||||||||||||||||
| 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. |