Hallmark Financial Services, Inc. Announces Fourth Quarter 2013 Earnings Results

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| Source: Hallmark Financial Services, Inc.

FORT WORTH, Texas, March 12, 2014 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported fourth quarter 2013 net income of $3.4 million, or $0.18 per diluted share, compared to net income of $1.8 million, or $0.09 per diluted share, reported for fourth quarter 2012. Hallmark reported net income of $8.2 million, or $0.43 per diluted share, for fiscal 2013 as compared to net income of $3.5 million, or $0.18 per diluted share, for fiscal 2012. Total revenues were $88.4 million for the fourth quarter of 2013 as compared to $88.6 million for the fourth quarter of 2012. Fiscal 2013 total revenues were $389.4 million, up 14% from the $341.8 million reported for fiscal 2012.

"Our strategy of growing existing profitable lines of business and contracting lines of business where we have experienced unacceptable underwriting performance has resulted in continued improvement in our operating results, as evidenced by our fourth quarter combined ratio of 96.6%. Our fiscal 2013 gross written premium growth of 18% was driven largely by near double-digit rate increases in our Specialty Commercial 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 underwriting results reflect an improvement in current accident year underwriting profitability. While we are still not yet satisfied with our overall underwriting profitability, we remain confident the underwriting and pricing actions we have taken will continue to improve operating margins going forward and help us to achieve our financial goals."

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $12.36 at the end of the quarter, an increase of 8% over prior year end. Cash flow from operations was $14.8 million in the fourth quarter, up from $5.5 million in the fourth quarter of 2012. Total cash and investments have increased 14% during fiscal 2013 to $615.2 million, or $31.94 per share. Hallmark's cash balances totaled $153.9 million as of December 31, 2013."

Fourth Quarter  
  2013 2012 % Change
  ($ in thousands, unaudited)
Gross premiums written  108,749  92,184 18%
Net premiums written  64,435  77,385 -17%
Net premiums earned  83,757  83,498 0%
Investment income, net of expenses  3,013  3,720 -19%
Net realized gains  817  89 818%
Total revenues  88,375  88,623 0%
Net income (1)  3,428  1,783 92%
Net income per share - basic  $ 0.18  $ 0.09 100%
Net income per share - diluted  $ 0.18  $ 0.09 100%
Book value per share  $ 12.36  $ 11.45 8%
Cash flow from operations 14,818 5,495 170%
Fiscal Year  
  2013 2012 % Change
  ($ in thousands, unaudited)
Gross premiums written  460,027  389,842 18%
Net premiums written  360,765  332,489 9%
Net premiums earned  360,541  319,436 13%
Investment income, net of expenses  12,884  15,293 -16%
Net realized gains  10,540  1,943 442%
Total revenues  389,428  341,800 14%
Net income (1)  8,245  3,524 134%
Net income per share - basic  $ 0.43  $ 0.18 139%
Net income per share - diluted  $ 0.43  $ 0.18 139%
Book value per share  $ 12.36  $ 11.45 8%
Cash flow from operations 68,338 33,682 103%
       
(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).

Fiscal Year 2013 Commentary

During fiscal 2013, total revenues were $389.4 million, representing an approximately 14% increase over the $341.8 million in total revenues for fiscal 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.

The increase in revenue for fiscal 2013 was accompanied by increased loss and LAE of $34.9 million as compared to the same period of 2012. During fiscal 2013, the Company recorded $10.0 million of unfavorable prior year loss development. During fiscal 2012, the Company recorded $3.7 million of favorable prior year loss development. The increase in loss and LAE occurred despite a $1.5 million decrease in catastrophe losses to $10.2 million during fiscal 2013 from $11.7 million reported during fiscal 2012. Other operating expenses also increased due mostly to increased production related expenses in the E&S Commercial business unit.

Hallmark reported net income of $8.2 million for fiscal 2013, as compared to net income of $3.5 million for fiscal 2012. On a diluted per share basis, net income attributable to Hallmark was $0.43 per share for fiscal 2013 as compared to net income of $0.18 per share for fiscal 2012.

Hallmark's consolidated net loss ratio was 67.3% and 72.5% for the three and twelve months ended December 31, 2013 as compared to 68.9% and 70.9% for the same periods in 2012. The net loss ratios were impacted by $2.0 million and $10.0 million of unfavorable prior year loss reserve development for the three and twelve months ended December 31, 2013 as compared to $0.1 million and $3.7 million of favorable prior year loss reserve development for the same periods of 2012. Hallmark's net expense ratio was 29.3% and 29.2% for the three and twelve months ended December 31, 2013 as compared to 30.2% and 30.8% for the same periods in 2012. Hallmark's net combined ratio was 96.6% and 101.7% for the three and twelve months ended December 31, 2013 as compared to 99.1% and 101.7% 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."

The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395

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.

 
 
 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share amounts) Dec. 31 Dec. 31
ASSETS 2013 2012
Investments:    
Debt securities, available-for-sale, at fair value (cost: $408,627 in 2013 and $397,800 in 2012) $ 410,095 $ 401,435
Equity securities, available-for-sale, at fair value (cost: $24,902 in 2013 and $31,502 in 2012) 51,230 43,925
Total investments 461,325 445,360
Cash and cash equivalents 141,666 85,145
Restricted cash 12,190 8,707
Ceded unearned premiums 44,988 22,411
Premiums receivable 71,157 66,683
Accounts receivable 2,382 3,110
Receivable for securities  1,320 3
Reinsurance recoverable 76,818 51,970
Deferred policy acquisition costs 22,586 24,911
Goodwill 44,695 44,695
Intangible assets, net 19,953 23,068
Deferred federal income taxes, net  --   1,940
Prepaid expenses 1,531 1,480
Other assets 8,412 10,985
Total Assets $ 909,023 $ 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 382,640 313,416
Unearned premiums 185,303 162,502
Reinsurance balances payable 20,598 7,330
Pension liability 1,433 3,685
Payable for securities  206  -- 
Deferred federal income taxes, net  2,825  -- 
Federal income tax payable 719 1,518
Accounts payable and other accrued expenses 19,006 23,305
Total Liabilities 670,905 569,931
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 122,827 122,475
Retained earnings 106,209 97,964
Accumulated other comprehensive income 16,883 7,899
Treasury stock (1,609,374 shares in 2013 and 2012), at cost (11,558) (11,558)
Total Stockholders' Equity 238,118 220,537
  $ 909,023 $ 790,468
 
 
 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations Three Months Ended Fiscal Year Ended
($ in thousands, except share amounts; unaudited) December 31 December 31
  2013 2012  2013  2012 
Gross premiums written $ 108,749 $ 92,184 $ 460,027 $ 389,842
Ceded premiums written (44,314) (14,799) (99,262) (57,353)
Net premiums written 64,435 77,385 360,765 332,489
Change in unearned premiums 19,322 6,113 (224) (13,053)
Net premiums earned 83,757 83,498 360,541 319,436
         
Investment income, net of expenses 3,013 3,720 12,884 15,293
Net realized gains 817 89 10,540 1,943
Finance charges 1,434 1,419 5,830 5,957
Commission and fees (656) (112) (487) (1,145)
Other income 10 9 120 316
Total revenues 88,375 88,623 389,428 341,800
         
Losses and loss adjustment expenses 56,390 57,555 261,345 226,414
Other operating expenses 25,378 26,715 109,289 103,792
Interest expense 1,150 1,170 4,599 4,634
Amortization of intangible assets 695 896 3,115 3,586
Total expenses 83,613 86,336 378,348 338,426
         
Income before tax 4,762 2,287 11,080 3,374
Income tax expense (benefit) 1,334 504 2,835 (474)
Net income 3,428 1,783 8,245 3,848
Less: net income attributable to non-controlling interest  --   --   --  324
Net income attributable to Hallmark Financial Services, Inc. $ 3,428 $ 1,783 $ 8,245 $ 3,524
         
Net income per share attributable to Hallmark Financial Services, Inc. common stockholders:        
Basic $ 0.18 $ 0.09 $ 0.43 $ 0.18
Diluted $ 0.18 $ 0.09 $ 0.43 $ 0.18
 
 
 
 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Dec. 31 (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  $ 20,374  $ 18,799  $ 70,988  $ 57,005  $ 17,387  $ 16,380  $ --   $ --   $ 108,749  $ 92,184
Ceded premiums written (1,747) (1,937) (15,221) (12,694) (27,346) (168)  --   --  (44,314) (14,799)
Net premiums written 18,627 16,862 55,767 44,311 (9,959) 16,212  --   --  64,435 77,385
Change in unearned premiums 1,473 1,258 3,212 2,226 14,637 2,629  --   --  19,322 6,113
Net premiums earned 20,100 18,120 58,979 46,537 4,678 18,841  --   --  83,757 83,498
                     
Total revenues 21,146 19,328 61,607 49,105 6,460 20,641 (838) (451) 88,375 88,623
                     
Losses and loss adjustment expenses 13,576 13,575 39,243 27,153 3,571 16,827  --   --  56,390 57,555
                     
Pre-tax income (loss), net of non-controlling interest 1,339 115 7,699 8,739 (85) (2,788) (4,191) (3,779) 4,762 2,287
                     
Net loss ratio (1) 67.5% 74.9% 66.5% 58.3% 76.3% 89.3%     67.3% 68.9%
Net expense ratio (1) 31.1% 31.2% 25.5% 28.0% 39.4% 28.4%     29.3% 30.2%
Net combined ratio (1) 98.6% 106.1% 92.0% 86.3% 115.7% 117.7%     96.6% 99.1%
                     
Favorable (Unfavorable) Prior Year Development  1,605  917  (3,319)  (102)  (277)  (709)  --   --   (1,991)  106
 
 
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
Fiscal Year Ended Dec. 31 (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  $ 87,147  $ 77,091  $ 296,108  $ 235,695  $ 76,772  $ 77,056  $ --   $ --   $ 460,027  $ 389,842
Ceded premiums written (7,681) (7,000) (60,453) (49,642) (31,128) (711)  --   --  (99,262) (57,353)
Net premiums written 79,466 70,091 235,655 186,053 45,644 76,345  --   --  360,765 332,489
Change in unearned premiums (1,290) (936) (17,090) (17,223) 18,156 5,106  --   --  (224) (13,053)
Net premiums earned 78,176 69,155 218,565 168,830 63,800 81,451  --   --  360,541 319,436
                     
Total revenues 83,306 73,119 229,734 178,917 71,081 89,149 5,307 615 389,428 341,800
                     
Losses and loss adjustment expenses 56,143 52,828 152,546 103,980 52,656 69,606  --   --  261,345 226,414
                     
Pre-tax income (loss), net of non-controlling interest 1,980 (2,486) 19,527 25,932 (3,416) (8,535) (7,011) (11,861) 11,080 3,050
                     
Net loss ratio (1) 71.8% 76.4% 69.8% 61.6% 82.5% 85.5%     72.5% 70.9%
Net expense ratio (1) 32.2% 33.2% 26.6% 28.3% 26.7% 28.5%     29.2% 30.8%
Net combined ratio (1) 104.0% 109.6% 96.4% 89.9% 109.2% 114.0%     101.7% 101.7%
                     
Favorable (Unfavorable) Prior Year Development  5,235  3,744  (13,381)  3,577  (1,808)  (3,646)  --   --   (9,954)  3,675
 
                     
                     
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.
Mark J. Morrison,
President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com