FORT WORTH, Texas, Aug. 7, 2014 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq: HALL ) today reported second quarter 2014 net income of $1.7 million, or $0.09 per diluted share, compared to a net loss of $3.2 million, or $0.16 per diluted share, reported for second quarter 2013. Year to date, Hallmark reported net income of $6.2 million, or $0.32 per diluted share, compared to a net loss of $1.5 million, or $0.08 per diluted share for the same period the prior year. Total revenues were $80.8 million for the second quarter of 2014 as compared to $99.3 million for the second quarter of 2013. Year to date total revenues for 2014 were $167.9 million as compared to $192.4 million reported for the same period the prior year.
"I am pleased to report our fourth consecutive quarter of profitable underwriting results as evidenced by our reported quarterly combined ratio of 97.4%," said Mark J. Morrison, President and Chief Executive Officer. "We achieved these results despite the worst quarter for catastrophe losses in our history. A high frequency of severe convective storms resulted in over $13 million in net incurred losses that added 17% to our combined ratio for the quarter. On a pre-catastrophe loss basis, the quarter marked the best operating results in Hallmark's history."
Mr. Morrison continued, "Apart from the unprecedented level of catastrophe losses, underlying trends during the quarter continued to reflect the positive momentum in our businesses. Our Specialty Commercial Segment, which now accounts for approximately two-thirds of our total premium volume, continues to generate profitable premium growth and outstanding results. The Specialty Commercial Segment reported a combined ratio of 88.9% and pre-tax income of $9.5 million for the current quarter, and has generated a combined ratio of 90.5% and pre-tax income of $34.7 million over a trailing four quarter period. Additionally, the corrective actions taken in our Personal Segment over that past couple of years have clearly made a positive impact and this business once again contributed to our profitable underwriting results for the quarter on both a gross and net basis. Our Standard Commercial Segment also continues to produce acceptable results before catastrophe losses. Despite reducing large property risks and implementing aggressive rate increases in catastrophe prone areas, this business once again incurred heavy catastrophe losses during the quarter of $12.5 million, net of reinsurance. We will continue to take steps to reduce our exposure to catastrophic events by further refining our property pricing, underwriting criteria and utilization of catastrophe reinsurance coverage."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $12.78 at the end of the quarter, an increase of 9% since a year ago. Total cash and investments have increased 6% during the first half of 2014 to $651.5 million, or $33.95 per share, due in part to cash flow from operations of $19.6 million. Hallmark's cash balances totaled $171.8 million as of June 30, 2014."
| Second Quarter | |||
| 2014 | 2013 | % Change | |
| ($ in thousands, unaudited) | |||
| Gross premiums written | 124,440 | 119,467 | 4% |
| Net premiums written | 73,703 | 99,545 | -26% |
| Net premiums earned | 78,046 | 92,844 | -16% |
| Investment income, net of expenses | 2,986 | 3,278 | -9% |
| Net realized (losses) gains | (284) | 1,597 | NM |
| Total revenues | 80,836 | 99,299 | -19% |
| Net income (loss) | 1,651 | (3,151) | NM |
| Net income (loss) per share - basic | $ 0.09 | $ (0.16) | NM |
| Net income (loss) per share - diluted | $ 0.09 | $ (0.16) | NM |
| Book value per share | $ 12.78 | $ 11.68 | 9% |
| Cash flow from operations | 14,474 | 18,208 | -21% |
| Year-to-Date | |||
| 2014 | 2013 | % Change | |
| ($ in thousands, unaudited) | |||
| Gross premiums written | 240,522 | 227,614 | 6% |
| Net premiums written | 156,624 | 193,441 | -19% |
| Net premiums earned | 160,623 | 179,332 | -10% |
| Investment income, net of expenses | 6,227 | 6,906 | -10% |
| Net realized (losses) gains | (99) | 2,773 | NM |
| Total revenues | 167,945 | 192,440 | -13% |
| Net income (loss) | 6,199 | (1,457) | NM |
| Net income (loss) per share - basic | $ 0.32 | $ (0.08) | NM |
| Net income (loss) per share - diluted | $ 0.32 | $ (0.08) | NM |
| Book value per share | $ 12.78 | $ 11.68 | 9% |
| Cash flow from operations | 19,581 | 24,033 | -19% |
Second Quarter 2014 Commentary
During the three and six months ended June 30, 2014, Hallmark's total revenues were $80.8 million and $167.9 million, representing a decrease of 19% and 13%, respectively, from the $99.3 million and $192.4 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 net realized losses recognized during the three and six months ended June 30, 2014 as compared to net realized gains recognized during the same periods of 2013, lower net investment income and an increase in adverse profit share commission revenue adjustments in the Standard Commercial Segment for the three and six months ended June 30, 2014 as compared to the same periods of 2013.
The decrease in revenue for the three and six months ended June 30, 2014 was offset by decreased loss and loss adjustment expenses ("LAE") of $22.6 million and $31.5 million, respectively, as compared to the same periods in 2013. During the three months ended June 30, 2014, the Company recorded $5.6 million of favorable prior year loss development. During the three months ended June 30, 2013, the Company recorded $5.4 million unfavorable prior year loss development. During the six months ended June 30, 2014, the Company recorded $6.8 million of favorable prior year loss development. During the six months ended June 30, 2013, the Company recorded $7.4 million of unfavorable prior year loss development. The decrease in loss and LAE occurred despite a $7.8 million increase in net catastrophe losses to $13.3 million during the three months ended June 30, 2014 from $5.5 million reported for the same period of 2013. Other operating expenses also decreased due mostly to decreased production related expenses in the Personal Segment, partially offset by higher salary and related expenses due primarily to changes in incentive compensation accruals.
Hallmark reported net income of $1.7 million and $6.2 million for the three and six months ended June 30, 2014 as compared to a net loss of $3.2 million and $1.5 million for the three and six months ended June 30, 2013. On a diluted basis per share, the Company reported net income of $0.09 per share for the three months ended June 30, 2014, as compared to net loss of $0.16 per share for the same period in 2013. On a diluted basis per share, net income per share was $0.32 for the six months ended June 30, 2014 as compared to net loss per share of $0.08 for the same period during 2013.
Hallmark's consolidated net loss ratio was 67.3% and 65.5% for the three and six months ended June 30, 2014, as compared to 80.8% and 76.3% for the same periods in 2013. Hallmark's net expense ratio was 30.1% and 30.2% for the three and six months ended June 30, 2014 as compared to 28.6% and 29.4% for the same periods in 2013. Hallmark's net combined ratio was 97.4% and 95.7% for the three and six months ended June 30, 2014 as compared to 109.4% and 105.7% for the same periods in 2013.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
| Hallmark Financial Services, Inc. and Subsidiaries | ||
| Consolidated Balance Sheets | ||
| ($ in thousands, except share amounts) | Jun. 30 | Dec. 31 |
| ASSETS | 2014 | 2013 |
| Investments: | (unaudited) | |
| Debt securities, available-for-sale, at fair value (cost: $424,760 in 2014 and $408,627 in 2013) | $ 427,147 | $ 410,095 |
| Equity securities, available-for-sale, at fair value (cost: $24,830 in 2014 and $24,902 in 2013) | 52,553 | 51,230 |
| Total investments | 479,700 | 461,325 |
| Cash and cash equivalents | 156,365 | 141,666 |
| Restricted cash | 15,421 | 12,190 |
| Ceded unearned premiums | 60,652 | 44,988 |
| Premiums receivable | 79,789 | 71,157 |
| Accounts receivable | 3,205 | 2,382 |
| Receivable for securities | 1,165 | 1,320 |
| Reinsurance recoverable | 99,756 | 76,818 |
| Deferred policy acquisition costs | 19,757 | 22,586 |
| Goodwill | 44,695 | 44,695 |
| Intangible assets, net | 18,675 | 19,953 |
| Prepaid expenses | 2,051 | 1,531 |
| Other assets | 6,307 | 8,412 |
| Total Assets | $ 987,538 | $ 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 | 415,297 | 382,640 |
| Unearned premiums | 196,968 | 185,303 |
| Reinsurance balances payable | 34,182 | 20,598 |
| Pension liability | 1,116 | 1,433 |
| Payable for securities | 17,908 | 206 |
| Deferred federal income taxes, net | 2,545 | 2,825 |
| Federal income tax payable | 844 | 719 |
| Accounts payable and other accrued expenses | 16,662 | 19,006 |
| Total Liabilities | 742,224 | 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 | 123,048 | 122,827 |
| Retained earnings | 112,408 | 106,209 |
| Accumulated other comprehensive income | 18,379 | 16,883 |
| Treasury stock (1,684,149 shares in 2014 and 1,609,374 shares in 2013), at cost | (12,278) | (11,558) |
| Total Stockholders' Equity | 245,314 | 238,118 |
| $ 987,538 | $ 909,023 |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Operations | Three Months Ended | Six Months Ended | ||||||
| ($ in thousands, except share amounts; unaudited) | June 30 | June 30 | ||||||
| 2014 | 2013 | 2014 | 2013 | |||||
| Gross premiums written | $ 124,440 | $ 119,467 | $ 240,522 | $ 227,614 | ||||
| Ceded premiums written | (50,737) | (19,922) | (83,898) | (34,173) | ||||
| Net premiums written | 73,703 | 99,545 | 156,624 | 193,441 | ||||
| Change in unearned premiums | 4,343 | (6,701) | 3,999 | (14,109) | ||||
| Net premiums earned | 78,046 | 92,844 | 160,623 | 179,332 | ||||
| Investment income, net of expenses | 2,986 | 3,278 | 6,227 | 6,906 | ||||
| Net realized (losses) gains | (284) | 1,597 | (99) | 2,773 | ||||
| Finance charges | 1,383 | 1,487 | 2,767 | 2,912 | ||||
| Commission and fees | (1,309) | 79 | (1,599) | 420 | ||||
| Other income | 14 | 14 | 26 | 97 | ||||
| Total revenues | 80,836 | 99,299 | 167,945 | 192,440 | ||||
| Losses and loss adjustment expenses | 52,502 | 75,059 | 105,272 | 136,797 | ||||
| Other operating expenses | 24,510 | 27,578 | 50,646 | 54,772 | ||||
| Interest expense | 1,143 | 1,150 | 2,295 | 2,299 | ||||
| Amortization of intangible assets | 639 | 829 | 1,278 | 1,726 | ||||
| Total expenses | 78,794 | 104,616 | 159,491 | 195,594 | ||||
| Income (loss) before tax | 2,042 | (5,317) | 8,454 | (3,154) | ||||
| Income tax expense (benefit) | 391 | (2,166) | 2,255 | (1,697) | ||||
| Net income (loss) | $ 1,651 | $ (3,151) | $ 6,199 | $ (1,457) | ||||
| Net income (loss) per share: | ||||||||
| Basic | $ 0.09 | $ (0.16) | $ 0.32 | $ (0.08) | ||||
| Diluted | $ 0.09 | $ (0.16) | $ 0.32 | $ (0.08) | ||||
| Hallmark Financial Services, Inc. and Subsidiaries | |||||||||||||
| Consolidated Segment Data | |||||||||||||
| Three Months Ended Jun. 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 | $ 22,646 | $ 23,687 | $ 85,807 | $ 76,361 | $ 15,987 | $ 19,419 | $ -- | $ -- | $ 124,440 | $ 119,467 | |||
| Ceded premiums written | (2,262) | (2,102) | (35,497) | (16,368) | (12,978) | (1,452) | -- | -- | (50,737) | (19,922) | |||
| Net premiums written | 20,384 | 21,585 | 50,310 | 59,993 | 3,009 | 17,967 | -- | -- | 73,703 | 99,545 | |||
| Change in unearned premiums | (946) | (1,978) | 5,090 | (7,269) | 199 | 2,546 | -- | -- | 4,343 | (6,701) | |||
| Net premiums earned | 19,438 | 19,607 | 55,400 | 52,724 | 3,208 | 20,513 | -- | -- | 78,046 | 92,844 | |||
| Total revenues | 19,341 | 20,709 | 58,702 | 55,660 | 4,882 | 22,387 | (2,089) | 543 | 80,836 | 99,299 | |||
| Losses and loss adjustment expenses | 16,129 | 16,447 | 35,242 | 40,953 | 1,131 | 17,659 | -- | -- | 52,502 | 75,059 | |||
| Pre-tax income (loss) | (3,147) | (1,999) | 9,465 | 566 | 1,285 | (1,654) | (5,561) | (2,230) | 2,042 | (5,317) | |||
| Net loss ratio (1) | 83.0% | 83.9% | 63.6% | 77.7% | 35.3% | 86.1% | 67.3% | 80.8% | |||||
| Net expense ratio (1) | 33.0% | 31.8% | 25.3% | 26.8% | 43.0% | 24.6% | 30.1% | 28.6% | |||||
| Net combined ratio (1) | 116.0% | 115.7% | 88.9% | 104.5% | 78.3% | 110.7% | 97.4% | 109.4% | |||||
| Favorable (Unfavorable) Prior Year Development | 3,942 | 1,496 | 417 | (5,667) | 1,249 | (1,250) | -- | -- | 5,608 | (5,421) | |||
| 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 | ||||||||||||||||||||
| Six Months Ended Jun. 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 | $ 43,627 | $ 45,329 | $ 160,729 | $ 141,667 | $ 36,166 | $ 40,618 | $ -- | $ -- | $ 240,522 | $ 227,614 | ||||||||||
| Ceded premiums written | (4,231) | (4,097) | (49,726) | (27,300) | (29,941) | (2,776) | -- | -- | (83,898) | (34,173) | ||||||||||
| Net premiums written | 39,396 | 41,232 | 111,003 | 114,367 | 6,225 | 37,842 | -- | -- | 156,624 | 193,441 | ||||||||||
| Change in unearned premiums | (558) | (3,095) | 3,670 | (12,790) | 887 | 1,776 | -- | -- | 3,999 | (14,109) | ||||||||||
| Net premiums earned | 38,838 | 38,137 | 114,673 | 101,577 | 7,112 | 39,618 | -- | -- | 160,623 | 179,332 | ||||||||||
| Total revenues | 39,682 | 40,997 | 121,184 | 107,340 | 10,474 | 43,365 | (3,395) | 738 | 167,945 | 192,440 | ||||||||||
| Losses and loss adjustment expenses | 28,952 | 29,030 | 72,183 | 75,389 | 4,137 | 32,378 | -- | -- | 105,272 | 136,797 | ||||||||||
| Pre-tax income (loss) | (1,926) | (522) | 19,389 | 4,264 | 1,254 | (1,718) | (10,263) | (5,178) | 8,454 | (3,154) | ||||||||||
| Net loss ratio (1) | 74.5% | 76.1% | 62.9% | 74.2% | 58.2% | 81.7% | 65.5% | 76.3% | ||||||||||||
| Net expense ratio (1) | 32.8% | 32.7% | 25.9% | 27.2% | 40.0% | 25.8% | 30.2% | 29.4% | ||||||||||||
| Net combined ratio (1) | 107.3% | 108.8% | 88.8% | 101.4% | 98.2% | 107.5% | 95.7% | 105.7% | ||||||||||||
| Favorable (Unfavorable) Prior Year Development | 5,135 | 2,222 | (231) | (8,657) | 1,907 | (997) | -- | -- | 6,811 | (7,432) | ||||||||||
| 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. | ||||||||||||||||||||
Mark J. Morrison, President and Chief Executive Officer 817.348.1600 www.hallmarkgrp.com
