×

Hallmark Financial Services, Inc. Announces Third Quarter 2014 Earnings Results

FORT WORTH, Texas, Nov. 7, 2014 (GLOBE NEWSWIRE) -- 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."

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) Sept. 30 Dec. 31
ASSETS 2014 2013
Investments: (unaudited)
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
Hallmark Financial Services, Inc. and Subsidiaries
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.

CONTACT: Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600 www.hallmarkgrp.com

Source:Hallmark Financial Services, Inc.