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Hallmark Financial Services, Inc. Announces Second Quarter 2013 Results

Hallmark Logo (EPR)

FORT WORTH, Texas, Aug. 8, 2013 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported second quarter 2013 net loss of $3.2 million, or $0.16 per share, compared to a net loss of $1.8 million, or $0.10 per share reported for second quarter 2012. Year to date, Hallmark reported a net loss of $1.5 million, or $0.08 per share, compared to a net loss of $1.7 million, or $0.09 per share for the same period the prior year. Total revenues were $99.3 million for the second quarter of 2013 as compared to $84.6 million for the second quarter of 2012. Year to date total revenues for 2013 were $192.4 million, up 15% from the $167.6 million reported for the same period the prior year.



Mark J. Morrison, President and Chief Executive Officer, said, "The results for the quarter were adversely impacted by severe wind and hail storms that occurred in May throughout Texas and Oklahoma. Total catastrophe losses were $5.5 million for the quarter, or $0.18 per share. However, absent these catastrophe losses, we continue to see year-over-year accident year improvement in underwriting profitability in our Specialty Commercial and Personal Segments."

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $11.68 at the end of the quarter, an increase of 5% over prior year and an increase of 2% over prior year end. Cash flow from operations was $18.2 million in the second quarter, up from $12.4 million the second quarter 2012. Total cash and investments increased 3% during the second quarter 2013 to $576.7 million, or $29.94 per share. Hallmark continues to carry significant cash of $139.4 million as of June 30, 2013, which we seek to opportunistically deploy in ways that will generate a higher return for shareholders in the future."

Second Quarter
2013 2012 % Change
($ in thousands, unaudited)
Gross premiums written 119,467 100,815 19%
Net premiums written 99,545 85,137 17%
Net premiums earned 92,844 78,249 19%
Investment income, net of expenses 3,278 3,932 -17%
Net realized gains 1,597 991 61%
Total revenues 99,299 84,571 17%
Net loss (1) (3,151) (1,843) 71%
Net loss per share - basic $ (0.16) $ (0.10) 60%
Net loss per share - diluted $ (0.16) $ (0.10) 60%
Book value per share $ 11.68 $ 11.08 5%
Cash flow from operations 18,208 12,409 47%
Year to Date
2013 2012 % Change
($ in thousands, unaudited)
Gross premiums written 227,614 198,210 15%
Net premiums written 193,441 170,099 14%
Net premiums earned 179,332 155,457 15%
Investment income, net of expenses 6,906 7,778 -11%
Net realized gains 2,773 872 218%
Total revenues 192,440 167,557 15%
Net loss (1) (1,457) (1,672) -13%
Net loss per share - basic $ (0.08) $ (0.09) -11%
Net loss per share - diluted $ (0.08) $ (0.09) -11%
Book value per share $ 11.68 $ 11.08 5%
Cash flow from operations 24,033 17,222 40%
(1) Net loss for each period is net loss 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).

Second Quarter 2013 Commentary

During the three and six months ended June 30, 2013, total revenues were $99.3 million and $192.4 million, representing a 17% and 15% increase, respectively, from the $84.6 million and $167.6 million in total revenues for the same periods of 2012. This increase in revenue was primarily attributable to increased production in the Specialty Commercial Segment and the Standard Commercial Segment. Further contributing to this increase in revenue were higher net realized gains. These increases in revenue were partially offset by lower net investment income and lower finance charges and earned premium in the Personal Lines business unit due mostly to the impact of a reduction of premium written in underperforming states and products exited.

The increase in revenue for the three and six months ended June 30, 2013 was accompanied by increased loss and loss adjustment expenses ("LAE") of $13.8 million and $20.8 million, respectively, as compared to the same periods in 2012. During the three months ended June 30, 2013 and 2012 Hallmark recorded $5.4 million and $1.6 million unfavorable prior year loss development. During the six months ended June 30, 2013 Hallmark recorded $7.4 million of unfavorable prior year loss development. During the six months ended June 30, 2012 Hallmark recorded $1.4 million of favorable prior year loss development. The increase in loss and LAE occurred despite a $4.2 million decrease in catastrophe losses to $6.2 million for the six months ended June 30, 2013 from $10.4 million reported for the same period of 2012. Other operating expenses also increased due mostly to increased production related expenses in the E&S Commercial business unit.

As a result, Hallmark reported a $3.2 million and $1.5 million net loss for the three and six months ended June 30, 2013 as compared to a $1.8 million and $1.7 million net loss for the same periods during 2012. On a diluted basis per share, Hallmark reported a net loss of $0.16 per share for the three months ended June 30, 2013, as compared to net loss of $0.10 per share for the same period in 2012. On a diluted basis per share, net loss per share was $0.08 for the six months ended June 30, 2013 as compared to net loss per share of $0.09 for the same period during 2012.

Hallmark's consolidated net loss ratio was 80.8% and 76.3% for the three and six months ended June 30, 2013 as compared to 78.2% and 74.6% for the same periods in 2012. Hallmark's net expense ratio was 28.6% and 29.4% for the three and six months ended June 30, 2013 as compared to 30.5% and 30.5% for the same periods in 2012. Hallmark's net combined ratio was 109.4% and 105.7% for the three and six months ended June 30, 2013 as compared to 108.7% and 105.1% 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) June 30 Dec. 31
ASSETS 2013 2012
Investments: (unaudited)
Debt securities, available-for-sale, at fair value (cost: $382,840 in 2013 and $397,800 in 2012) $ 383,682 $401,435
Equity securities, available-for-sale, at fair value (cost: $29,567 in 2013 and $31,502 in 2012) 53,558 43,925
Total investments 437,240 445,360
Cash and cash equivalents 128,004 85,145
Restricted cash 11,416 8,707
Ceded unearned premiums 27,443 22,411
Premiums receivable 78,625 66,683
Accounts receivable 3,175 3,110
Receivable for securities 220 3
Reinsurance recoverable 58,008 51,970
Deferred policy acquisition costs 26,663 24,911
Goodwill 44,695 44,695
Intangible assets, net 21,342 23,068
Federal income tax recoverable 883 --
Deferred federal income taxes, net 273 1,940
Prepaid expenses 1,804 1,480
Other assets 9,410 10,985
Total Assets $ 849,201 $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 344,351 313,416
Unearned premiums 181,643 162,502
Reinsurance balances payable 12,210 7,330
Pension liability 3,518 3,685
Payable for securities 6,776 --
Federal income tax payable -- 1,518
Accounts payable and other accrued expenses 17,465 23,305
Total Liabilities 624,138 569,931
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 122,611 122,475
Retained earnings 96,507 97,964
Accumulated other comprehensive income 13,746 7,899
Treasury stock (1,609,374 shares in 2013 and 2012), at cost (11,558) (11,558)
Total Stockholders' Equity 225,063 220,537
$ 849,201 $790,468
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations Three Months Ended Six Months Ended
($ in thousands, except share amounts; unaudited) June 30 June 30
2013 2012 2013 2012
Gross premiums written $ 119,467 $ 100,815 $ 227,614 $ 198,210
Ceded premiums written (19,922) (15,678) (34,173) (28,111)
Net premiums written 99,545 85,137 193,441 170,099
Change in unearned premiums (6,701) (6,888) (14,109) (14,642)
Net premiums earned 92,844 78,249 179,332 155,457
Investment income, net of expenses 3,278 3,932 6,906 7,778
Net realized gains 1,597 991 2,773 872
Finance charges 1,487 1,524 2,912 3,164
Commission and fees 79 (184) 420 (4)
Other income 14 59 97 290
Total revenues 99,299 84,571 192,440 167,557
Losses and loss adjustment expenses 75,059 61,229 136,797 116,020
Other operating expenses 27,578 25,419 54,772 51,351
Interest expense 1,150 1,178 2,299 2,327
Amortization of intangible assets 829 896 1,726 1,793
Total expenses 104,616 88,722 195,594 171,491
Loss before tax (5,317) (4,151) (3,154) (3,934)
Income tax benefit (2,166) (2,351) (1,697) (2,328)
Net loss (3,151) (1,800) (1,457) (1,606)
Less: net income attributable to non-controlling interest -- 43 -- 66
Net loss attributable to Hallmark Financial Services, Inc. $ (3,151) $ (1,843) $ (1,457) $ (1,672)
Net loss per share attributable to Hallmark Financial Services, Inc. common stockholders:
Basic $ (0.16) $ (0.10) $ (0.08) $ (0.09)
Diluted $ (0.16) $ (0.10) $ (0.08) $ (0.09)
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended June 30 (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 $ 23,687 $ 20,739 $ 76,361 $ 61,456 $ 19,419 $ 18,620 $ -- $ -- $ 119,467 $ 100,815
Ceded premiums written (2,102) (1,730) (16,368) (13,749) (1,452) (199) -- -- (19,922) (15,678)
Net premiums written 21,585 19,009 59,993 47,707 17,967 18,421 -- -- 99,545 85,137
Change in unearned premiums (1,978) (2,369) (7,269) (7,017) 2,546 2,498 -- -- (6,701) (6,888)
Net premiums earned 19,607 16,640 52,724 40,690 20,513 20,919 -- -- 92,844 78,249
Total revenues 20,709 17,924 55,660 43,046 22,387 22,905 543 696 99,299 84,571
Losses and loss adjustment expenses 16,447 13,013 40,953 28,286 17,659 19,930 -- -- 75,059 61,229
Pre-tax income (loss), net of non-controlling interest (1,999) (710) 566 2,929 (1,654) (4,211) (2,230) (2,202) (5,317) (4,194)
Net loss ratio (1) 83.9% 78.2% 77.7% 69.5% 86.1% 95.3% 80.8% 78.2%
Net expense ratio (1) 31.8% 34.2% 26.8% 28.4% 24.6% 28.8% 28.6% 30.5%
Net combined ratio (1) 115.7% 112.4% 104.5% 97.9% 110.7% 124.1% 109.4% 108.7%
Favorable (Unfavorable) Prior Year Development 1,496 (187) (5,667) 48 (1,250) (1,496) -- -- (5,421) (1,635)

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
Six Months Ended June 30 (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 $45,329 $39,586 $141,667 $116,341 $40,618 $42,283 $ -- $ -- $227,614 $198,210
Ceded premiums written (4,097) (3,187) (27,300) (24,563) (2,776) (361) -- -- (34,173) (28,111)
Net premiums written 41,232 36,399 114,367 91,778 37,842 41,922 -- -- 193,441 170,099
Change in unearned premiums (3,095) (2,930) (12,790) (13,053) 1,776 1,341 -- -- (14,109) (14,642)
Net premiums earned 38,137 33,469 101,577 78,725 39,618 43,263 -- -- 179,332 155,457
Total revenues 40,997 36,030 107,340 83,439 43,365 47,336 738 752 192,440 167,557
Losses and loss adjustment expenses 29,030 26,777 75,389 51,295 32,378 37,948 -- -- 136,797 116,020
Pre-tax income (loss), net of non-controlling interest (522) (2,072) 4,264 8,906 (1,718) (5,402) (5,178) (5,432) (3,154) (4,000)
Net loss ratio (1) 76.1% 80.0% 74.2% 65.2% 81.7% 87.7% 76.3% 74.6%
Net expense ratio (1) 32.7% 34.0% 27.2% 28.7% 25.8% 28.1% 29.4% 30.5%
Net combined ratio (1) 108.8% 114.0% 101.4% 93.9% 107.5% 115.8% 105.7% 105.1%
Favorable (Unfavorable) Prior Year Development 2,222 2,756 (8,657) 922 (997) (2,286) -- -- (7,432) 1,392

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.

CONTACT: For further information, please contact: Mark J. Morrison, President and Chief Executive Officer at 817.348.1600 www.hallmarkgrp.com

Source:Hallmark Financial Services, Inc.