FORT WORTH, Texas, May 8, 2013 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported first quarter 2013 net income of $1.7 million, or $0.09 per share, compared to net income of $0.2 million, or $0.01 per share reported for first quarter 2012. Total revenues were $93.1 million for the first quarter of 2013 as compared to $83.0 million for the first quarter of 2012.
Mark J. Morrison, President and Chief Executive Officer, said, "The results for the quarter continue to reflect year-over-year accident year improvement in underwriting profitability due to the actions taken over the past year, including a continuation of meaningful rate increases across most of our business units and exiting unprofitable states and product lines in our Personal Segment. Across all operations the 2013 first quarter accident year net loss ratio was 69.1% as compared to 74.9% in the first quarter of 2012."
Mr. Morrison continued, "For Hallmark, the greatest opportunity to improve underwriting margins will be through continued organic growth within our current books of business. This is reflected in the year-over-year increase in revenue that continues to be driven primarily by growth from the operating units that comprise our Specialty Commercial Segment. Achieved rate increases since the start of 2012 and improving economic conditions in our core states have resulted in growth in insured exposure units on renewal policies. We expect these trends to continue throughout 2013 as we continue to push for price increases in most of our lines of business."
Mr. Morrison added, "Effective this quarter, we have consolidated our excess & umbrella and general aviation operations, along with our medical professional liability line of business under the newly created Hallmark Select business unit. Jim Damonte, the President of our previous Excess & Umbrella business unit has been named the President of this new business unit. The primary objective in forming this new business unit is to maximize synergies across existing commercial specialty lines and to establish a platform that allows Hallmark to continue to expand into additional products in a more effective and efficient manner."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $11.80 at the end of the quarter, an increase of 5% over prior year. Cash flow from operations was $5.8 million in the first quarter, up from $4.8 million the first quarter 2012. Total cash and investments increased 4% during the first quarter 2013 to $561.3 million, or $29.14 per share. Hallmark continues to carry significant cash of $100.8 million as of March 31, 2013, which we seek to opportunistically deploy in ways that will generate a higher return for shareholders in the future."
| 1st Quarter | |||
| 2013 | 2012 | % Change | |
| ($ in thousands, unaudited) | |||
| Gross premiums written | 108,147 | 97,395 | 11% |
| Net premiums written | 93,896 | 84,962 | 11% |
| Net premiums earned | 86,488 | 77,208 | 12% |
| Investment income, net of expenses | 3,628 | 3,846 | -6% |
| Net realized gains (losses) | 1,176 | (119) | -1088% |
| Total revenues | 93,141 | 82,986 | 12% |
| Net income (1) | 1,694 | 171 | 891% |
| Net income per share - basic | $ 0.09 | $ 0.01 | 800% |
| Net income per share - diluted | $ 0.09 | $ 0.01 | 800% |
| Book value per share | $ 11.80 | $ 11.28 | 5% |
| Cash flow from operations | 5,825 | 4,813 | 21% |
(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).
First Quarter 2013 Commentary
During the three months ended March 31, 2013, total revenues were $93.1 million, representing a 12% increase from the $83.0 million in total revenues for the same period of 2012. This increase in revenue was primarily attributable to increased earned premium due to increased production in the Specialty Commercial Segment and the Standard Commercial Segment. Further contributing to the increase in revenue were net realized gains on the Company's investment portfolio during the first quarter of 2013 as compared to net realized losses reported during the first quarter of 2012. The increase in revenue was partially offset by lower earned premium in the Personal Segment due mostly to the impact of a reduction of premium written in underperforming states and products exited.
The increase in revenue for the three months ended March 31, 2013, was accompanied by increased loss and loss adjustment expenses ("LAE") of $6.9 million as compared to the same period during 2012 due primarily to increased premium volume, as well as $2.0 million of unfavorable prior year loss reserve development for the three months ended March 31, 2013 as compared to favorable prior year loss reserve development of $3.0 million for the same period of 2012. This increase in loss and LAE was partially offset by favorable current accident year loss trends in the E&S Commercial business unit. Further offsetting the increase in loss and LAE was a $3.9 million decrease in weather related losses to $0.8 million for the three months ended March 31, 2013 from $4.7 million reported during 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 net income of $1.7 million for the three months ended March 31, 2013, which was a $1.5 million improvement from the $0.2 million net income reported for the first quarter of 2012. On a diluted basis per share, net income was $0.09 per share for the three months ended March 31, 2013, as compared to net income of $0.01 per share for the same period in 2012.
Hallmark's consolidated net loss ratio was 71.4% and 71.0% for the three months ended March 31, 2013 and 2012, respectively. Hallmark's net expense ratio was 30.2% and 31.4% for the three months ended March 31, 2013 and 2012, respectively. Hallmark's net combined ratio was 101.6% and 102.4% for the three months ended March 31, 2013 and 2012, respectively.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395
Forward-looking statements in this release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company's products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
| Hallmark Financial Services, Inc. and Subsidiaries | ||
| Consolidated Balance Sheets | ||
| ($ in thousands, except share amounts) | As of March 31 | |
| ASSETS | 2013 | 2012 |
| Investments: | (unaudited) | |
| Debt securities, available-for-sale, at fair value (cost: $397,800 in 2012 and $380,578 in 2011) | $407,741 | $401,435 |
| Equity securities, available-for-sale, at fair value (cost: $31,502 in 2012 and $30,465 in 2011) | 52,789 | 43,925 |
| Total investments | 460,530 | 445,360 |
| Cash and cash equivalents | 91,450 | 85,145 |
| Restricted cash | 9,354 | 8,707 |
| Ceded unearned premiums | 22,930 | 22,411 |
| Premiums receivable | 72,334 | 66,683 |
| Accounts receivable | 2,830 | 3,110 |
| Receivable for securities | 5,653 | 3 |
| Reinsurance recoverable | 57,607 | 51,970 |
| Deferred policy acquisition costs | 26,317 | 24,911 |
| Goodwill | 44,695 | 44,695 |
| Intangible assets, net | 22,171 | 23,068 |
| Deferred federal income taxes, net | -- | 1,940 |
| Prepaid expenses | 2,388 | 1,480 |
| Other assets | 10,722 | 10,985 |
| Total Assets | $828,981 | $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 | 328,731 | 313,416 |
| Unearned premiums | 170,429 | 162,502 |
| Reinsurance balances payable | 7,210 | 7,330 |
| Pension liability | 3,646 | 3,685 |
| Payable for securities | 14,928 | -- |
| Federal income tax payable | 620 | 1,518 |
| Deferred federal income taxes, net | 754 | -- |
| Accounts payable and other accrued expenses | 17,095 | 23,305 |
| Total Liabilities | 601,588 | 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 | 122,538 | 122,475 |
| Retained earnings | 99,658 | 97,964 |
| Accumulated other comprehensive income | 12,998 | 7,899 |
| Treasury stock (1,609,374 shares in 2013 and 2012), at cost | (11,558) | (11,558) |
| Total Stockholders' Equity | 227,393 | 220,537 |
| $828,981 | $790,468 | |
| Hallmark Financial Services, Inc. and Subsidiaries | ||
| Consolidated Statements of Operations | Three Months Ended | |
| ($ in thousands, except share amounts) | March 31 | |
| 2013 | 2012 | |
| Gross premiums written | $108,147 | $97,395 |
| Ceded premiums written | (14,251) | (12,433) |
| Net premiums written | 93,896 | 84,962 |
| Change in unearned premiums | (7,408) | (7,754) |
| Net premiums earned | 86,488 | 77,208 |
| Investment income, net of expenses | 3,628 | 3,846 |
| Net realized gains (losses) | 1,176 | (119) |
| Finance charges | 1,425 | 1,640 |
| Commission and fees | 341 | 180 |
| Other income | 83 | 231 |
| Total revenues | 93,141 | 82,986 |
| Losses and loss adjustment expenses | 61,738 | 54,791 |
| Other operating expenses | 27,194 | 25,932 |
| Interest expense | 1,149 | 1,149 |
| Amortization of intangible assets | 897 | 897 |
| Total expenses | 90,978 | 82,769 |
| Income (loss) before tax | 2,163 | 217 |
| Income tax expense (benefit) | 469 | 23 |
| Net income (loss) | 1,694 | 194 |
| Less: net income attributable to non-controlling interest | -- | 23 |
| Net income (loss) attributable to Hallmark Financial Services, Inc. | $1,694 | $171 |
| Net income (loss) per share attributable to Hallmark Financial Services, Inc. common stockholders: | ||
| Basic | $0.09 | $0.01 |
| Diluted | $0.09 | $0.01 |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||
| Consolidated Segment Data | ||||||||||
| ($ in thousands) | ||||||||||
| Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Gross premiums written | $21,642 | $18,847 | $65,306 | $54,885 | $21,199 | $23,663 | $ -- | $ -- | $108,147 | $97,395 |
| Ceded premiums written | (1,995) | (1,457) | (10,932) | (10,814) | (1,324) | (162) | -- | -- | (14,251) | (12,433) |
| Net premiums written | 19,647 | 17,390 | 54,374 | 44,071 | 19,875 | 23,501 | -- | -- | 93,896 | 84,962 |
| Change in unearned premiums | (1,117) | (561) | (5,521) | (6,036) | (770) | (1,157) | -- | -- | (7,408) | (7,754) |
| Net premiums earned | 18,530 | 16,829 | 48,853 | 38,035 | 19,105 | 22,344 | -- | -- | 86,488 | 77,208 |
| Total revenues | 20,288 | 18,106 | 51,680 | 40,393 | 20,978 | 24,431 | 195 | 56 | 93,141 | 82,986 |
| Losses and loss adjustment expenses | 12,583 | 13,764 | 34,436 | 23,009 | 14,719 | 18,018 | -- | -- | 61,738 | 54,791 |
| Pre-tax income, net of non-controlling interest | 1,477 | (1,362) | 3,698 | 5,977 | (64) | (1,191) | (2,948) | (3,230) | 2,163 | 194 |
| Net loss ratio (1) | 67.9% | 81.8% | 70.5% | 60.5% | 77.0% | 80.6% | 71.4% | 71.0% | ||
| Net expense ratio (1) | 33.7% | 31.1% | 27.5% | 28.5% | 27.1% | 26.6% | 30.2% | 31.4% | ||
| Net combined ratio (1) | 101.6% | 112.9% | 98.0% | 89.0% | 104.1% | 107.2% | 101.6% | 102.4% | ||
| Favorable (Unfavorable) Prior Year Development | 726 | 2,943 | (2,990) | 876 | 253 | (790) | -- | -- | (2,011) | 3,029 |
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.