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.