FORT WORTH, Texas, March 14, 2013 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported fourth quarter 2012 net income of $1.8 million, or $0.09 per share, compared to net income of $0.3 million, or $0.02 per share reported for fourth quarter 2011. Hallmark reported net income of $3.5 million, or $0.18 per share, for fiscal 2012 as compared to a net loss of $10.9 million, or $0.55 per share, reported for fiscal 2011. Total revenues were $88.6 million for the fourth quarter 2012 as compared to $83.1 million for the fourth quarter of 2011. Fiscal 2012 total revenues were $341.8 million, up 6% from the $322.8 million reported for fiscal 2011.
Mark J. Morrison, President and Chief Executive Officer, said, "The positive results for the quarter continue to reflect improvement in underwriting profitability due to the decisive actions taken over the past year, including a continuation of meaningful rate increases across most all business units and exiting unprofitable states and product lines in our Personal Segment. Our fourth quarter combined ratio of 99.1% and earnings of $0.09 per share evidence this improvement and reflect the favorable underlying trends within our business."
Mr. Morrison continued, "The year-over-year increase in revenue continues to be largely driven by organic growth from the operating units that comprise our Specialty Commercial Segment. We have seen an increase in premium production generated from favorable rate trends, as well as from added insured exposure units that suggests improving economic conditions in the markets in which we operate. We continue to see middle single-digit to low double-digit rate increases across all operations with the exception of General Aviation, which continues to be impacted by increased competition in a contracting market. We expect these trends to continue throughout 2013 as we continue to closely monitor pricing and pursue rate increases in most all of our lines of business."
Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $11.45 at the end of the year, an increase of 2% over prior year. Cash flow from operations was $5.5 million in the fourth quarter and $33.7 million for fiscal 2012, up from $24.6 million in the prior year. Total cash and investments increased 6% during fiscal 2012 to $539.2 million, or $27.99 per share."
Mr. Schwarz continued, "Despite holding a greater amount of fixed income securities during 2012, net investment income was nearly $0.6 million less than prior year due to a 70 basis point decline in tax equivalent book yield to 4.4%. Hallmark continues to carry significant cash of $93.9 million as of December 31, 2012, which we seek to opportunistically deploy in ways that will generate a higher return for shareholders in the future."
| 4th Quarter | |||
| 2012 | 2011 | % Change | |
| ($ in thousands, unaudited) | |||
| Gross premiums written | 92,184 | 84,047 | 10% |
| Net premiums written | 77,385 | 70,804 | 9% |
| Net premiums earned | 83,498 | 76,282 | 9% |
| Investment income, net of expenses | 3,720 | 4,115 | -10% |
| Net realized gains | 89 | 456 | -80% |
| Total revenues | 88,623 | 83,102 | 7% |
| Net income (1) | 1,783 | 311 | 473% |
| Net income per share - basic | $ 0.09 | $ 0.02 | 350% |
| Net income per share - diluted | $ 0.09 | $ 0.02 | 350% |
| Book value per share | $ 11.45 | $ 11.19 | 2% |
| Cash flow from operations | 5,495 | 9,602 | -43% |
| Fiscal Year | |||
| 2012 | 2011 | % Change | |
| ($ in thousands) | |||
| Gross premiums written | 389,842 | 354,881 | 10% |
| Net premiums written | 332,489 | 303,876 | 9% |
| Net premiums earned | 319,436 | 293,041 | 9% |
| Investment income, net of expenses | 15,293 | 15,880 | -4% |
| Net realized gains | 1,943 | 3,633 | -47% |
| Total revenues | 341,800 | 322,771 | 6% |
| Net income (loss) (1) | 3,524 | (10,891) | NM |
| Net income (loss) per share - basic | $ 0.18 | $ (0.55) | NM |
| Net income (loss) per share - diluted | $ 0.18 | $ (0.55) | NM |
| Book value per share | $ 11.45 | $ 11.19 | 2% |
| Cash flow from operations | 33,682 | 24,610 | 37% |
| (1) Net income (loss) is net income (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). | |||
Fiscal Year 2012 Commentary
During fiscal 2012, total revenues were $341.8 million, representing an approximately 6% increase over the $322.8 million in total revenues for fiscal 2011. The growth in revenue was primarily attributable to increased premium production and resulting earned premium driven largely from the E&S Commercial business unit and from the acquisition of the Workers Compensation business unit during the third quarter of 2011. The increase in revenue was partially offset by an adverse profit share commission revenue adjustment in the Standard Commercial P&C business unit, combined with lower finance charges and earned premium in the Personal Segment due mostly to the impact of a reduction of premium written in underperforming states and products exited over the past twelve months. Further offsetting the increase in revenue was lower net realized gains for the period ended December 31, 2012.
Net income attributable to Hallmark was $3.5 million for the year ended December 31, 2012, as compared to a net loss of $10.9 million for the year ended December 31, 2011. On a diluted per share basis, net income attributable to Hallmark was $0.18 per share for fiscal 2012 as compared to a net loss of $0.55 per share for fiscal 2011.
The increase in revenue for the year ended December 31, 2012 was complemented by decreased loss and loss adjustment expenses due primarily to improved current accident year loss trends in the Standard Commercial P&C business unit and Personal Lines business unit as well as $3.7 million of favorable prior year loss development for the year ended December 31, 2012 as compared to $16.4 million of adverse reserve development recognized during the prior year. Of the $16.4 million unfavorable development recognized for the year ended December 31, 2011, $10.3 million was a result of adverse prior year loss reserve development in the Personal Segment in Florida. In addition, the results for the years ended December 31, 2012 and 2011 included $11.7 million and $10.3 million, respectively, in current accident year net losses from weather related claims.
Hallmark's consolidated net loss ratio was 68.9% and 70.9% for the three and twelve months ended December 31, 2012 as compared to 75.2% and 81.6% for the same periods in 2011. Hallmark's net expense ratio was 30.2% and 30.8% for the three and twelve months ended December 31, 2012 as compared to 29.3% and 30.8% for the same periods in 2011. Hallmark's net combined ratio was 99.1% and 101.7% for the three and twelve months ended December 31, 2012 as compared to 104.5% and 112.4% for the same periods in 2011.
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 December 31 | |
| ASSETS | 2012 | 2011 |
| Investments: | (as adjusted) | |
| Debt securities, available-for-sale, at fair value (cost: $397,800 in 2012 and $380,578 in 2011) | $ 401,435 | $ 380,469 |
| Equity securities, available-for-sale, at fair value (cost: $31,502 in 2012 and $30,465 in 2011) | 43,925 | 44,159 |
| Total investments | 445,360 | 424,628 |
| Cash and cash equivalents | 85,145 | 74,471 |
| Restricted cash | 8,707 | 9,372 |
| Ceded unearned premiums | 22,411 | 19,470 |
| Premiums receivable | 66,683 | 53,513 |
| Accounts receivable | 3,110 | 3,946 |
| Receivable for securities | 3 | 2,617 |
| Reinsurance recoverable | 51,970 | 42,734 |
| Deferred policy acquisition costs | 24,911 | 22,554 |
| Goodwill | 44,695 | 44,695 |
| Intangible assets, net | 23,068 | 26,654 |
| Deferred federal income taxes, net | 1,940 | -- |
| Federal income tax recoverable | -- | 6,738 |
| Prepaid expenses | 1,480 | 1,458 |
| Other assets | 10,985 | 13,209 |
| Total Assets | $ 790,468 | $ 746,059 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Liabilities: | ||
| Revolving credit facility payable | $ 1,473 | $ 4,050 |
| Subordinated debt securities | 56,702 | 56,702 |
| Reserves for unpaid losses and loss adjustment expenses | 313,416 | 296,945 |
| Unearned premiums | 162,502 | 146,104 |
| Reinsurance balances payable | 7,330 | 3,139 |
| Pension liability | 3,685 | 3,971 |
| Payable for securities | -- | 203 |
| Federal income tax payable | 1,518 | -- |
| Deferred federal income taxes, net | -- | 135 |
| Accounts payable and other accrued expenses | 23,305 | 17,954 |
| Total Liabilities | 569,931 | 529,203 |
| Commitments and contingencies | ||
| Redeemable non-controlling interest | -- | 1,284 |
| Stockholders' equity: | ||
| Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2012 and 2011 | 3,757 | 3,757 |
| Additional paid-in capital | 122,475 | 122,487 |
| Retained earnings | 97,964 | 94,440 |
| Accumulated other comprehensive income | 7,899 | 6,446 |
| Treasury stock (1,609,374 shares in 2012 and 2011), at cost | (11,558) | (11,558) |
| Total Stockholders' Equity | 220,537 | 215,572 |
| $ 790,468 | $ 746,059 | |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||
| Consolidated Statements of Operations | Three Months Ended | Fiscal Year Ended | ||
| ($ in thousands, except share amounts) | December 31 | December 31 | ||
| 2012 | 2011 | 2012 | 2011 | |
| (as adjusted) | (as adjusted) | |||
| Gross premiums written | $ 92,184 | $ 84,047 | $ 389,842 | $ 354,881 |
| Ceded premiums written | (14,799) | (13,243) | (57,353) | (51,005) |
| Net premiums written | 77,385 | 70,804 | 332,489 | 303,876 |
| Change in unearned premiums | 6,113 | 5,478 | (13,053) | (10,835) |
| Net premiums earned | 83,498 | 76,282 | 319,436 | 293,041 |
| Investment income, net of expenses | 3,720 | 4,115 | 15,293 | 15,880 |
| Net realized gains | 89 | 456 | 1,943 | 3,633 |
| Finance charges | 1,419 | 1,678 | 5,957 | 6,826 |
| Commission and fees | (112) | 558 | (1,145) | 3,175 |
| Other income | 9 | 13 | 316 | 216 |
| Total revenues | 88,623 | 83,102 | 341,800 | 322,771 |
| Losses and loss adjustment expenses | 57,555 | 57,394 | 226,414 | 239,235 |
| Other operating expenses | 26,715 | 23,216 | 103,792 | 95,106 |
| Interest expense | 1,170 | 1,161 | 4,634 | 4,631 |
| Amortization of intangible assets | 896 | 896 | 3,586 | 3,586 |
| Total expenses | 86,336 | 82,667 | 338,426 | 342,558 |
| Income (loss) before tax | 2,287 | 435 | 3,374 | (19,787) |
| Income tax expense (benefit) | 504 | 94 | (474) | (8,954) |
| Net income (loss) | 1,783 | 341 | 3,848 | (10,833) |
| Less: net income attributable to non-controlling interest | -- | 30 | 324 | 58 |
| Net income (loss) attributable to Hallmark Financial Services, Inc. | $ 1,783 | $ 311 | $ 3,524 | $ (10,891) |
| Net income (loss) per share attributable to Hallmark Financial Services, Inc. common stockholders: | ||||
| Basic | $ 0.09 | $ 0.02 | $ 0.18 | $ (0.55) |
| Diluted | $ 0.09 | $ 0.02 | $ 0.18 | $ (0.55) |
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||
| Consolidated Segment Data | ||||||||||
| ($ in thousands) | Three Months Ended December 31 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |
| Gross premiums written | $ 18,799 | 16,718 | $ 57,005 | 47,988 | $ 16,380 | 19,341 | $ -- | -- | $ 92,184 | 84,047 |
| Ceded premiums written | (1,937) | (1,423) | (12,694) | (11,702) | (168) | (118) | -- | -- | (14,799) | (13,243) |
| Net premiums written | 16,862 | 15,295 | 44,311 | 36,286 | 16,212 | 19,223 | -- | -- | 77,385 | 70,804 |
| Change in unearned premiums | 1,258 | 1,509 | 2,226 | 528 | 2,629 | 3,441 | -- | -- | 6,113 | 5,478 |
| Net premiums earned | 18,120 | 16,804 | 46,537 | 36,814 | 18,841 | 22,664 | -- | -- | 83,498 | 76,282 |
| Total revenues | 19,328 | 18,904 | 49,105 | 38,405 | 20,641 | 24,795 | (451) | 998 | 88,623 | 83,102 |
| Losses and loss adjustment expenses | 13,575 | 11,823 | 27,153 | 20,559 | 16,827 | 25,012 | -- | -- | 57,555 | 57,394 |
| Pre-tax income (loss), net of non-controlling interest (2) | 115 | 2,225 | 8,739 | 7,393 | (2,788) | (7,306) | (3,779) | (1,907) | 2,287 | 405 |
| Net loss ratio (1) | 74.9% | 70.4% | 58.3% | 55.8% | 89.3% | 110.4% | -- | -- | 68.9% | 75.2% |
| Net expense ratio (1) | 31.2% | 27.6% | 28.0% | 29.0% | 28.4% | 24.3% | -- | -- | 30.2% | 29.3% |
| Net combined ratio (1) | 106.1% | 98.0% | 86.3% | 84.8% | 117.7% | 134.7% | -- | -- | 99.1% | 104.5% |
| 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. | ||||||||||
| 2 Amounts for 2011 have been adjusted for the adoption of a change in accounting principle related to deferred policy acquisition costs. (See, "Adoption of New Accounting Pronouncements" in Note 1 to the audited consolidated financial statements, included in Hallmark's Form 10-K for the year ended December 31, 2012.) | ||||||||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||
| Consolidated Segment Data | ||||||||||
| ($ in thousands) | Year Ended December 31 | |||||||||
|
Standard Commercial Segment |
Specialty Commercial Segment |
Personal Segment |
Corporate |
Consolidated |
||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |
| Gross premiums written | $ 77,091 | 69,420 | $ 235,695 | 185,020 | $ 77,056 | 100,441 | $ -- | -- | $ 389,842 | 354,881 |
| Ceded premiums written | (7,000) | (5,476) | (49,642) | (40,743) | (711) | (4,786) | -- | -- | (57,353) | (51,005) |
| Net premiums written | 70,091 | 63,944 | 186,053 | 144,277 | 76,345 | 95,655 | -- | -- | 332,489 | 303,876 |
| Change in unearned premiums | (936) | 642 | (17,223) | (8,784) | 5,106 | (2,693) | -- | -- | (13,053) | (10,835) |
| Net premiums earned | 69,155 | 64,586 | 168,830 | 135,493 | 81,451 | 92,962 | -- | -- | 319,436 | 293,041 |
| Total revenues | 73,119 | 72,830 | 178,917 | 142,838 | 89,149 | 101,351 | 615 | 5,752 | 341,800 | 322,771 |
| Losses and loss adjustment expenses | 52,828 | 50,940 | 103,980 | 87,265 | 69,606 | 101,030 | -- | -- | 226,414 | 239,235 |
| Pre-tax income (loss), net of non-controlling interest (2) | (2,486) | 1,335 | 25,932 | 14,348 | (8,535) | (29,647) | (11,861) | (5,881) | 3,050 | (19,845) |
| Net loss ratio (1) | 76.4% | 78.9% | 61.6% | 64.4% | 85.5% | 108.7% | -- | -- | 70.9% | 81.6% |
| Net expense ratio (1) | 33.2% | 32.3% | 28.3% | 29.6% | 28.5% | 25.8% | -- | -- | 30.8% | 30.8% |
| Net combined ratio (1) | 109.6% | 111.2% | 89.9% | 94.0% | 114.0% | 134.5% | -- | -- | 101.7% | 112.4% |
| 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. | ||||||||||
| 2 Amounts for 2011 have been adjusted for the adoption of a change in accounting principle related to deferred policy acquisition costs. (See, "Adoption of New Accounting Pronouncements" in Note 1 to the audited consolidated financial statements, included in Hallmark's Form 10-K for the year ended December 31, 2012.) | ||||||||||