777 Main Street, Suite 1000
    Fort Worth, Texas 76102
    P | 817.348.1600  F | 817.348.1815
    www.hallmarkgrp.com

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK FINANCIAL SERVICES, INC.

ANNOUNCES FOURTH QUARTER AND FISCAL YEAR 2012 RESULTS

 

FORT WORTH, Texas, (March 14, 2013) - 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."

 

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.

 

For further information, please contact:

Mark J. Morrison, President and Chief Executive Officer at 817.348.1600

www.hallmarkgrp.com

 

 
 

 

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%

  

1The 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.

 

2Amounts 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%

  

1The 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.

 

2Amounts 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.)

 

 


The following information was filed by Hallmark Financial Services Inc (HALL) on Thursday, March 14, 2013 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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