Hallmark Financial Services, Inc. Announces Third Quarter 2015 Earnings Results

FORT WORTH, Texas, Nov. 05, 2015 (GLOBE NEWSWIRE) — Hallmark Financial Services, Inc. (NASDAQ:HALL) today reported third quarter 2015 net income of $6.7 million, or $0.35 per diluted share, compared to net income of $3.5 million, or $0.18 per diluted share, reported for third quarter 2014.  Year to date, Hallmark reported net income of $18.4 million, or $0.95 per diluted share, compared to $9.7 million, or $0.50 per diluted share, reported for the same period the prior year.  Total revenues were $93.7 million for the third quarter of 2015 as compared to $81.4 million for the third quarter of 2014.  Year to date total revenues for 2015 were $282.3 million as compared to $249.4 million reported for the same period the prior year.

“We’re building momentum and are effectively executing on our specialty lines focused underwriting and product strategies. The results for this quarter and year to date reflect the significant work that has taken place across our entire organization to position Hallmark for sustained success,” said Naveen Anand, President and Chief Executive Officer. “We continue to push for and achieve higher rates in all of our segments, however the rate increase trend continues to weaken. I expect we will see further improvement in our Personal Lines business in the near term as we continue to improve underwriting in the current accident year and cull less performing sectors in this portfolio.”

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.62 as of September 30, 2015, an increase of 5% over the same date of the prior year.  Total cash and investments have increased 6% year over year to $679.0 million, or $35.47 per share. Cash flow from operations was $43.1 million for the year-to-date and our cash balances (including restricted cash) totaled $111.6 million as of September 30, 2015.”

Third Quarter
      2015       2014     % Change
    ($ in thousands, unaudited)
Gross premiums written      132,141         122,723       8 %
Net premiums written      89,924         84,025       7 %
Net premiums earned      88,406         77,147       15 %
Investment income, net of expenses     3,495         2,912       20 %
Net realized losses       (335 )       (23 )     nm  
Total revenues      93,684         81,417       15 %
Net income       6,698         3,463       93 %
Net income per share – basic $   0.35     $   0.18       94 %
Net income per share – diluted $   0.35     $   0.18       94 %
Book value per share   $   13.62     $   12.96       5 %
Cash flow from operations   10,223       2,129       380 %

 

Year-to-Date 
      2015       2014     % Change
    ($ in thousands, unaudited)
Gross premiums written        390,708         363,245       8 %
Net premiums written        274,603         240,649       14 %
Net premiums earned        263,578         237,770       11 %
Investment income, net of expenses     10,051         9,139       10 %
Net realized gains (losses)       3,688         (122 )     nm  
Total revenues        282,331         249,362       13 %
Net income       18,417         9,662       91 %
Net income per share – basic   $   0.96     $   0.50       92 %
Net income per share – diluted   $   0.95     $   0.50       90 %
Book value per share   $   13.62     $   12.96       5 %
Cash flow from operations     43,101       21,710       99 %


Third Quarter 2015 Commentary

Hallmark reported net income of $6.7 million and $18.4 million for the three and nine months ended September 30, 2015 as compared to net income of $3.5 million and $9.7 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.35 per share and $0.95 per share for the three and nine months ended September 30, 2015, as compared to net income of $0.18 per share and $0.50 per share for the same periods the prior year.

Hallmark’s consolidated net loss ratio was 63.3% and 65.2% for the three and nine months ended September 30, 2015, as compared to 65.5% and 65.5% for the same periods the prior year.  Hallmark’s net expense ratio was 27.7% and 28.2% for the three and nine months ended September 30, 2015 as compared to 30.7% and 30.4% for the same periods the prior year.  Hallmark’s net combined ratio was 91.0% and 93.4% for the three and nine months ended September 30, 2015 as compared to 96.2% and 95.9% for the same periods the prior year. 

During the three and nine months ended September 30, 2015, Hallmark’s total revenues were $93.7 million and $282.3 million, representing an increase of 15% and 13%, respectively, from the $81.4 million and $249.4 million in total revenues for the same periods of 2014.  This increase in revenue was primarily attributable to higher net earned premiums, higher realized gains recognized on the investment portfolio during the nine months ended September 30, 2015, lower adverse profit share commission revenue adjustments in the Standard Commercial Segment and higher net investment income.  The increased net earned premiums were primarily attributable to increased retained premium under a renewed quota share reinsurance agreement effective October 1, 2014 in the Personal Segment and increased premium production in both the Personal Segment and the MGA Commercial Products operating unit.

The increase in revenue for the three and nine months ended September 30, 2015 was partially offset by increased loss and loss adjustment expenses of $5.5 million and $16.0 million, respectively, as compared to the same periods in 2014.  The increase in loss and LAE was primarily the result of an increase in retained losses in the Personal Segment under the renewed quota share reinsurance agreement and higher current accident year loss trends in the Specialty Commercial Segment. During the nine months ended September 30, 2015 and 2014, the Company recorded favorable prior year net loss reserve development of $4.6 million and $5.4 million, respectively.  Also partially offsetting the increased revenue was increased other operating expenses due mostly to higher production related expenses in the Personal Segment due to the impact of the change in terms of the renewed quota share reinsurance agreement and increased salary and related expenses in the Specialty Commercial and Corporate Segments.

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:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except par value)   Sept. 30   Dec. 31
ASSETS     2015       2014  
Investments:   (unaudited)    
Debt securities, available-for-sale, at fair value (cost: $524,908 in 2015 and $450,770 in 2014)   $ 519,163     $ 450,785  
Equity securities, available-for-sale, at fair value (cost: $24,957 in 2015 and $25,360 in 2014)     48,229       56,444  
Total investments     567,392       507,229  
Cash and cash equivalents     93,049       130,985  
Restricted cash     18,525       11,914  
Ceded unearned premiums     64,115       53,376  
Premiums receivable     86,877       71,003  
Accounts receivable     2,241       3,141  
Receivable for securities     2,354       932  
Reinsurance recoverable     116,342       109,719  
Deferred policy acquisition costs     21,110       20,746  
Goodwill     44,695       44,695  
Intangible assets, net     15,576       17,427  
Deferred federal income taxes, net     2,832        
Prepaid expenses     2,920       1,823  
Other assets     10,632       7,879  
Total Assets   $ 1,048,660     $ 980,869  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
Subordinated debt securities   $ 56,702     $ 56,702  
Reserves for unpaid losses and loss adjustment expenses     451,383       415,135  
Unearned premiums     218,590       196,826  
Reinsurance balances payable     32,832       26,403  
Pension liability     2,481       2,619  
Payable for securities     4,269       1,321  
Federal income tax payable     522       968  
Deferred federal income taxes, net           3,092  
Accounts payable and other accrued expenses     21,089       25,766  
Total Liabilities     787,868       728,832  
Commitments and contingencies        
         
Stockholders’ equity:        
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2015 and 2014     3,757       3,757  
Additional paid-in capital     123,606       123,194  
Retained earnings     138,055       119,638  
Accumulated other comprehensive income     8,921       17,801  
Treasury stock (1,728,537 shares in 2015 and 1,655,306 shares in 2014), at cost     (13,547 )     (12,353 )
Total Stockholders’ Equity     260,792       252,037  
Total Liabilities & Stockholders’ Equity   $ 1,048,660     $ 980,869  

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations   Three Months Ended   Nine Months Ended
($ in thousands, except share amounts; unaudited)   September 30   September 30
      2015       2014       2015       2014  
Gross premiums written   $   132,141     $   122,723     $   390,708     $   363,245  
Ceded premiums written     (42,217 )     (38,698 )     (116,105 )     (122,596 )
Net premiums written     89,924       84,025       274,603       240,649  
Change in unearned premiums     (1,518 )     (6,878 )     (11,025 )     (2,879 )
Net premiums earned     88,406       77,147       263,578       237,770  
                 
Investment income, net of expenses     3,495       2,912       10,051       9,139  
Net realized gains (losses)     (335 )     (23 )     3,688       (122 )
Finance charges     1,619       1,300       4,400       4,067  
Commission and fees     60       71       (41 )     (1,528 )
Other income     439       10       655       36  
Total revenues     93,684       81,417       282,331       249,362  
                 
Losses and loss adjustment expenses     56,005       50,509       171,820       155,781  
Operating expenses     26,458       24,409       78,818       75,055  
Interest expense     769       1,140       3,043       3,435  
Amortization of intangible assets     617       631       1,851       1,909  
Total expenses     83,849       76,689       255,532       236,180  
                 
Income before tax     9,835       4,728       26,799       13,182  
Income tax expense     3,137       1,265       8,382       3,520  
Net income   $   6,698     $   3,463     $   18,417     $   9,662  
                 
Net income per share:                
Basic   $   0.35     $   0.18     $   0.96     $   0.50  
Diluted   $   0.35     $   0.18     $   0.95     $   0.50  

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Sept. 30 (unaudited)                
  Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal Segment Corporate Consolidated
($ in thousands)   2015     2014     2015     2014     2015     2014     2015     2014     2015     2014  
Gross premiums written $ 19,225   $ 20,850   $ 91,446   $ 87,886   $ 21,470   $ 13,987   $   $   $ 132,141   $ 122,723  
Ceded premiums written   (4,145 )   (1,639 )   (28,205 )   (25,534 )   (9,867 )   (11,525 )           (42,217 )   (38,698 )
Net premiums written   15,080     19,211     63,241     62,352     11,603     2,462             89,924     84,025  
Change in unearned premiums   2,087     614     (2,909 )   (7,736 )   (696 )   244             (1,518 )   (6,878 )
Net premiums earned   17,167     19,825     60,332     54,616     10,907     2,706             88,406     77,147  
                     
Total revenues   18,477     20,985     63,395     57,983     12,716     4,225     (904 )   (1,776 )   93,684     81,417  
                     
Losses and loss adjustment expenses   10,088     12,545     36,186     36,844     9,731     1,120             56,005     50,509  
                     
Pre-tax income (loss)   2,893     2,244     11,291     7,653     (224 )   662     (4,125 )   (5,831 )   9,835     4,728  
                     
Net loss ratio (1)   58.8 %   63.3 %   60.0 %   67.5 %   89.2 %   41.4 %       63.3 %   65.5 %
Net expense ratio (1)   32.2 %   32.1 %   26.1 %   25.7 %   16.1 %   57.9 %       27.7 %   30.7 %
Net combined ratio (1)   91.0 %   95.4 %   86.1 %   93.2 %   105.3 %   99.3 %       91.0 %   96.2 %
                     
Favorable (Unfavorable) Prior Year Development   1,821     (288 )   2,048     (2,369 )   (783 )   1,205             3,086     (1,452 )


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 as total underwriting expenses 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
Nine Months Ended Sept. 30 (unaudited)                
  Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal Segment Corporate Consolidated
($ in thousands)   2015     2014     2015     2014     2015     2014     2015     2014     2015     2014  
Gross premiums written $ 63,710   $ 64,477   $ 263,103   $ 248,615   $ 63,895   $ 50,153   $   $   $ 390,708   $ 363,245  
Ceded premiums written   (8,178 )   (5,870 )   (78,804 )   (75,260 )   (29,123 )   (41,466 )           (116,105 )   (122,596 )
Net premiums written   55,532     58,607     184,299     173,355     34,772     8,687             274,603     240,649  
Change in unearned premiums   273     56     (4,717 )   (4,066 )   (6,581 )   1,131             (11,025 )   (2,879 )
Net premiums earned   55,805     58,663     179,582     169,289     28,191     9,818             263,578     237,770  
                     
Total revenues   58,941     60,667     188,070     179,167     33,096     14,699     2,224     (5,171 )   282,331     249,362  
                     
Losses and loss adjustment expenses   33,938     41,497     113,168     109,027     24,714     5,257             171,820     155,781  
                     
Pre-tax income (loss)   7,247     318     28,739     27,042     (596 )   1,916     (8,591 )   (16,094 )   26,799     13,182  
                     
Net loss ratio (1)   60.8 %   70.7 %   63.0 %   64.4 %   87.7 %   53.5 %       65.2 %   65.5 %
Net expense ratio (1)   32.6 %   32.6 %   25.7 %   25.8 %   19.4 %   44.9 %       28.2 %   30.4 %
Net combined ratio (1)   93.4 %   103.3 %   88.7 %   90.2 %   107.1 %   98.4 %       93.4 %   95.9 %
                     
Favorable (Unfavorable) Prior Year Development     4,719       4,847       1,852       (2,600 )     (2,009 )     3,112       –        –        4,562       5,359  


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 as total underwriting expenses 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.

Left Menu Icon
Right Menu Icon