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

FORT WORTH, Texas, Aug. 07, 2015 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (NASDAQ:HALL) today reported second quarter 2015 net income of $6.4 million, or $0.33 per diluted share, compared to net income of $1.7 million, or $0.09 per diluted share, reported for second quarter 2014. Year to date, Hallmark reported net income of $11.7 million, or $0.60 per diluted share, compared to $6.2 million, or $0.32 per diluted share, reported for the same period the prior year. Total revenues were $97.2 million for the second quarter of 2015 as compared to $80.8 million for the second quarter of 2014. Year to date total revenues for 2015 were $188.6 million as compared to $167.9 million reported for the same period the prior year.

“I am pleased to report another quarter of strong earnings with good underwriting results on a growing retained premium base, as well as growing investment income as more of our capital continues to be deployed,” said Naveen Anand, President and Chief Executive Officer. “We have seen overall improvement in our combined ratios for both the quarter and year to date over prior year driven by the consistent and effective execution of our underwriting strategies. We continue to see positive rate momentum in all of our segments in an increasingly competitive environment. Although current results in our Personal Lines Segment are overshadowed by prior year reserve development, I am confident that the fundamental improvement in our current book of business combined with positive underlying trends driven by accelerated pricing and continued underwriting discipline will drive this portfolio to acceptable profit levels in the near term.”

Mr. Anand continued, “Also, as we previously announced, effective June 30th, we closed on the agreement to sell the renewal rights to our small, non-core, mono-line workers’ compensation business.”

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.63 as of June 30, 2015, an increase of 7% over the same date of the prior year. Total cash and investments have increased 5% year over year to $681.9 million, or $35.43 per share. Cash flow from operations was $29.2 million for the quarter and our cash balances (including restricted cash) totaled $131.2 million as of June 30, 2015.”

Second Quarter
2015 2014 % Change
($ in thousands, unaudited)
Gross premiums written 133,508 124,440 7%
Net premiums written 94,305 73,703 28%
Net premiums earned 88,476 78,046 13%
Investment income, net of expenses 3,711 2,986 24%
Net realized gains 3,439 (284) nm
Total revenues 97,197 80,836 20%
Net income 6,376 1,651 286%
Net income per share - basic$ 0.33 $ 0.09 267%
Net income per share - diluted$ 0.33 $ 0.09 267%
Book value per share$ 13.63 $ 12.78 7%
Cash flow from operations 29,169 14,474 102%


Year-to-Date
2015 2014 % Change
($ in thousands, unaudited)
Gross premiums written 258,567 240,522 8%
Net premiums written 184,679 156,624 18%
Net premiums earned 175,172 160,623 9%
Investment income, net of expenses 6,556 6,227 5%
Net realized gains 4,023 (99) nm
Total revenues 188,647 167,945 12%
Net income 11,719 6,199 89%
Net income per share - basic$ 0.61 $ 0.32 91%
Net income per share - diluted$ 0.60 $ 0.32 88%
Book value per share$ 13.63 $ 12.78 7%
Cash flow from operations 32,878 19,581 68%

Second Quarter 2015 Commentary

Hallmark reported net income of $6.4 million and $11.7 million for the three and six months ended June 30, 2015 as compared to net income of $1.7 million and $6.2 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.33 per share and $0.60 per share for the three and six months ended June 30, 2015, as compared to net income of $0.09 per share and $0.32 per share for the same periods the prior year.

Hallmark's consolidated net loss ratio was 67.5% and 66.1% for the three and six months ended June 30, 2015, as compared to 67.3% and 65.5% for the same periods the prior year. Hallmark's net expense ratio was 28.6% and 28.4% for the three and six months ended June 30, 2015 as compared to 30.1% and 30.2% for the same periods the prior year. Hallmark’s net combined ratio was 96.1% and 94.5% for the three and six months ended June 30, 2015 as compared to 97.4% and 95.7% for the same periods the prior year.

During the three and six months ended June 30, 2015, Hallmark’s total revenues were $97.2 million and $188.6 million, representing an increase of 20% and 12%, respectively, from the $80.8 million and $167.9 million in total revenues for the same periods of 2014. This increase in revenue was primarily attributable to higher net earned premiums in the Personal Segment due mostly to an increase in retained premium under a renewed quota share reinsurance agreement effective October 1, 2014, as well as increased premiums produced in the E&S Commercial business unit. Further contributing to the increased revenue were higher realized gains recognized on the investment portfolio, lower adverse profit share commission revenue adjustments in the Standard Commercial Segment and higher net investment income during the three and six months ended June 30, 2015 as compared to the same periods of 2014.

The increase in revenue for the three and six months ended June 30, 2015 was partially offset by increased loss and loss adjustment expenses of $7.2 million and $10.5 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 Lines Segment under the renewed quota share reinsurance agreement and higher current accident year loss trends in the Specialty Commercial Segment. During the six months ended June 30, 2015 and 2014, the Company recorded favorable prior year net loss reserve development of $1.5 million and $6.8 million, respectively. Also partially offsetting the increased revenue was increased other operating expenses due mostly to increased salary and related expenses in the Specialty Commercial and Corporate Segments, 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 higher professional service fees.

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 par value) June 30 Dec. 31
ASSETS 2015 2014
Investments: (unaudited)
Debt securities, available-for-sale, at fair value (cost: $497,251 in 2015 and $450,770 in 2014)$ 494,054 $ 450,785
Equity securities, available-for-sale, at fair value (cost: $25,080 in 2015 and $25,360 in 2014) 56,629 56,444
Total investments 550,683 507,229
Cash and cash equivalents 116,554 130,985
Restricted cash 14,687 11,914
Ceded unearned premiums 60,333 53,376
Premiums receivable 87,602 71,003
Accounts receivable 2,128 3,141
Receivable for securities 2,567 932
Reinsurance recoverable 112,584 109,719
Deferred policy acquisition costs 21,310 20,746
Goodwill 44,695 44,695
Intangible assets, net 16,193 17,427
Prepaid expenses 2,724 1,823
Other assets 9,882 7,879
Total Assets$ 1,041,942 $ 980,869
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Subordinated debt securities$ 56,702 $ 56,702
Reserves for unpaid losses and loss adjustment expenses 444,327 415,135
Unearned premiums 213,290 196,826
Reinsurance balances payable 32,468 26,403
Pension liability 2,527 2,619
Payable for securities 3,412 1,321
Deferred federal income taxes, net 410 3,092
Federal income tax payable 3,007 968
Accounts payable and other accrued expenses 23,487 25,766
Total Liabilities 779,630 728,832
Commitments and contingencies
Stockholders’ equity:
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2015 and 2014 3,757 3,757
Additional paid-in capital 123,618 123,194
Retained earnings 131,357 119,638
Accumulated other comprehensive income 15,956 17,801
Treasury stock (1,626,863 shares in 2015 and 1,655,306 shares in 2014), at cost (12,376) (12,353)
Total Stockholders’ Equity 262,312 252,037
Total Liabilities & Stockholders' Equity$ 1,041,942 $ 980,869


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of OperationsThree Months Ended Six Months Ended
($ in thousands, except share amounts; unaudited)June 30 June 30
20152014 20152014
Gross premiums written$ 133,508 $ 124,440 $ 258,567 $ 240,522
Ceded premiums written (39,203) (50,737) (73,888) (83,898)
Net premiums written 94,305 73,703 184,679 156,624
Change in unearned premiums (5,829) 4,343 (9,507) 3,999
Net premiums earned 88,476 78,046 175,172 160,623
Investment income, net of expenses 3,711 2,986 6,556 6,227
Net realized gains (losses) 3,439 (284) 4,023 (99)
Finance charges 1,482 1,383 2,781 2,767
Commission and fees (110) (1,309) (101) (1,599)
Other income 199 14 216 26
Total revenues 97,197 80,836 188,647 167,945
Losses and loss adjustment expenses 59,725 52,502 115,815 105,272
Operating expenses 26,446 24,510 52,360 50,646
Interest expense 1,134 1,143 2,274 2,295
Amortization of intangible assets 617 639 1,234 1,278
Total expenses 87,922 78,794 171,683 159,491
Income before tax 9,275 2,042 16,964 8,454
Income tax expense 2,899 391 5,245 2,255
Net income$ 6,376 $ 1,651 $ 11,719 $ 6,199
Net income per share:
Basic$ 0.33 $ 0.09 $ 0.61 $ 0.32
Diluted$ 0.33 $ 0.09 $ 0.60 $ 0.32


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended June 30(unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal SegmentCorporateConsolidated
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Gross premiums written$22,176 $22,646 $89,891 $85,807 $21,441 $15,987 $ - $ - $133,508 $124,440
Ceded premiums written (2,073) (2,262) (27,509) (35,497) (9,621) (12,978) - - (39,203) (50,737)
Net premiums written 20,103 20,384 62,382 50,310 11,820 3,009 - - 94,305 73,703
Change in unearned premiums (1,029) (946) (3,019) 5,090 (1,781) 199 - - (5,829) 4,343
Net premiums earned 19,074 19,438 59,363 55,400 10,039 3,208 - - 88,476 78,046
Total revenues 20,083 19,341 62,418 58,702 11,727 4,882 2,969 (2,089) 97,197 80,836
Losses and loss adjustment expenses 11,380 16,129 39,649 35,242 8,696 1,131 - - 59,725 52,502
Pre-tax income (loss) 2,468 (3,147) 7,727 9,465 (76) 1,285 (844) (5,561) 9,275 2,042
Net loss ratio (1) 59.7% 83.0% 66.8% 63.6% 86.6% 35.3% 67.5% 67.3%
Net expense ratio (1) 33.6% 33.0% 25.5% 25.3% 21.8% 43.0% 28.6% 30.1%
Net combined ratio (1) 93.3% 116.0% 92.3% 88.9% 108.4% 78.3% 96.1% 97.4%
Favorable (Unfavorable) Prior Year Development 1,536 3,942 (407) 417 (714) 1,249 - - 415 5,608

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
Six Months Ended June 30(unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal SegmentCorporateConsolidated
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Gross premiums written$44,485 $43,627 $171,657 $160,729 $42,425 $36,166 $ - $ - $258,567 $240,522
Ceded premiums written (4,033) (4,231) (50,599) (49,726) (19,256) (29,941) - - (73,888) (83,898)
Net premiums written 40,452 39,396 121,058 111,003 23,169 6,225 - - 184,679 156,624
Change in unearned premiums (1,814) (558) (1,808) 3,670 (5,885) 887 - - (9,507) 3,999
Net premiums earned 38,638 38,838 119,250 114,673 17,284 7,112 - - 175,172 160,623
Total revenues 40,464 39,682 124,675 121,184 20,380 10,474 3,128 (3,395) 188,647 167,945
Losses and loss adjustment expenses 23,850 28,952 76,982 72,183 14,983 4,137 - - 115,815 105,272
Pre-tax income (loss) 4,354 (1,926) 17,448 19,389 (372) 1,254 (4,466) (10,263) 16,964 8,454
Net loss ratio (1) 61.7% 74.5% 64.6% 62.9% 86.7% 58.2% 66.1% 65.5%
Net expense ratio (1) 32.7% 32.8% 25.5% 25.9% 21.5% 40.0% 28.4% 30.2%
Net combined ratio (1) 94.4% 107.3% 90.1% 88.8% 108.2% 98.2% 94.5% 95.7%
Favorable (Unfavorable) Prior Year Development 2,898 5,135 (196) (231) (1,226) 1,907 - - 1,476 6,811

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.

For further information, please contact: Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600 www.hallmarkgrp.com

Source:Hallmark Financial Services, Inc.