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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.

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“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 SegmentCorporateConsolidated
($ 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 SegmentCorporateConsolidated
($ 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


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.

Source:Hallmark Financial Services, Inc.