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Hallmark Financial Services, Inc. Announces Fourth Quarter and Fiscal 2015 Earnings Results

FORT WORTH, Texas, March 10, 2016 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (NASDAQ:HALL) 2015 Fourth Quarter and Full Year earnings highlights:

  • 4th quarter net income of $0.18 per diluted share vs. $0.19 in 2014
  • Full year net income of $1.13 per diluted share vs. $0.69 in 2014
  • Net combined ratio improved to 95.5% for 4th quarter 2015 and 90.9% excluding catastrophe losses
  • Net combined ratio improved to 93.9% for full year 2015 and 91.3% excluding catastrophe losses
  • Net premiums written were down 2% for the 4th Quarter and up 10% for the full year

“Our net income increased by over 60% from the prior year. In looking back at 2015, Hallmark has become an even more focused specialty property & casualty insurer. Actions taken across the portfolio, such as eliminating ancillary homeowners and dwelling business in our Personal Segment, selling our non-core workers’ compensation book of business and developing several new product and business initiatives in our highly profitable Specialty Commercial Segment, are having the desired impact on our bottom line. Although the market continues to be challenging, Hallmark is well positioned in our targeted niche specialty segments for continued profitable growth,” said Naveen Anand, President and Chief Executive Officer.

"Our Specialty and Standard Commercial Segments both produced good results and improved from the prior year. Our Personal Segment, which is primarily non-standard auto, continued to see an uptick in both frequency and severity from automobile losses for the year. We are aggressively addressing the issues in this segment by continuing to increase rates and implementing improved capabilities in terms of risk selection and segmentation. The early results appear positive.”

“The fourth quarter of 2015 was active in terms of catastrophe losses, driven by hail and tornado activity, that contributed nearly 5 points to the quarter’s net combined ratio. The exposure management practices that we’ve implemented over the last few years are having the desired impact, despite one of the most active years for severe convective storms in Texas,” concluded Mr. Anand.

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.72 as of December 31, 2015, an increase of 5% over the prior year end. Total cash and investments have increased 8% year over year to $701.8 million, or $36.75 per share. Cash flow from operations was $52.9 million for fiscal 2015 and our cash balances (including restricted cash) totaled $123.0 million as of December 31, 2015.”

Fourth Quarter
2015 2014 % Change
($ in thousands, unaudited)
Gross premiums written 123,515 109,973 12%
Net premiums written 82,341 83,703 -2%
Net premiums earned 85,503 83,447 2%
Investment income, net of expenses 3,918 3,244 21%
Net realized gains (losses) (1,185) 256 nm
Total revenues 90,071 88,004 2%
Net income 3,446 3,767 -9%
Net income per share - basic$ 0.18 $ 0.20 -10%
Net income per share - diluted$ 0.18 $ 0.19 -5%
Book value per share$ 13.72 $ 13.11 5%
Cash flow from operations 9,835 11,974 -18%
Fiscal Year
2015 2014 % Change
($ in thousands)
Gross premiums written 514,223 473,218 9%
Net premiums written 356,944 324,352 10%
Net premiums earned 349,081 321,217 9%
Investment income, net of expenses 13,969 12,383 13%
Net realized gains 2,503 134 1768%
Total revenues 372,402 337,366 10%
Net income 21,863 13,429 63%
Net income per share - basic$ 1.14 $ 0.70 63%
Net income per share - diluted$ 1.13 $ 0.69 64%
Book value per share$ 13.72 $ 13.11 5%
Cash flow from operations 52,936 33,684 57%

Fourth Quarter 2015 Commentary

Hallmark reported net income of $3.4 million and $21.9 million for the three months and fiscal year ended December 31, 2015 as compared to net income of $3.8 million and $13.4 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.18 per share and $1.13 per share for the three months and fiscal year ended December 31, 2015, as compared to net income of $0.19 per share and $0.69 per share for the same periods the prior year.

Hallmark's consolidated net loss ratio was 68.2% and 65.9% for the three months and fiscal year ended December 31, 2015, as compared to 65.0% and 65.4% for the same periods the prior year. Hallmark's net expense ratio was 27.3% and 28.0% for the three months and fiscal year ended December 31, 2015 as compared to 30.9% and 30.5% for the same periods the prior year. Hallmark’s net combined ratio was 95.5% and 93.9% for the three months and fiscal year ended December 31, 2015 as compared to 95.9% and 95.9% for the same periods the prior year.

During the three months and fiscal year ended December 31, 2015, Hallmark’s total revenues were $90.1 million and $372.4 million, representing an increase of 2% and 10%, respectively, from the $88.0 million and $337.4 million in total revenues for the same periods of 2014. For fiscal 2015, the increase in revenue was primarily attributable to higher net earned premiums, higher net investment income, higher gains on investments of $5.8 million for 2015 as compared to $0.4 million for 2014 (partially offset by higher other-than-temporary impairments of $3.3 million for 2015 as compared to $0.3 million for 2014) and lower adverse profit share commission adjustments in the Standard Commercial Segment. 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 months and fiscal year ended December 31, 2015 was partially offset by increased loss and loss adjustment expenses of $4.1 million and $20.1 million, respectively, as compared to the same periods in 2014. The increase in loss and LAE for fiscal 2015 was primarily the result of an increase in retained losses in the Personal Segment under the renewed quota share reinsurance agreement. During the fiscal years ended December 31, 2015 and 2014, the Company recorded favorable prior year net loss reserve development of $7.0 million and $5.2 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 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 a diversified specialty property/casualty insurer with offices in Dallas-Fort Worth, San Antonio, Chicago, Los Angeles and Atlanta. Hallmark markets, underwrites and services approximately half a billion dollars annually in commercial and personal insurance premiums in select markets. 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.


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except par value) Dec. 31 Dec. 31
ASSETS 2015 2014
Investments:
Debt securities, available-for-sale, at fair value (cost: $538,629 in 2015 and $450,770 in 2014)$ 531,325 $ 450,785
Equity securities, available-for-sale, at fair value (cost: $24,951 in 2015 and $25,360 in 2014) 47,504 56,444
Total investments 578,829 507,229
Cash and cash equivalents 114,446 130,985
Restricted cash 8,522 11,914
Ceded unearned premiums 65,094 53,376
Premiums receivable 83,376 71,003
Accounts receivable 2,005 3,141
Receivable for securities 10,424 932
Reinsurance recoverable 114,287 109,719
Deferred policy acquisition costs 20,366 20,746
Goodwill 44,695 44,695
Intangible assets, net 14,959 17,427
Deferred federal income taxes, net 3,360 -
Federal income tax recoverable 1,779 -
Prepaid expenses 3,213 1,823
Other assets 11,245 7,879
Total Assets$ 1,076,600 $ 980,869
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Revolving credit facility payable$ 30,000 $ -
Subordinated debt securities 56,702 56,702
Reserves for unpaid losses and loss adjustment expenses 450,878 415,135
Unearned premiums 216,407 196,826
Reinsurance balances payable 33,741 26,403
Pension liability 2,496 2,619
Payable for securities 1,097 1,321
Federal income tax payable - 968
Deferred federal income taxes, net - 3,092
Accounts payable and other accrued expenses 23,253 25,766
Total Liabilities 814,574 728,832
Commitments and contingencies
Stockholders’ equity:
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2015 and 2014 3,757 3,757
Additional paid-in capital 123,480 123,194
Retained earnings 141,501 119,638
Accumulated other comprehensive income 7,418 17,801
Treasury stock (1,775,512 shares in 2015 and 1,655,306 shares in 2014), at cost (14,130) (12,353)
Total Stockholders’ Equity 262,026 252,037
Total Liabilities & Stockholders' Equity$ 1,076,600 $ 980,869

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of OperationsThree Months Ended Fiscal Year Ended
($ in thousands, except share amounts)December 31 December 31
20152014 20152014
Gross premiums written$ 123,515 $ 109,973 $ 514,223 $ 473,218
Ceded premiums written (41,174) (26,270) (157,279) (148,866)
Net premiums written 82,341 83,703 356,944 324,352
Change in unearned premiums 3,162 (256) (7,863) (3,135)
Net premiums earned 85,503 83,447 349,081 321,217
Investment income, net of expenses 3,918 3,244 13,969 12,383
Net realized gains (losses) (1,185) 256 2,503 134
Finance charges 1,552 1,212 5,952 5,279
Commission and fees 254 (166) 213 (1,694)
Other income 29 11 684 47
Total revenues 90,071 88,004 372,402 337,366
Losses and loss adjustment expenses 58,329 54,274 230,149 210,055
Operating expenses 25,175 26,372 103,993 101,427
Interest expense 863 1,141 3,906 4,576
Amortization of intangible assets 617 617 2,468 2,526
Total expenses 84,984 82,404 340,516 318,584
Income before tax 5,087 5,600 31,886 18,782
Income tax expense 1,641 1,833 10,023 5,353
Net income$ 3,446 $ 3,767 $ 21,863 $ 13,429
Net income per share:
Basic$ 0.18 $ 0.20 $ 1.14 $ 0.70
Diluted$ 0.18 $ 0.19 $ 1.13 $ 0.69

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Dec. 31(unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal SegmentCorporateConsolidated
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Gross premiums written$ 18,182 $ 20,202 $ 87,947 $ 75,932 $ 17,386 $ 13,839 $ - $ - $ 123,515 $ 109,973
Ceded premiums written (2,617) (1,897) (30,471) (18,649) (8,086) (5,724) - - (41,174) (26,270)
Net premiums written 15,565 18,305 57,476 57,283 9,300 8,115 - - 82,341 83,703
Change in unearned premiums 1,243 1,343 582 2,251 1,337 (3,850) - - 3,162 (256)
Net premiums earned 16,808 19,648 58,058 59,534 10,637 4,265 - - 85,503 83,447
Total revenues 17,923 20,797 61,840 62,753 12,442 5,705 (2,134) (1,251) 90,071 88,004
Losses and loss adjustment expenses 13,133 9,633 35,496 40,934 9,700 3,707 - - 58,329 54,274
Pre-tax income (loss) (560) 4,277 11,538 7,195 (289) (690) (5,602) (5,182) 5,087 5,600
Net loss ratio (1) 78.1% 49.0% 61.1% 68.8% 91.2% 86.9% 68.2% 65.0%
Net expense ratio (1) 32.5% 35.3% 25.4% 25.0% 17.7% 39.5% 27.3% 30.9%
Net combined ratio (1) 110.6% 84.3% 86.5% 93.8% 108.9% 126.4% 95.5% 95.9%
Favorable (Unfavorable) Prior Year Development 2,697 1,186 295 (1,121) (601) (221) - - 2,391 (156)
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
Fiscal Year Ended Dec. 31(unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal SegmentCorporateConsolidated
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Gross premiums written$ 81,892 $ 84,679 $ 351,050 $ 324,547 $ 81,281 $ 63,992 $ - $ - $ 514,223 $ 473,218
Ceded premiums written (10,795) (7,767) (109,275) (93,909) (37,209) (47,190) - - (157,279) (148,866)
Net premiums written 71,097 76,912 241,775 230,638 44,072 16,802 - - 356,944 324,352
Change in unearned premiums 1,516 1,399 (4,135) (1,815) (5,244) (2,719) - - (7,863) (3,135)
Net premiums earned 72,613 78,311 237,640 228,823 38,828 14,083 - - 349,081 321,217
Total revenues 76,864 81,464 249,910 241,920 45,538 20,404 90 (6,422) 372,402 337,366
Losses and loss adjustment expenses 47,071 51,130 148,664 149,961 34,414 8,964 - - 230,149 210,055
Pre-tax income (loss) 6,687 4,595 40,277 34,237 (885) 1,226 (14,193) (21,276) 31,886 18,782
Net loss ratio (1) 64.8% 65.3% 62.6% 65.5% 88.6% 63.7% 65.9% 65.4%
Net expense ratio (1) 32.6% 33.3% 25.6% 25.6% 19.0% 43.3% 28.0% 30.5%
Net combined ratio (1) 97.4% 98.6% 88.2% 91.1% 107.6% 107.0% 93.9% 95.9%
Favorable (Unfavorable) Prior Year Development 7,416 6,033 2,147 (3,721) (2,610) 2,891 - - 6,953 5,203
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.