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.

   


            
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