Hallmark Financial Services, Inc. Announces First Quarter 2016 Earnings Results


FORT WORTH, Texas, May 05, 2016 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (NASDAQ:HALL) 2016 First Quarter earnings highlights:

  • 1st quarter net income of $4.1 million, or $0.21 per diluted share
  • 1st quarter net combined ratio of 95.3% and 94.7% excluding catastrophe losses
  • 1st quarter gross premiums written were up 3% compared to prior year
  • 1st quarter ending book value per share of $14.00, up 3% compared to prior year

“We had a strong quarter in our Specialty Commercial Segment which now represents nearly 70% of total written premium. Gross premiums written increased in this segment by 7% and produced a stellar 87.8% combined ratio. We continue to invest in this segment with new operating units as well as developing and launching new products. Our Standard Commercial Segment gross premiums written were down primarily resulting from our exit of the workers compensation business last year, with the combined ratio adversely impacted by an occupational accident program that is in run-off,” said Naveen Anand, President and Chief Executive Officer.

“In the Personal Segment, we are still facing headwinds driven by deterioration in the non-standard automobile business. We continue to see increased frequency and severity in most states, particularly in Texas, driven by increased miles driven, distracted driving and increasing costs to repair damages. This is impacting the third party property damage and physical damage lines of business.  The adverse loss development in the quarter was primarily related to the 2015 accident year.  In response to this industry wide issue, we continue to raise rates across most of our customer categories and are aggressively culling poor performing risks and agencies,” concluded Mr. Anand.

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Hallmark reported the highest book value per share in the company’s history at $14.00 as of March 31, 2016, an increase of 3% over March 31, 2015.  Total cash and investments increased $8.5 million in the first quarter of 2016 to $710.3 million, an increase of 2% per share to $37.42 per share.  Our cash balances (including restricted cash) totaled $96.2 million as of March 31, 2016.”

First Quarter 
  2016   2015 % Change
 ($ in thousands, unaudited)
Gross premiums written    128,447     125,059  3%
Net premiums written    87,626     90,374  -3%
Net premiums earned    84,327     86,696  -3%
Investment income, net of expenses   3,879     2,845  36%
Gain on investments   74     861  -91%
Other-than-temporary impairments   (301)    (277) 9%
Total revenues    90,028     91,450  -2%
Net income   4,074     5,343  -24%
Net income per share - basic$  0.21  $  0.28  -25%
Net income per share - diluted$  0.21  $  0.28  -25%
Book value per share$  14.00  $  13.62  3%
Cash flow from operations (1,311)  3,709  -135%

First Quarter 2016 Commentary

Hallmark reported net income of $4.1 million for the three months ended March 31, 2016 as compared to net income of $5.3 million for the same period the prior year. On a diluted basis per share, the Company reported net income of $0.21 per share for the three months ended March 31, 2016, as compared to net income of $0.28 per share for the same period the prior year.

Hallmark's consolidated net loss ratio was 65.7% for the three months ended March 31, 2016, as compared to 64.7% for the same period the prior year.  Hallmark's net expense ratio was 29.6% for the three months ended March 31, 2016 as compared to 28.5% for the same period the prior year.  Hallmark’s net combined ratio was 95.3% for the three months ended March 31, 2016 as compared to 93.2% for the same period the prior year. 

During the three months ended March 31, 2016, Hallmark’s total revenues were $90.0 million, representing a decrease of 2%, from the $91.5 million in total revenues for the same period of 2015.  This decrease in revenue was primarily attributable to lower net premiums earned and realized losses recognized on the investment portfolio during the three months ended March 31, 2016, partially offset by higher net investment income and favorable profit share commission revenue adjustment in the Standard Commercial Segment.  The decreased net earned premiums were due primarily to lower premiums written in the Workers Compensation operating unit due to a renewal rights agreement entered into during the second quarter of 2015 and subsequently amended during the third quarter of 2015 to cede 100% of the unearned premium effective July 1, 2015,  as well as the impact on net premiums earned of lower net premiums written in our Specialty Commercial Segment during the fourth quarter of 2015, partially offset by increased retained premium under a renewed quota share reinsurance agreement effective October 1, 2014 in our Personal Segment.

The decrease in revenue for the three months ended March 31, 2016 was partially offset by lower loss and loss adjustment expenses of $0.7 million as compared to the same period in 2015.  The decrease in loss and LAE was primarily the result of favorable prior year loss reserve development of $1.7 million for the three months ended March 31, 2016 as compared to $1.1 million of favorable prior year development for the same period of 2015, partially offset by higher current accident year loss trends in the Personal Segment. Other operating expenses increased due mostly to increased salary and related expenses, partially offset by lower production related expenses, in the Specialty Commercial Segment.

During the three months ended March 31, 2016, Hallmark’s cash flow used in operations was $1.3 million compared to cash flow provided by operations of $3.7 million during the same period the prior year.  The decrease in operating cash flow was primarily due to increased paid losses, including timing of reinsurance claim settlements, partially offset by lower net paid operating expenses and increased net collected premiums.

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.

     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) Mar. 31 Dec. 31
ASSETS  2016   2015 
Investments: (unaudited)  
Debt securities, available-for-sale, at fair value (cost: $570,080 in 2016 and $538,629 in 2015) $  564,758  $  531,325 
Equity securities, available-for-sale, at fair value (cost: $27,460 in 2016 and $24,951 in 2015)  49,328   47,504 
Total investments  614,086   578,829 
Cash and cash equivalents  87,477   114,446 
Restricted cash  8,733   8,522 
Ceded unearned premiums  66,934   65,094 
Premiums receivable  90,244   83,376 
Accounts receivable  2,402   2,005 
Receivable for securities    938     10,424 
Reinsurance recoverable  120,161   114,287 
Deferred policy acquisition costs  20,737   20,366 
Goodwill  44,695   44,695 
Intangible assets, net  14,342   14,959 
Deferred federal income taxes, net  2,615   3,360 
Federal income tax recoverable  328   1,779 
Prepaid expenses  4,181   3,213 
Other assets  12,176   11,245 
Total Assets $ 1,090,049  $ 1,076,600 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Liabilities:    
Revolving credit facility payable $  30,000  $  30,000 
Subordinated debt securities    56,702     56,702 
Reserves for unpaid losses and loss adjustment expenses  449,129   450,878 
Unearned premiums  221,546   216,407 
Reinsurance balances payable  37,929   33,741 
Pension liability  2,463   2,496 
Payable for securities    2,910     1,097 
Accounts payable and other accrued expenses  23,563   23,253 
Total Liabilities  824,242   814,574 
Commitments and contingencies    
Stockholders’ equity:    
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2016 and 2015  3,757   3,757 
Additional paid-in capital  123,619   123,480 
Retained earnings  145,575   141,501 
Accumulated other comprehensive income  8,279   7,418 
Treasury stock (1,893,291 shares in 2016 and 1,775,512 shares in 2015), at cost  (15,423)  (14,130)
Total Stockholders’ Equity  265,807   262,026 
Total Liabilities & Stockholders' Equity $ 1,090,049  $ 1,076,600 

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of OperationsThree Months Ended
($ in thousands, except share amounts)March 31
 2016 2015
Gross premiums written $  128,447  $  125,059 
Ceded premiums written  (40,821)  (34,685)
Net premiums written  87,626   90,374 
Change in unearned premiums  (3,299)  (3,678)
Net premiums earned  84,327   86,696 
     
Investment income, net of expenses  3,879   2,845 
Net realized gains (losses)  (227)  584 
Finance charges  1,441   1,299 
Commission and fees  577   9 
Other income  31   17 
Total revenues  90,028   91,450 
     
Losses and loss adjustment expenses  55,395   56,090 
Operating expenses  26,896   25,914 
Interest expense  1,131   1,140 
Amortization of intangible assets  617   617 
Total expenses  84,039   83,761 
     
Income before tax  5,989   7,689 
Income tax expense  1,915   2,346 
Net income $  4,074  $  5,343 
     
Net income per share:    
Basic $  0.21  $  0.28 
Diluted $  0.21  $  0.28 

  

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data    
Three Months Ended Mar. 31(unaudited)        
 Specialty
Commercial
Segment
Standard
Commercial
Segment

Personal Segment


Corporate


Consolidated

($ in thousands) 2016  2015  2016  2015  2016  2015  2016  2015  2016  2015 
Gross premiums written$  87,400 $  81,766 $  20,098 $  22,309 $  20,949 $  20,984 $  -  $  -  $  128,447 $  125,059 
Ceded premiums written (28,663) (23,090) (2,352) (1,960) (9,806) (9,635)   -     -   (40,821) (34,685)
Net premiums written 58,737  58,676  17,746  20,349  11,143  11,349    -     -   87,626  90,374 
Change in unearned premiums (1,484) 1,211  (1,096) (785) (719) (4,104)   -     -   (3,299) (3,678)
Net premiums earned 57,253  59,887  16,650  19,564  10,424  7,245    -     -   84,327  86,696 
           
Total revenues 60,583  62,257  17,992  20,381  12,090  8,653  (637) 159  90,028  91,450 
           
Losses and loss adjustment expenses 34,413  37,333  11,069  12,470  9,913  6,287    -     -   55,395  56,090 
           
Pre-tax income (loss) 10,312  9,721  1,416  1,886  (1,083) (296) (4,656) (3,622) 5,989  7,689 
           
Net loss ratio (1) 60.1% 62.3% 66.5% 63.7% 95.1% 86.8%   65.7% 64.7%
Net expense ratio (1) 27.7% 25.5% 34.2% 31.8% 19.1% 21.1%   29.6% 28.5%
Net combined ratio (1) 87.8% 87.8% 100.7% 95.5% 114.2% 107.9%   95.3% 93.2%
           
Favorable (Unfavorable) Prior Year Development   2,347    211    358    1,362    (988)   (512)   -     -     1,717    1,061 
           
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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