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

20:00 EDT 6 Aug 2015 | Globe Newswire

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

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