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

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FORT WORTH, Texas, Aug. 08, 2016 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (NASDAQ: HALL) today announced the following earnings highlights for its second fiscal quarter ended June 30, 2016:

  • 2nd quarter net income of $1.1 million, or $0.06 per diluted share
  • 2nd quarter catastrophe losses of $7.8 million, or $0.27 per diluted share net of tax
  • 2nd quarter other-than-temporary impairments of $2.6 million, or $0.09 per diluted share net of tax
  • 2nd quarter net combined ratio of 95.9%, including 8.9% attributable to catastrophe losses
  • 2nd quarter gross premiums written up 8% compared to prior year
  • 2nd quarter ending book value per share of $14.25, up 5% compared to June 30, 2015

"The second quarter of 2016 was adversely impacted by a combination of higher catastrophe losses from severe convective storms in Texas and the Midwest and other-than-temporary impairments in our investment portfolio. CAT losses were $7.8 million for the second quarter of 2016 compared to $3.7 million for the same period the prior year.  Nonetheless we achieved a 95.9% combined ratio despite the 8.9% attributable to CAT losses," said Naveen Anand, President and Chief Executive Officer.

"The Specialty Commercial Segment, which has been the focus of our investments in new products and additional underwriters, contributed both revenue growth and profitability to the Company's second quarter results. Our Standard Commercial Segment produced strong results on a year over year basis, despite $6.7 million of CAT losses in the second quarter of 2016 compared to only $2.8 million for the same period the prior year. The Personal Lines Segment still underperformed primarily driven by unfavorable prior year loss development, although current accident year results have improved. Also adversely impacting the second quarter results was a $1.8 million accrual for an arbitration award related to the contingent consideration from a 2011 acquisition," concluded Mr. Anand.

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Hallmark reported book value per share of $14.25 as of June 30, 2016, an increase of 5% over June 30, 2015.  Total cash and investments increased $18.1 million during the first six months of 2016 to $719.9 million, an increase of 5% per share to $38.56 per share.  Our cash balances (including restricted cash) totaled $101.2 million as of June 30, 2016."

Second Quarter 
  2016   2015  % Change
 ($ in thousands, unaudited)
Gross premiums written    144,037     133,508   8%
Net premiums written    95,243     94,305   1%
Net premiums earned    87,698     88,476   -1%
Investment income, net of expenses   3,994     3,711   8%
Gain on investments   410     4,992   -92%
Other-than-temporary impairments   (2,587)    (1,553)  67%
Total revenues    91,052     97,197   -6%
Net income   1,066     6,376   -83%
Net income per share - basic$  0.06  $  0.33   -82%
Net income per share - diluted$  0.06  $  0.33   -82%
Book value per share$  14.25  $  13.63   5%
Cash flow from operations 3,645   29,169   -88%


Year to Date 
  2016   2015  % Change
 ($ in thousands, unaudited)
Gross premiums written    272,484     258,567   5%
Net premiums written    182,869     184,679   -1%
Net premiums earned    172,025     175,172   -2%
Investment income, net of expenses   7,873     6,556   20%
Gain on investments   484     5,853   -92%
Other-than-temporary impairments   (2,888)    (1,830)  58%
Total revenues    181,080     188,647   -4%
Net income   5,140     11,719   -56%
Net income per share - basic$  0.27  $  0.61   -56%
Net income per share - diluted$  0.27  $  0.60   -55%
Book value per share$  14.25  $  13.63   5%
Cash flow from operations 2,334   32,878   -93%
            

Second Quarter 2016 Commentary

Hallmark reported net income of $1.1 million and $5.1 million for the three and six months ended June 30, 2016 as compared to net income of $6.4 million and $11.7 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.06 per share and $0.27 per share for the three and six months ended June 30, 2016, as compared to net income of $0.33 per share and $0.60 per share for the same periods the prior year.

Hallmark's consolidated net loss ratio was 66.7% and 66.2% for the three and six months ended June 30, 2016, as compared to 67.5% and 66.1% for the same periods the prior year.  Hallmark's net expense ratio was 29.2% and 29.4% for the three and six months ended June 30, 2016 as compared to 28.6% and 28.4% for the same periods the prior year.  Hallmark's net combined ratio was 95.9% and 95.6% for the three and six months ended June 30, 2016 as compared to 96.1% and 94.5% for the same periods the prior year. 

During the three and six months ended June 30, 2016, total revenues were $91.1 million and $181.1 million, representing a decrease of 6% and 4%, respectively, from the $97.2 million and $188.6 million in total revenues for the same periods of 2015.  This decrease in revenue was primarily attributable to realized losses recognized on the investment portfolio during the three and six months ended June 30, 2016 as compared to realized gains recognized during the prior year periods and lower net premiums earned, partially offset by higher net investment income and higher commission and fee revenue. 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 the Specialty Commercial Segment during the fourth quarter of 2015 impacting year-to-date net earned premium, partially offset by increased retained premium under a renewed quota share reinsurance agreement effective October 1, 2014 in the Personal Segment.

The decrease in revenue for the three and six months ended June 30, 2016 was partially offset by lower loss and loss adjustment expenses ("LAE") of $1.2 million and $1.9 million, respectively, as compared to the same period in 2015.  The decrease in loss and LAE was primarily the result of lower current accident year non-catastrophe loss trends and favorable net prior year loss development in the Standard Commercial Segment, partially offset by higher current accident year catastrophe losses in the Standard Commercial Segment.  The Company recorded an aggregate of $8.3 million of net catastrophe losses during the six months ended June 30, 2016 as compared to net catastrophe losses of $3.7 million for the same period of 2015. The Company recorded favorable prior year loss reserve development of $2.8 million for the six months ended June 30, 2016 as compared to $1.5 million of favorable prior year development for the same period of 2015. Other operating expenses increased mostly as a result of a $1.8 million accrual to the earn-out related to the previous acquisition of TBIC and increased salary and related expenses, partially offset by lower production related expenses in the Specialty Commercial Segment.

During the six months ended June 30, 2016, Hallmark's cash flow provided by operations was $2.3 million compared to cash flow provided by operations of $32.9 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.

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets    
($ in thousands, except par value) Jun. 30 Dec. 31
ASSETS  2016   2015 
Investments: (unaudited) 
Debt securities, available-for-sale, at fair value (cost: $567,989 in 2016 and $538,629 in 2015)$ 569,271 $ 531,325 
Equity securities, available-for-sale, at fair value (cost: $30,249 in 2016 and $24,951 in 2015)  49,460   47,504 
Total investments  618,731   578,829 
Cash and cash equivalents  91,940   114,446 
Restricted cash  9,242   8,522 
Ceded unearned premiums  74,610   65,094 
Premiums receivable  97,059   83,376 
Accounts receivable  2,016   2,005 
Receivable for securities    1,394     10,424 
Reinsurance recoverable  124,865   114,287 
Deferred policy acquisition costs  20,624   20,366 
Goodwill  44,695   44,695 
Intangible assets, net  13,726   14,959 
Deferred federal income taxes, net  2,174   3,360 
Federal income tax recoverable  260   1,779 
Prepaid expenses  4,637   3,213 
Other assets  10,748   10,192 
Total Assets$ 1,116,721 $ 1,075,547 
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities:    
Revolving credit facility payable$   30,000  $   30,000 
Subordinated debt securities    55,675     55,649 
Reserves for unpaid losses and loss adjustment expenses  443,612   450,878 
Unearned premiums  236,767   216,407 
Reinsurance balances payable  45,055   33,741 
Pension liability  2,429   2,496 
Payable for securities    12,626     1,097 
Accounts payable and other accrued expenses  24,462   23,253 
Total Liabilities  850,626   813,521 
Commitments and contingencies    
Stockholders' equity:    
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2016 and 2015 3,757   3,757 
Additional paid-in capital  123,650   123,480 
Retained earnings  146,641   141,501 
Accumulated other comprehensive income  10,864   7,418 
Treasury stock (2,204,267 shares in 2016 and 1,775,512 shares in 2015), at cost  (18,817)  (14,130)
Total Stockholders' Equity  266,095   262,026 
Total Liabilities & Stockholders' Equity$ 1,116,721 $ 1,075,547 


Hallmark Financial Services, Inc. and Subsidiaries     
Consolidated Statements of OperationsThree Months Ended Six Months Ended
($ in thousands, except share amounts)June 30 June 30
 20162015 20162015
Gross premiums written$ 144,037 $ 133,508  $ 272,484 $ 258,567 
Ceded premiums written  (48,794)  (39,203)   (89,615)  (73,888)
Net premiums written  95,243   94,305    182,869   184,679 
Change in unearned premiums  (7,545)  (5,829)   (10,844)  (9,507)
Net premiums earned  87,698   88,476    172,025   175,172 
          
Investment income, net of expenses  3,994   3,711    7,873   6,556 
Net realized gains (losses)  (2,177)  3,439    (2,404)  4,023 
Finance charges  1,348   1,482    2,789   2,781 
Commission and fees  155   (110)   732   (101)
Other income  34   199    65   216 
Total revenues  91,052   97,197    181,080   188,647 
          
Losses and loss adjustment expenses  58,502   59,725    113,897   115,815 
Operating expenses  29,323   26,446    56,219   52,360 
Interest expense  1,123   1,134    2,254   2,274 
Amortization of intangible assets  617   617    1,234   1,234 
Total expenses  89,565   87,922    173,604   171,683 
          
Income before tax  1,487   9,275    7,476   16,964 
Income tax expense  421   2,899    2,336   5,245 
Net income$ 1,066 $ 6,376  $ 5,140 $ 11,719 
          
Net income per share:         
Basic$ 0.06 $ 0.33  $ 0.27 $ 0.61 
Diluted$ 0.06 $ 0.33  $ 0.27 $ 0.60 


 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data    
Three Months Ended Jun. 30(unaudited)        
 Specialty
Commercial
Segment
Standard
Commercial
Segment
Personal
Segment
CorporateConsolidated
($ in thousands) 2016  2015  2016  2015  2016  2015  2016  2015  2016  2015 
Gross premiums written$  103,717 $  89,891 $  21,024 $  22,176 $  19,296 $  21,441 $  -  $  -  $  144,037 $  133,508 
Ceded premiums written (37,538) (27,509) (2,210) (2,073) (9,046) (9,621)   -     -   (48,794) (39,203)
Net premiums written 66,179  62,382  18,814  20,103  10,250  11,820    -     -   95,243  94,305 
Change in unearned premiums (6,410) (3,019) (1,473) (1,029) 338  (1,781)   -     -   (7,545) (5,829)
Net premiums earned 59,769  59,363  17,341  19,074  10,588  10,039    -     -   87,698  88,476 
           
Total revenues 63,040  62,418  18,219  20,083  12,147  11,727  (2,354) 2,969  91,052  97,197 
           
Losses and loss adjustment expenses 39,518  39,649  9,369  11,380  9,615  8,696    -     -   58,502  59,725 
           
Pre-tax income (loss) 7,287  7,727  3,011  2,468  (1,014) (76) (7,797) (844) 1,487  9,275 
           
Net loss ratio (1) 66.1% 66.8% 54.0% 59.7% 90.8% 86.6%   66.7% 67.5%
Net expense ratio (1) 26.2% 25.5% 34.0% 33.6% 23.7% 21.8%   29.2% 28.6%
Net combined ratio (1) 92.3% 92.3% 88.0% 93.3% 114.5% 108.4%   95.9% 96.1%
           
Favorable (Unfavorable) Prior Year Development   (753)   (407)   3,316    1,536    (1,523)   (714)   -     -     1,040    415 
                               
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 Jun. 30(unaudited)        
 Specialty
Commercial
Segment
Standard
Commercial
Segment
Personal
Segment
CorporateConsolidated
($ in thousands) 2016  2015  2016  2015  2016  2015  2016  2015  2016  2015 
Gross premiums written$  191,117 $  171,657 $  41,122 $  44,485 $  40,245 $  42,425 $  -  $  -  $  272,484 $  258,567 
Ceded premiums written (66,201) (50,599) (4,562) (4,033) (18,852) (19,256)   -     -   (89,615) (73,888)
Net premiums written 124,916  121,058  36,560  40,452  21,393  23,169    -     -   182,869  184,679 
Change in unearned premiums (7,894) (1,808) (2,569) (1,814) (381) (5,885)   -     -   (10,844) (9,507)
Net premiums earned 117,022  119,250  33,991  38,638  21,012  17,284    -     -   172,025  175,172 
           
Total revenues 123,623  124,675  36,211  40,464  24,237  20,380  (2,991) 3,128  181,080  188,647 
           
Losses and loss adjustment expenses 73,931  76,982  20,438  23,850  19,528  14,983    -     -   113,897  115,815 
           
Pre-tax income (loss) 17,599  17,448  4,427  4,354  (2,097) (372) (12,453) (4,466) 7,476  16,964 
           
Net loss ratio (1) 63.2% 64.6% 60.1% 61.7% 92.9% 86.7%   66.2% 66.1%
Net expense ratio (1) 27.0% 25.5% 34.1% 32.7% 21.4% 21.5%   29.4% 28.4%
Net combined ratio (1) 90.2% 90.1% 94.2% 94.4% 114.3% 108.2%   95.6% 94.5%
           
Favorable (Unfavorable) Prior Year Development   1,594    (196)   3,674    2,898    (2,511)   (1,226)   -     -     2,757    1,476 
 
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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