Attached files
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| 8-K - FORM 8-K - HALLMARK FINANCIAL SERVICES INC | v423911_8-k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES THIRD QUARTER 2015 EARNINGS RESULTS
FORT WORTH, Texas, (November 5, 2015) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported third quarter 2015 net income of $6.7 million, or $0.35 per diluted share, compared to net income of $3.5 million, or $0.18 per diluted share, reported for third quarter 2014. Year to date, Hallmark reported net income of $18.4 million, or $0.95 per diluted share, compared to $9.7 million, or $0.50 per diluted share, reported for the same period the prior year. Total revenues were $93.7 million for the third quarter of 2015 as compared to $81.4 million for the third quarter of 2014. Year to date total revenues for 2015 were $282.3 million as compared to $249.4 million reported for the same period the prior year.
“We’re building momentum and are effectively executing on our specialty lines focused underwriting and product strategies. The results for this quarter and year to date reflect the significant work that has taken place across our entire organization to position Hallmark for sustained success,” said Naveen Anand, President and Chief Executive Officer. “We continue to push for and achieve higher rates in all of our segments, however the rate increase trend continues to weaken. I expect we will see further improvement in our Personal Lines business in the near term as we continue to improve underwriting in the current accident year and cull less performing sectors in this portfolio.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.62 as of September 30, 2015, an increase of 5% over the same date of the prior year. Total cash and investments have increased 6% year over year to $679.0 million, or $35.47 per share. Cash flow from operations was $43.1 million for the year-to-date and our cash balances (including restricted cash) totaled $111.6 million as of September 30, 2015.”
| Third Quarter | ||||||||||||
| 2015 | 2014 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 132,141 | 122,723 | 8 | % | ||||||||
| Net premiums written | 89,924 | 84,025 | 7 | % | ||||||||
| Net premiums earned | 88,406 | 77,147 | 15 | % | ||||||||
| Investment income, net of expenses | 3,495 | 2,912 | 20 | % | ||||||||
| Net realized losses | (335 | ) | (23 | ) | nm | |||||||
| Total revenues | 93,684 | 81,417 | 15 | % | ||||||||
| Net income | 6,698 | 3,463 | 93 | % | ||||||||
| Net income per share - basic | $ | 0.35 | $ | 0.18 | 94 | % | ||||||
| Net income per share - diluted | $ | 0.35 | $ | 0.18 | 94 | % | ||||||
| Book value per share | $ | 13.62 | $ | 12.96 | 5 | % | ||||||
| Cash flow from operations | 10,223 | 2,129 | 380 | % | ||||||||
| Year-to-Date | ||||||||||||
| 2015 | 2014 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 390,708 | 363,245 | 8 | % | ||||||||
| Net premiums written | 274,603 | 240,649 | 14 | % | ||||||||
| Net premiums earned | 263,578 | 237,770 | 11 | % | ||||||||
| Investment income, net of expenses | 10,051 | 9,139 | 10 | % | ||||||||
| Net realized gains (losses) | 3,688 | (122 | ) | nm | ||||||||
| Total revenues | 282,331 | 249,362 | 13 | % | ||||||||
| Net income | 18,417 | 9,662 | 91 | % | ||||||||
| Net income per share - basic | $ | 0.96 | $ | 0.50 | 92 | % | ||||||
| Net income per share - diluted | $ | 0.95 | $ | 0.50 | 90 | % | ||||||
| Book value per share | $ | 13.62 | $ | 12.96 | 5 | % | ||||||
| Cash flow from operations | 43,101 | 21,710 | 99 | % | ||||||||
Third Quarter 2015 Commentary
Hallmark reported net income of $6.7 million and $18.4 million for the three and nine months ended September 30, 2015 as compared to net income of $3.5 million and $9.7 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.35 per share and $0.95 per share for the three and nine months ended September 30, 2015, as compared to net income of $0.18 per share and $0.50 per share for the same periods the prior year.
Hallmark's consolidated net loss ratio was 63.3% and 65.2% for the three and nine months ended September 30, 2015, as compared to 65.5% and 65.5% for the same periods the prior year. Hallmark's net expense ratio was 27.7% and 28.2% for the three and nine months ended September 30, 2015 as compared to 30.7% and 30.4% for the same periods the prior year. Hallmark’s net combined ratio was 91.0% and 93.4% for the three and nine months ended September 30, 2015 as compared to 96.2% and 95.9% for the same periods the prior year.
During the three and nine months ended September 30, 2015, Hallmark’s total revenues were $93.7 million and $282.3 million, representing an increase of 15% and 13%, respectively, from the $81.4 million and $249.4 million in total revenues for the same periods of 2014. This increase in revenue was primarily attributable to higher net earned premiums, higher realized gains recognized on the investment portfolio during the nine months ended September 30, 2015, lower adverse profit share commission revenue adjustments in the Standard Commercial Segment and higher net investment income. 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 and nine months ended September 30, 2015 was partially offset by increased loss and loss adjustment expenses of $5.5 million and $16.0 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 Segment under the renewed quota share reinsurance agreement and higher current accident year loss trends in the Specialty Commercial Segment. During the nine months ended September 30, 2015 and 2014, the Company recorded favorable prior year net loss reserve development of $4.6 million and $5.4 million, respectively. Also partially offsetting the increased revenue was increased other operating expenses due mostly to higher production related expenses in the Personal Segment due to the impact of the change in terms of the renewed quota share reinsurance agreement and increased salary and related expenses in the Specialty Commercial and Corporate Segments.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except par value) | Sept. 30 | Dec. 31 | ||||||
| ASSETS | 2015 | 2014 | ||||||
| Investments: | (unaudited) | |||||||
| Debt securities, available-for-sale, at fair value (cost: $524,908 in 2015 and $450,770 in 2014) | $ | 519,163 | $ | 450,785 | ||||
| Equity securities, available-for-sale, at fair value (cost: $24,957 in 2015 and $25,360 in 2014) | 48,229 | 56,444 | ||||||
| Total investments | 567,392 | 507,229 | ||||||
| Cash and cash equivalents | 93,049 | 130,985 | ||||||
| Restricted cash | 18,525 | 11,914 | ||||||
| Ceded unearned premiums | 64,115 | 53,376 | ||||||
| Premiums receivable | 86,877 | 71,003 | ||||||
| Accounts receivable | 2,241 | 3,141 | ||||||
| Receivable for securities | 2,354 | 932 | ||||||
| Reinsurance recoverable | 116,342 | 109,719 | ||||||
| Deferred policy acquisition costs | 21,110 | 20,746 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 15,576 | 17,427 | ||||||
| Deferred federal income taxes, net | 2,832 | - | ||||||
| Prepaid expenses | 2,920 | 1,823 | ||||||
| Other assets | 10,632 | 7,879 | ||||||
| Total Assets | $ | 1,048,660 | $ | 980,869 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Subordinated debt securities | $ | 56,702 | $ | 56,702 | ||||
| Reserves for unpaid losses and loss adjustment expenses | 451,383 | 415,135 | ||||||
| Unearned premiums | 218,590 | 196,826 | ||||||
| Reinsurance balances payable | 32,832 | 26,403 | ||||||
| Pension liability | 2,481 | 2,619 | ||||||
| Payable for securities | 4,269 | 1,321 | ||||||
| Federal income tax payable | 522 | 968 | ||||||
| Deferred federal income taxes, net | - | 3,092 | ||||||
| Accounts payable and other accrued expenses | 21,089 | 25,766 | ||||||
| Total Liabilities | 787,868 | 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 | 123,606 | 123,194 | ||||||
| Retained earnings | 138,055 | 119,638 | ||||||
| Accumulated other comprehensive income | 8,921 | 17,801 | ||||||
| Treasury stock (1,728,537 shares in 2015 and 1,655,306 shares in 2014), at cost | (13,547 | ) | (12,353 | ) | ||||
| Total Stockholders’ Equity | 260,792 | 252,037 | ||||||
| Total Liabilities & Stockholders' Equity | $ | 1,048,660 | $ | 980,869 | ||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||
| Consolidated Statements of Operations | Three Months Ended | Nine Months Ended | ||||||||||||||
| ($ in thousands, except share amounts; unaudited) | September 30 | September 30 | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Gross premiums written | $ | 132,141 | $ | 122,723 | $ | 390,708 | $ | 363,245 | ||||||||
| Ceded premiums written | (42,217 | ) | (38,698 | ) | (116,105 | ) | (122,596 | ) | ||||||||
| Net premiums written | 89,924 | 84,025 | 274,603 | 240,649 | ||||||||||||
| Change in unearned premiums | (1,518 | ) | (6,878 | ) | (11,025 | ) | (2,879 | ) | ||||||||
| Net premiums earned | 88,406 | 77,147 | 263,578 | 237,770 | ||||||||||||
| Investment income, net of expenses | 3,495 | 2,912 | 10,051 | 9,139 | ||||||||||||
| Net realized gains (losses) | (335 | ) | (23 | ) | 3,688 | (122 | ) | |||||||||
| Finance charges | 1,619 | 1,300 | 4,400 | 4,067 | ||||||||||||
| Commission and fees | 60 | 71 | (41 | ) | (1,528 | ) | ||||||||||
| Other income | 439 | 10 | 655 | 36 | ||||||||||||
| Total revenues | 93,684 | 81,417 | 282,331 | 249,362 | ||||||||||||
| Losses and loss adjustment expenses | 56,005 | 50,509 | 171,820 | 155,781 | ||||||||||||
| Operating expenses | 26,458 | 24,409 | 78,818 | 75,055 | ||||||||||||
| Interest expense | 769 | 1,140 | 3,043 | 3,435 | ||||||||||||
| Amortization of intangible assets | 617 | 631 | 1,851 | 1,909 | ||||||||||||
| Total expenses | 83,849 | 76,689 | 255,532 | 236,180 | ||||||||||||
| Income before tax | 9,835 | 4,728 | 26,799 | 13,182 | ||||||||||||
| Income tax expense | 3,137 | 1,265 | 8,382 | 3,520 | ||||||||||||
| Net income | $ | 6,698 | $ | 3,463 | $ | 18,417 | $ | 9,662 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 0.35 | $ | 0.18 | $ | 0.96 | $ | 0.50 | ||||||||
| Diluted | $ | 0.35 | $ | 0.18 | $ | 0.95 | $ | 0.50 | ||||||||
| Hallmark Financial Services, Inc. and Subsidiaries |
| Consolidated Segment Data |
| Three Months Ended Sept. 30 (unaudited) |
| Standard Commercial Segment | Specialty Commercial Segment | Personal Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 19,225 | $ | 20,850 | $ | 91,446 | $ | 87,886 | $ | 21,470 | $ | 13,987 | $ | - | $ | - | $ | 132,141 | $ | 122,723 | ||||||||||||||||||||
| Ceded premiums written | (4,145 | ) | (1,639 | ) | (28,205 | ) | (25,534 | ) | (9,867 | ) | (11,525 | ) | - | - | (42,217 | ) | (38,698 | ) | ||||||||||||||||||||||
| Net premiums written | 15,080 | 19,211 | 63,241 | 62,352 | 11,603 | 2,462 | - | - | 89,924 | 84,025 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 2,087 | 614 | (2,909 | ) | (7,736 | ) | (696 | ) | 244 | - | - | (1,518 | ) | (6,878 | ) | |||||||||||||||||||||||||
| Net premiums earned | 17,167 | 19,825 | 60,332 | 54,616 | 10,907 | 2,706 | - | - | 88,406 | 77,147 | ||||||||||||||||||||||||||||||
| Total revenues | 18,477 | 20,985 | 63,395 | 57,983 | 12,716 | 4,225 | (904 | ) | (1,776 | ) | 93,684 | 81,417 | ||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 10,088 | 12,545 | 36,186 | 36,844 | 9,731 | 1,120 | - | - | 56,005 | 50,509 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 2,893 | 2,244 | 11,291 | 7,653 | (224 | ) | 662 | (4,125 | ) | (5,831 | ) | 9,835 | 4,728 | |||||||||||||||||||||||||||
| Net loss ratio (1) | 58.8 | % | 63.3 | % | 60.0 | % | 67.5 | % | 89.2 | % | 41.4 | % | 63.3 | % | 65.5 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.2 | % | 32.1 | % | 26.1 | % | 25.7 | % | 16.1 | % | 57.9 | % | 27.7 | % | 30.7 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 91.0 | % | 95.4 | % | 86.1 | % | 93.2 | % | 105.3 | % | 99.3 | % | 91.0 | % | 96.2 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 1,821 | (288 | ) | 2,048 | (2,369 | ) | (783 | ) | 1,205 | - | - | 3,086 | (1,452 | ) | ||||||||||||||||||||||||||
| 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 |
| Nine Months Ended Sept. 30 (unaudited) |
| Standard
Commercial Segment | Specialty
Commercial Segment | Personal
Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||||||||
| Gross premiums written | $ | 63,710 | $ | 64,477 | $ | 263,103 | $ | 248,615 | $ | 63,895 | $ | 50,153 | $ | - | $ | - | $ | 390,708 | $ | 363,245 | ||||||||||||||||||||
| Ceded premiums written | (8,178 | ) | (5,870 | ) | (78,804 | ) | (75,260 | ) | (29,123 | ) | (41,466 | ) | - | - | (116,105 | ) | (122,596 | ) | ||||||||||||||||||||||
| Net premiums written | 55,532 | 58,607 | 184,299 | 173,355 | 34,772 | 8,687 | - | - | 274,603 | 240,649 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | 273 | 56 | (4,717 | ) | (4,066 | ) | (6,581 | ) | 1,131 | - | - | (11,025 | ) | (2,879 | ) | |||||||||||||||||||||||||
| Net premiums earned | 55,805 | 58,663 | 179,582 | 169,289 | 28,191 | 9,818 | - | - | 263,578 | 237,770 | ||||||||||||||||||||||||||||||
| Total revenues | 58,941 | 60,667 | 188,070 | 179,167 | 33,096 | 14,699 | 2,224 | (5,171 | ) | 282,331 | 249,362 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 33,938 | 41,497 | 113,168 | 109,027 | 24,714 | 5,257 | - | - | 171,820 | 155,781 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 7,247 | 318 | 28,739 | 27,042 | (596 | ) | 1,916 | (8,591 | ) | (16,094 | ) | 26,799 | 13,182 | |||||||||||||||||||||||||||
| Net loss ratio (1) | 60.8 | % | 70.7 | % | 63.0 | % | 64.4 | % | 87.7 | % | 53.5 | % | 65.2 | % | 65.5 | % | ||||||||||||||||||||||||
| Net expense ratio (1) | 32.6 | % | 32.6 | % | 25.7 | % | 25.8 | % | 19.4 | % | 44.9 | % | 28.2 | % | 30.4 | % | ||||||||||||||||||||||||
| Net combined ratio (1) | 93.4 | % | 103.3 | % | 88.7 | % | 90.2 | % | 107.1 | % | 98.4 | % | 93.4 | % | 95.9 | % | ||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 4,719 | 4,847 | 1,852 | (2,600 | ) | (2,009 | ) | 3,112 | - | - | 4,562 | 5,359 | ||||||||||||||||||||||||||||
| 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. |