Attached files
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| 8-K - FORM 8-K - HALLMARK FINANCIAL SERVICES INC | v434034_8-k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES FOURTH QUARTER AND FISCAL 2015 EARNINGS RESULTS
FORT WORTH, Texas, (March 10, 2016) - 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 $5.2 million, respectively. Also partially offsetting the increased revenue was increased other operating expenses due mostly to higher production related expenses in the Personal Segment due to the impact of the change in terms of the quota share reinsurance agreement and increased salary and related expenses in the Specialty Commercial and Corporate Segments.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is a diversified specialty property/casualty insurer with offices in Dallas-Fort Worth, San Antonio, Chicago, Los Angeles and Atlanta. Hallmark markets, underwrites and services approximately half a billion dollars annually in commercial and personal insurance premiums in select markets. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except par value) | 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 Operations | Three Months Ended | Fiscal Year Ended | ||||||||||||||
| ($ in thousands, except share amounts) | December 31 | December 31 | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| 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
Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ 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
Segment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
| ($ 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. |