Exhibit 99.1

 

 

 

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK FINANCIAL SERVICES, INC.

ANNOUNCES THIRD QUARTER 2016 EARNINGS RESULTS

 

 

FORT WORTH, Texas, (November 7, 2016) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today announced earnings for its third fiscal quarter ended September 30, 2016, including the following highlights:

 

·

3rd quarter net income of $5.0 million, or $0.27 per diluted share

·

3rd quarter catastrophe losses of $2.2 million, or $0.08 per diluted share net of tax

·

3rd quarter net combined ratio of 96.6%, including 2.4% attributable to catastrophe losses

·

3rd quarter gross premiums written up 11% compared to prior year

·

3rd quarter operating cash flow up 127% compared to prior year

·

3rd quarter ending book value per share of $14.53, up 7% compared to September 30, 2015

 

“Our Specialty Commercial Segment and Standard Commercial Segment continued to perform well both in the quarter and on a year to date basis. Our investments in additional underwriting talent and new products in the Specialty Commercial Segment are beginning to deliver as expected. We continue to find opportunities for profitable growth. As a result, the Specialty Commercial Segment now represents over 70% of our portfolio,” said Naveen Anand, President and Chief Executive Officer.

 

“Auto results in our Personal Segment continue to face challenging headwinds. We will continue to address these challenges by increasing rates, culling unprofitable sectors of this business and implementing changes in our claims processes to improve performance,” concluded Mr. Anand.

 

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Hallmark reported book value per share of $14.53 as of September 30, 2016, an increase of 7% over September 30, 2015. Total cash and investments increased $28.9 million during the first nine months of 2016 to $730.7 million, an increase of 7% per share to $39.19 per share. Our cash balances (including restricted cash) totaled $81.1 million as of September 30, 2016.”

 

 

 

 

Third Quarter
		2016				2015				% Change
		($ in thousands, unaudited)
Gross premiums written			147,065				132,141				11	%
Net premiums written			95,685				89,924				6	%
Net premiums earned			90,795				88,406				3	%
Investment income, net of expenses			4,070				3,495				16	%
Gain on investments			1,105				28				3846	%
Other-than-temporary impairments			-				(363	)			-100	%
Total revenues			97,618				93,684				4	%
Net income			5,048				6,698				-25	%
Net income per share - basic		$	0.27			$	0.35				-23	%
Net income per share - diluted		$	0.27			$	0.35				-23	%
Book value per share		$	14.53			$	13.62				7	%
Cash flow from operations			23,198				10,223				127	%

 

Year to Date
		2016				2015				% Change
		($ in thousands, unaudited)
Gross premiums written			419,549				390,708				7	%
Net premiums written			278,554				274,603				1	%
Net premiums earned			262,820				263,578				0	%
Investment income, net of expenses			11,943				10,051				19	%
Gain on investments			1,589				5,881				-73	%
Other-than-temporary impairments			(2,888	)			(2,193	)			32	%
Total revenues			278,698				282,331				-1	%
Net income			10,188				18,417				-45	%
Net income per share - basic		$	0.54			$	0.96				-44	%
Net income per share - diluted		$	0.54			$	0.95				-43	%
Book value per share		$	14.53			$	13.62				7	%
Cash flow from operations			25,532				43,101				-41	%

 

Third Quarter 2016 Commentary

 

Hallmark reported net income of $5.0 million and $10.2 million for the three and nine months ended September 30, 2016 as compared to net income of $6.7 million and $18.4 million for the same periods the prior year. On a diluted basis per share, the Company reported net income of $0.27 per share and $0.54 per share for the three and nine months ended September 30, 2016, as compared to net income of $0.35 per share and $0.95 per share for the same periods the prior year.

 

Hallmark's consolidated net loss ratio was 68.7% and 67.1% for the three and nine months ended September 30, 2016, as compared to 63.3% and 65.2% for the same periods the prior year. Hallmark's net expense ratio was 27.9% and 28.9% for the three and nine months ended September 30, 2016 as compared to 27.7% and 28.2% for the same periods the prior year. Hallmark’s net combined ratio was 96.6% and 96.0% for the three and nine months ended September 30, 2016 as compared to 91.0% and 93.4% for the same periods the prior year.

 

 

 

 

During the three and nine months ended September 30, 2016, Hallmark’s total revenues were $97.6 million and $278.7 million, representing an increase of 4% and a decrease of 1%, respectively, from the $93.7 million and $282.3 million in total revenues for the same periods of 2015. During the three and nine months ended September 30, 2016, Hallmark’s income before tax was $7.2 million and $14.7 million, representing a decrease of $2.6 million and $12.1 million from the $9.8 million and $26.8 million reported during the same periods the prior year.

 

The increase in revenue for the three months ended September 30, 2016 was primarily attributable to realized gains recognized on the investment portfolio during the current quarter as compared to realized losses recognized during the same period the prior year. Also contributing to the increase in revenue were higher net premiums earned, higher net investment income and higher commission and fee revenue partially offset by lower finance charge revenue and lower other income. The higher net premiums earned were driven by higher net premiums written in the Specialty Commercial Segment and Personal Segment.

 

The decrease in income before tax for the three months ended September 30, 2016 was due primarily to increased loss and loss adjustment expenses (“LAE”) of $6.3 million and higher interest expense of $0.4 million partially offset by the increase in revenue discussed above and lower other operating expenses of $0.1 million. The increase in loss and LAE was primarily the result of unfavorable net prior year loss reserve development in the Specialty Commercial Segment and Personal Segment, as well as higher current accident year loss trends in the Personal Segment and Standard Commercial Segment that was partially offset by higher favorable net prior year loss reserve development in the Standard Commercial Segment. The increase in interest expense was due to interest on a new revolving credit facility (“Facility B”) entered into during the fourth quarter of 2015.

 

The decrease in revenue during the nine months ended September 30, 2016 was primarily attributable to realized losses recognized on the investment portfolio during the current period as compared to realized gains recognized during the same period the prior year. Also contributing to the lower revenue was lower net premiums earned, finance charges and other income, partially offset by higher net investment income and higher commission and fee revenue. The decrease in net premiums earned was primarily attributable to the adverse impact on the Standard Commercial Segment of ceding substantially all unearned workers’ compensation premiums effective July 1, 2015, partially offset by the favorable impact of increased retention under a quota share reinsurance agreement in the Personal Segment effective October 1, 2014.

 

The decrease in income before tax for the nine months ended September 30, 2016 was due primarily to increased loss and LAE of $4.4 million, increased other operating expense of $3.7 million, decreased revenue discussed above and increased interest expense of $0.4 million. The increase in loss and LAE was primarily the result of an increase in retained losses in the Personal Segment under the quota share reinsurance agreement and higher current accident year loss trends. Hallmark incurred an aggregate of $10.4 million of net catastrophe losses during the nine months ended September 30, 2016 as compared to $5.3 million for the same period the prior year. The Company incurred net favorable loss reserve development of $0.8 million for the nine months ended September 30, 2016 as compared to $4.6 million of favorable loss reserve development for the same period in the prior year. Other operating expenses increased during the nine months ended September 30, 2016 primarily as the result of increased salary and related expenses in the Specialty Commercial Segment and a $1.8 million payment to settle the earn-out related to the previous acquisition of the subsidiaries comprising the Workers Compensation operating unit accrued during the second quarter of 2016, partially offset by lower production related expenses predominately in the Specialty Commercial Segment. The increase in interest expense was due to interest on Facility B.

 

During the nine months ended September 30, 2016, Hallmark’s cash flow provided by operations was $25.5 million compared to cash flow provided by operations of $43.1 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 increased net collected premiums, lower taxes paid, lower net paid operating expenses and higher collected net investment income.

 

 

 

 

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)		Sept. 30				Dec. 31
ASSETS		2016				2015
Investments:		(unaudited)
Debt securities, available-for-sale, at fair value (cost: $597,890 in 2016 and $538,629 in 2015)		$	600,791			$	531,325
Equity securities, available-for-sale, at fair value (cost: $30,309 in 2016 and $24,951 in 2015)			48,836				47,504
Total investments			649,627				578,829
Cash and cash equivalents			69,921				114,446
Restricted cash			11,156				8,522
Ceded unearned premiums			81,256				65,094
Premiums receivable			95,497				83,376
Accounts receivable			2,133				2,005
Receivable for securities			685				10,424
Reinsurance recoverable			133,479				114,287
Deferred policy acquisition costs			20,701				20,366
Goodwill			44,695				44,695
Intangible assets, net			13,108				14,959
Deferred federal income taxes, net			972				3,360
Federal income tax recoverable			-				1,779
Prepaid expenses			1,948				3,213
Other assets			13,905				10,192
Total Assets		$	1,139,083			$	1,075,547
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Revolving credit facility payable		$	30,000			$	30,000
Subordinated debt securities (less unamortized debt issuance cost of $1,014 in 2016 and $1,053 in 2015)			55,688				55,649
Reserves for unpaid losses and loss adjustment expenses			455,000				450,878
Unearned premiums			248,304				216,407
Reinsurance balances payable			49,803				33,741
Pension liability			1,987				2,496
Payable for securities			3,955				1,097
Federal income tax payable			1,001				-
Accounts payable and other accrued expenses			22,407				23,253
Total Liabilities			868,145				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			123,263				123,480
Retained earnings			151,689				141,501
Accumulated other comprehensive income			11,489				7,418
Treasury stock (2,229,441 shares in 2016 and 1,775,512 shares in 2015), at cost			(19,260	)			(14,130	)
Total Stockholders’ Equity			270,938				262,026
Total Liabilities & Stockholders' Equity		$	1,139,083			$	1,075,547

 

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations		Three Months Ended								Nine Months Ended
($ in thousands, except share amounts)		September 30								September 30
		2016				2015				2016				2015
Gross premiums written		$	147,065			$	132,141			$	419,549			$	390,708
Ceded premiums written			(51,380	)			(42,217	)			(140,995	)			(116,105	)
Net premiums written			95,685				89,924				278,554				274,603
Change in unearned premiums			(4,890	)			(1,518	)			(15,734	)			(11,025	)
Net premiums earned			90,795				88,406				262,820				263,578
Investment income, net of expenses			4,070				3,495				11,943				10,051
Net realized gains (losses)			1,105				(335	)			(1,299	)			3,688
Finance charges			1,036				1,619				3,825				4,400
Commission and fees			546				60				1,278				(41	)
Other income			66				439				131				655
Total revenues			97,618				93,684				278,698				282,331
Losses and loss adjustment expenses			62,337				56,005				176,234				171,820
Operating expenses			26,344				26,458				82,563				78,818
Interest expense			1,144				769				3,398				3,043
Amortization of intangible assets			617				617				1,851				1,851
Total expenses			90,442				83,849				264,046				255,532
Income before tax			7,176				9,835				14,652				26,799
Income tax expense			2,128				3,137				4,464				8,382
Net income		$	5,048			$	6,698			$	10,188			$	18,417
Net income per share:
Basic		$	0.27			$	0.35			$	0.54			$	0.96
Diluted		$	0.27			$	0.35			$	0.54			$	0.95

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Sept. 30		(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		$	104,087			$	91,446			$	18,579			$	19,225			$	24,399			$	21,470			$	-			$	-			$	147,065			$	132,141
Ceded premiums written			(38,064	)			(28,205	)			(1,925	)			(4,145	)			(11,391	)			(9,867	)			-				-				(51,380	)			(42,217	)
Net premiums written			66,023				63,241				16,654				15,080				13,008				11,603				-				-				95,685				89,924
Change in unearned premiums			(3,661	)			(2,909	)			258				2,087				(1,487	)			(696	)			-				-				(4,890	)			(1,518	)
Net premiums earned			62,362				60,332				16,912				17,167				11,521				10,907				-				-				90,795				88,406
Total revenues			65,855				63,395				18,253				18,477				12,759				12,716				751				(904	)			97,618				93,684
Losses and loss adjustment expenses			41,478				36,186				9,622				10,088				11,237				9,731				-				-				62,337				56,005
Pre-tax income (loss)			8,245				11,291				3,195				2,893				(1,750	)			(224	)			(2,514	)			(4,125	)			7,176				9,835
Net loss ratio (1)			66.5	%			60.0	%			56.9	%			58.8	%			97.5	%			89.2	%											68.7	%			63.3	%
Net expense ratio (1)			25.3	%			26.1	%			32.3	%			32.2	%			21.9	%			16.1	%											27.9	%			27.7	%
Net combined ratio (1)			91.8	%			86.1	%			89.2	%			91.0	%			119.4	%			105.3	%											96.6	%			91.0	%
Favorable (Unfavorable) Prior Year Development			(3,532	)			2,048				2,696				1,821				(1,138	)			(783	)			-				-				(1,974	)			3,086

 

 

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)
		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		$	295,204			$	263,103			$	59,701			$	63,710			$	64,644			$	63,895			$	-			$	-			$	419,549			$	390,708
Ceded premiums written			(104,265	)			(78,804	)			(6,487	)			(8,178	)			(30,243	)			(29,123	)			-				-				(140,995	)			(116,105	)
Net premiums written			190,939				184,299				53,214				55,532				34,401				34,772				-				-				278,554				274,603
Change in unearned premiums			(11,555	)			(4,717	)			(2,311	)			273				(1,868	)			(6,581	)			-				-				(15,734	)			(11,025	)
Net premiums earned			179,384				179,582				50,903				55,805				32,533				28,191				-				-				262,820				263,578
Total revenues			189,478				188,070				54,464				58,941				36,996				33,096				(2,240	)			2,224				278,698				282,331
Losses and loss adjustment expenses			115,409				113,168				30,060				33,938				30,765				24,714				-				-				176,234				171,820
Pre-tax income (loss)			25,843				28,739				7,623				7,247				(3,847	)			(596	)			(14,967	)			(8,591	)			14,652				26,799
Net loss ratio (1)			64.3	%			63.0	%			59.1	%			60.8	%			94.6	%			87.7	%											67.1	%			65.2	%
Net expense ratio (1)			26.4	%			25.7	%			33.5	%			32.6	%			21.6	%			19.4	%											28.9	%			28.2	%
Net combined ratio (1)			90.7	%			88.7	%			92.6	%			93.4	%			116.2	%			107.1	%											96.0	%			93.4	%
Favorable (Unfavorable) Prior Year Development			(1,938	)			1,852				6,370				4,719				(3,649	)			(2,009	)			-				-				783				4,562

 

 

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.