FORT WORTH, Texas, Nov. 07, 2016 (GLOBE NEWSWIRE) -- 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 $43.1 million during the same period the prior year. The decrease in operating cash flow was primarily due to increased paid losses, including timing of reinsurance claim settlements, partially offset by increased net collected premiums, lower taxes paid, lower net paid operating expenses and higher collected net investment income.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is a diversified specialty property/casualty insurer with offices in Dallas-Fort Worth, San Antonio, Chicago, Los Angeles and Atlanta. Hallmark markets, underwrites and services approximately half a billion dollars annually in commercial and personal insurance premiums in select markets. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ 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.