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 Operations | Three Months Ended | Six Months Ended | |||||||||||||||
| ($ in thousands, except share amounts) | June 30 | June 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| 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 | Corporate | Consolidated | ||||||||||||||||||||||||||
| ($ 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 | Corporate | Consolidated | ||||||||||||||||||||||||||
| ($ 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. | ||||||||||||||||||||||||||||||