FORT WORTH, Texas, Aug. 07, 2017 (GLOBE NEWSWIRE) — Hallmark Financial Services, Inc. (NASDAQ:HALL) today announced results for its second fiscal quarter ended June 30, 2017, including the following highlights:
- 2nd quarter 2017 net loss of $3.4 million, or $0.18 per diluted share
- Year to date 2017 net income of $0.6 million, or $0.03 per diluted share
- Net combined ratio of 105.1% for 2nd quarter 2017 and 101.9% for year to date 2017
- 2nd quarter 2017 unfavorable prior year reserve development of $10.2 million versus $1.0 million favorable development for prior year
- 2nd quarter 2017 total revenues of $93.5 million, increased 3% over prior year
- Year to date 2017 total revenues of $190.4 million, increased 5% over prior year
“Overall, I’m disappointed in our results as our progress was over-shadowed by prior year loss development from older accident years. This prior year loss development added 11.2 points to the quarter and 5.4 points to the year to date net combined ratio results. Excluding the adverse prior year reserve development, the net combined ratios would have been 93.9% for the second quarter of 2017 and 96.5% for year to date 2017. Our strategy to develop into a diversified specialty insurer is taking hold and we are bringing our commercial and personal auto product lines in balance with the rest of the portfolio,” said Naveen Anand, President and Chief Executive Officer.
“The Specialty Commercial Segment now represents over 75% of our written premium and it is well positioned for sustained growth and profitability particularly as many of our specialty lines products continue to gain traction. Gross premiums written within the Specialty Commercial Segment increased by 23% for the quarter and 17% for year to date 2017 as we continue to optimize our product mix and overall portfolio. The unfavorable prior year reserve development – primarily from commercial auto – added 12.4 points in the quarter and 6.6 points for year to date 2017 to the net combined ratio for the Specialty Commercial Segment,” continued Mr. Anand.
“Results for the Standard Commercial Segment, were adversely impacted by run-off programs, but were nonetheless profitable for the first half of 2017. Losses from severe weather events were down considerably despite a sharp increase in the number of events in our territory. In our Personal Lines Segment, year to date gross premiums written decreased by 17%. We are seeing some improvement in this segment as our underwriting actions and improved claims management processes are beginning to have the expected positive impact,” concluded Mr. Anand.
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “We reported book value per share of $14.57 as of June 30, 2017, which is an increase of 2% during the first six months of 2017. Our total cash and investments increased by $8.8 million during the first six months of 2017 to $749.9 million, or $41.12 per share. Our balance sheet remains liquid with a very short duration in our investment portfolio and cash balances (including restricted cash) of $80.9 million as of June 30, 2017, ready to be deployed as we see opportunity.”
| Second Quarter | |||||||||||
| 2017 | 2016 | % Change | |||||||||
| ($ in thousands, unaudited) | |||||||||||
| Gross premiums written | 162,056 | 144,037 | 13 | % | |||||||
| Net premiums written | 100,894 | 95,243 | 6 | % | |||||||
| Net premiums earned | 90,707 | 87,698 | 3 | % | |||||||
| Investment income, net of expenses | 4,587 | 3,994 | 15 | % | |||||||
| Gain (loss) on investments (1) | (72 | ) | 410 | -118 | % | ||||||
| Other-than-temporary impairments | (3,407 | ) | (2,587 | ) | 32 | % | |||||
| Total revenues | 93,475 | 91,052 | 3 | % | |||||||
| Net (loss) income | (3,350 | ) | 1,066 | -414 | % | ||||||
| Net (loss) income per share – basic | $ | (0.18 | ) | $ | 0.06 | -400 | % | ||||
| Net (loss) income per share – diluted | $ | (0.18 | ) | $ | 0.06 | -400 | % | ||||
| Book value per share | $ | 14.57 | $ | 14.25 | 2 | % | |||||
| Cash flow from operations | 3,545 | 3,645 | -3 | % | |||||||
| Year-to-Date | |||||||||||
| 2017 | 2016 | % Change | |||||||||
| ($ in thousands, unaudited) | |||||||||||
| Gross premiums written | 297,168 | 272,484 | 9 | % | |||||||
| Net premiums written | 189,413 | 182,869 | 4 | % | |||||||
| Net premiums earned | 179,930 | 172,025 | 5 | % | |||||||
| Investment income, net of expenses | 9,066 | 7,873 | 15 | % | |||||||
| Gain on investments (1) | 1,988 | 484 | 311 | % | |||||||
| Other-than-temporary impairments | (3,407 | ) | (2,888 | ) | 18 | % | |||||
| Total revenues | 190,423 | 181,080 | 5 | % | |||||||
| Net income | 636 | 5,140 | -88 | % | |||||||
| Net income per share – basic | $ | 0.03 | $ | 0.27 | -89 | % | |||||
| Net income per share – diluted | $ | 0.03 | $ | 0.27 | -89 | % | |||||
| Book value per share | $ | 14.57 | $ | 14.25 | 2 | % | |||||
| Cash flow from operations | 12,384 | 2,334 | 431 | % | |||||||
| (1) includes change in unrealized gain (loss) on other investment recognized in earnings | |||||||||||
Second Quarter 2017 Commentary
Hallmark reported a net loss of $3.4 million for the three months ended June 30, 2017 and net income of $0.6 million for the six months ended June 30, 2017 as compared to net income of $1.1 million and $5.1 million for the same periods the prior year. On a diluted basis per share, the Company reported a net loss of $0.18 per share for the three months ended June 30, 2017 and net income of $0.03 per share for the six months ended June 30, 2017 as compared to net income of $0.06 per share and $0.27 per share for the same periods the prior year.
Hallmark’s consolidated net loss ratio was 77.9% and 73.7% for the three months and six months ended June 30, 2017, as compared to 66.7% and 66.2% for the same periods the prior year. Hallmark’s net expense ratio was 27.2% and 28.2% for the three months and six months ended June 30, 2017 as compared to 29.2% and 29.4% for the same periods the prior year. Hallmark’s net combined ratio was 105.1% and 101.9% for the three months and six months ended June 30, 2017, as compared to 95.9% and 95.6% for the same periods the prior year.
Hallmark’s discontinued workers’ compensation and occupational accident lines of business, previously written by the Standard Commercial Segment, adversely impacted the consolidated net combined ratio by 1.4 points and 1.3 points for the three months and six months ended June 30, 2017, compared to a favorable impact of 2.3 points and 0.9 points for the same periods the prior year. Similarly, these discontinued lines of business accounted for 7.5 points of the 107.3% net combined ratio and 6.8 points of the 104.4% net combined ratio of the Standard Commercial Segment for the three months and six months ended June 30, 2017, as compared to -12.0 points of the 88.0% net combined ratio and -5.0 points of the 94.2% net combined ratio of the Standard Commercial Segment for the same periods the prior year.
During the three months and six months ended June 30, 2017, Hallmark’s total revenues were $93.5 million and $190.4 million, representing an increase of 3% and 5%, from the $91.1 million and $181.1 million in total revenues for the same periods of 2016. During the three months and six months ended June 30, 2017, Hallmark’s income (loss) before tax was ($4.9) million and $0.9 million, as compared to $1.5 million and $7.5 million reported during the same periods the prior year.
The increase in revenue for the three months and six months ended June 30, 2017 was primarily attributable to higher net earned premiums in the Specialty Commercial Segment as well as higher net investment income. These increases in revenue were partially offset by higher realized losses recognized on our investment portfolio during the three months ended June 30, 2017 as compared to the prior year as well as lower finance charges during the three months and six months ended June 30, 2017 as compared to the same periods in 2016.
The increase in revenue for the three months and six months ended June 30, 2017 was offset by higher losses and loss adjustment expenses (“LAE”) of $12.2 million and $18.6 million, as compared to the same periods in 2016. The increase in losses and LAE was primarily the result of unfavorable net prior year loss reserve development of $10.2 million and $9.7 million for the three months and six months ended June 30, 2017 as compared to favorable net prior year loss reserve development of $1.0 million and $2.8 million for the same periods in 2016, as well as higher current accident year loss trends in the MGA Commercial Products operating unit. Other operating expenses decreased mostly as a result of a $1.8 million accrual to the earn-out related to a previous acquisition during the second quarter of 2016 and lower production related expenses due primarily to increased ceding commissions in the Specialty Commercial Segment, partially offset by increased salary and related expenses and professional service fees for the three months and six months ended June 30, 2017 as compared to the same periods of 2016.
During the six months ended June 30, 2017, Hallmark’s cash flow provided by operations was $12.4 million compared to cash flow provided by operations of $2.3 million during the same period the prior year. The increase in operating cash flow was primarily due to decreased paid losses (including timing of reinsurance claim settlements), higher collected net investment income, lower paid operating expenses, lower income taxes paid and higher collected ceding commissions partially offset by lower collected net premiums and lower collected finance charges.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is a diversified specialty property/casualty insurer with offices in Dallas-Fort Worth, San Antonio, Chicago, Los Angeles and Atlanta. Hallmark markets, underwrites and services over half a billion dollars annually in commercial and personal insurance premiums in select markets. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol “HALL.”
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | |||||||
| Consolidated Balance Sheets | |||||||
| ($ in thousands, except par value) | Jun. 30 | Dec. 31 | |||||
| ASSETS | 2017 | 2016 | |||||
| Investments: | (unaudited) | ||||||
| Debt securities, available-for-sale, at fair value (cost: $605,986 in 2017 and $597,784 in 2016) | $ | 608,074 | $ | 597,457 | |||
| Equity securities, available-for-sale, at fair value (cost: $33,220 in 2017 and $31,449 in 2016) | 56,477 | 51,711 | |||||
| Other investment (cost: $3,763 in 2017 and 2016) | 4,448 | 4,951 | |||||
| Total investments | 668,999 | 654,119 | |||||
| Cash and cash equivalents | 77,448 | 79,632 | |||||
| Restricted cash | 3,458 | 7,327 | |||||
| Ceded unearned premiums | 92,638 | 81,482 | |||||
| Premiums receivable | 107,806 | 89,715 | |||||
| Accounts receivable | 1,756 | 2,269 | |||||
| Receivable for securities | 1,620 | 3,047 | |||||
| Reinsurance recoverable | 164,434 | 147,821 | |||||
| Deferred policy acquisition costs | 19,335 | 19,193 | |||||
| Goodwill | 44,695 | 44,695 | |||||
| Intangible assets, net | 11,257 | 12,491 | |||||
| Deferred federal income taxes, net | 1,621 | 1,365 | |||||
| Federal income tax recoverable | 1,797 | 3,951 | |||||
| Prepaid expenses | 2,256 | 1,552 | |||||
| Other assets | 13,720 | 13,801 | |||||
| Total Assets | $ | 1,212,840 | $ | 1,162,460 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Liabilities: | |||||||
| Revolving credit facility payable | $ | 30,000 | $ | 30,000 | |||
| Subordinated debt securities (less unamortized debt issuance cost of $975 in 2017 and $1,001 in 2016) | 55,727 | 55,701 | |||||
| Reserves for unpaid losses and loss adjustment expenses | 505,358 | 481,567 | |||||
| Unearned premiums | 261,893 | 241,254 | |||||
| Reinsurance balances payable | 54,178 | 46,488 | |||||
| Pension liability | 2,100 | 2,203 | |||||
| Payable for securities | 13,257 | 14,215 | |||||
| Accounts payable and other accrued expenses | 24,627 | 25,296 | |||||
| Total Liabilities | 947,140 | 896,724 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2017 and 2016 | 3,757 | 3,757 | |||||
| Additional paid-in capital | 123,110 | 123,166 | |||||
| Retained earnings | 148,663 | 148,027 | |||||
| Accumulated other comprehensive income | 13,933 | 10,371 | |||||
| Treasury stock (2,637,434 shares in 2017 and 2,260,849 shares in 2016), at cost | (23,763 | ) | (19,585 | ) | |||
| Total Stockholders’ Equity | 265,700 | 265,736 | |||||
| Total Liabilities & Stockholders’ Equity | $ | 1,212,840 | $ | 1,162,460 | |||
| 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 | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Gross premiums written | $ | 162,056 | $ | 144,037 | $ | 297,168 | $ | 272,484 | |||||||
| Ceded premiums written | (61,162 | ) | (48,794 | ) | (107,755 | ) | (89,615 | ) | |||||||
| Net premiums written | 100,894 | 95,243 | 189,413 | 182,869 | |||||||||||
| Change in unearned premiums | (10,187 | ) | (7,545 | ) | (9,483 | ) | (10,844 | ) | |||||||
| Net premiums earned | 90,707 | 87,698 | 179,930 | 172,025 | |||||||||||
| Investment income, net of expenses | 4,587 | 3,994 | 9,066 | 7,873 | |||||||||||
| Net realized losses | (3,479 | ) | (2,177 | ) | (1,419 | ) | (2,404 | ) | |||||||
| Finance charges | 936 | 1,348 | 1,989 | 2,789 | |||||||||||
| Commission and fees | 653 | 155 | 725 | 732 | |||||||||||
| Other income | 71 | 34 | 132 | 65 | |||||||||||
| Total revenues | 93,475 | 91,052 | 190,423 | 181,080 | |||||||||||
| Losses and loss adjustment expenses | 70,704 | 58,502 | 132,546 | 113,897 | |||||||||||
| Operating expenses | 25,879 | 29,323 | 53,374 | 56,219 | |||||||||||
| Interest expense | 1,193 | 1,123 | 2,349 | 2,254 | |||||||||||
| Amortization of intangible assets | 617 | 617 | 1,234 | 1,234 | |||||||||||
| Total expenses | 98,393 | 89,565 | 189,503 | 173,604 | |||||||||||
| (Loss) income before tax | (4,918 | ) | 1,487 | 920 | 7,476 | ||||||||||
| Income tax (benefit) expense | (1,568 | ) | 421 | 284 | 2,336 | ||||||||||
| Net (loss) income | $ | (3,350 | ) | $ | 1,066 | $ | 636 | $ | 5,140 | ||||||
| Net (loss) income per share: | |||||||||||||||
| Basic | $ | (0.18 | ) | $ | 0.06 | $ | 0.03 | $ | 0.27 | ||||||
| Diluted | $ | (0.18 | ) | $ | 0.06 | $ | 0.03 | $ | 0.27 | ||||||
| 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) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| Gross premiums written | $ | 127,805 | $ | 103,717 | $ | 19,769 | $ | 21,024 | $ | 14,482 | $ | 19,296 | $ | – | $ | – | $ | 162,056 | $ | 144,037 | ||||||||||||||||||||||||
| Ceded premiums written | (52,386 | ) | (37,538 | ) | (2,086 | ) | (2,210 | ) | (6,690 | ) | (9,046 | ) | – | – | (61,162 | ) | (48,794 | ) | ||||||||||||||||||||||||||
| Net premiums written | 75,419 | 66,179 | 17,683 | 18,814 | 7,792 | 10,250 | – | – | 100,894 | 95,243 | ||||||||||||||||||||||||||||||||||
| Change in unearned premiums | (10,635 | ) | (6,410 | ) | (1,301 | ) | (1,473 | ) | 1,749 | 338 | – | – | (10,187 | ) | (7,545 | ) | ||||||||||||||||||||||||||||
| Net premiums earned | 64,784 | 59,769 | 16,382 | 17,341 | 9,541 | 10,588 | – | – | 90,707 | 87,698 | ||||||||||||||||||||||||||||||||||
| Total revenues | 69,501 | 63,040 | 17,322 | 18,219 | 10,684 | 12,147 | (4,032 | ) | (2,354 | ) | 93,475 | 91,052 | ||||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 50,529 | 39,518 | 11,863 | 9,369 | 8,312 | 9,615 | – | – | 70,704 | 58,502 | ||||||||||||||||||||||||||||||||||
| Pre-tax income (loss), net of non-controlling interest | 3,632 | 7,287 | (199 | ) | 3,011 | (892 | ) | (1,014 | ) | (7,459 | ) | (7,797 | ) | (4,918 | ) | 1,487 | ||||||||||||||||||||||||||||
| Net loss ratio (1) | 78.0 | % | 66.1 | % | 72.4 | % | 54.0 | % | 87.1 | % | 90.8 | % | 77.9 | % | 66.7 | % | ||||||||||||||||||||||||||||
| Net expense ratio (1) | 23.2 | % | 26.2 | % | 34.9 | % | 34.0 | % | 26.6 | % | 23.7 | % | 27.2 | % | 29.2 | % | ||||||||||||||||||||||||||||
| Net combined ratio (1) | 101.2 | % | 92.3 | % | 107.3 | % | 88.0 | % | 113.7 | % | 114.5 | % | 105.1 | % | 95.9 | % | ||||||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | (8,032 | ) | (753 | ) | (1,722 | ) | 3,316 | (419 | ) | (1,523 | ) | – | – | (10,173 | ) | 1,040 | ||||||||||||||||||||||||||||
| 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) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| Gross premiums written | $ | 223,312 | $ | 191,117 | $ | 40,462 | $ | 41,122 | $ | 33,394 | $ | 40,245 | $ | – | $ | – | $ | 297,168 | $ | 272,484 | ||||||||||||||||||||||||
| Ceded premiums written | (88,310 | ) | (66,201 | ) | (3,927 | ) | (4,562 | ) | (15,518 | ) | (18,852 | ) | – | – | (107,755 | ) | (89,615 | ) | ||||||||||||||||||||||||||
| Net premiums written | 135,002 | 124,916 | 36,535 | 36,560 | 17,876 | 21,393 | – | – | 189,413 | 182,869 | ||||||||||||||||||||||||||||||||||
| Change in unearned premiums | (8,289 | ) | (7,894 | ) | (3,439 | ) | (2,569 | ) | 2,245 | (381 | ) | – | – | (9,483 | ) | (10,844 | ) | |||||||||||||||||||||||||||
| Net premiums earned | 126,713 | 117,022 | 33,096 | 33,991 | 20,121 | 21,012 | – | – | 179,930 | 172,025 | ||||||||||||||||||||||||||||||||||
| Total revenues | 135,336 | 123,623 | 35,048 | 36,211 | 22,547 | 24,237 | (2,508 | ) | (2,991 | ) | 190,423 | 181,080 | ||||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 92,119 | 73,931 | 22,909 | 20,438 | 17,518 | 19,528 | – | – | 132,546 | 113,897 | ||||||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 11,730 | 17,599 | 652 | 4,427 | (1,650 | ) | (2,097 | ) | (9,812 | ) | (12,453 | ) | 920 | 7,476 | ||||||||||||||||||||||||||||||
| Net loss ratio (1) | 72.7 | % | 63.2 | % | 69.2 | % | 60.1 | % | 87.1 | % | 92.9 | % | 73.7 | % | 66.2 | % | ||||||||||||||||||||||||||||
| Net expense ratio (1) | 24.4 | % | 27.0 | % | 35.2 | % | 34.1 | % | 26.3 | % | 21.4 | % | 28.2 | % | 29.4 | % | ||||||||||||||||||||||||||||
| Net combined ratio (1) | 97.1 | % | 90.2 | % | 104.4 | % | 94.2 | % | 113.4 | % | 114.3 | % | 101.9 | % | 95.6 | % | ||||||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | (8,332 | ) | 1,594 | (264 | ) | 3,674 | (1,088 | ) | (2,511 | ) | – | – | (9,684 | ) | 2,757 | |||||||||||||||||||||||||||||
| 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. |