Exhibit 99.1
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777 Main Street, Suite 1000 Fort Worth, Texas 76102 P | 817.348.1600 F | 817.348.1815 www.hallmarkgrp.com |
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES FIRST QUARTER 2015 EARNINGS RESULTS
FORT WORTH, Texas, (May 7, 2015) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported first quarter 2015 net income of $5.3 million, or $0.28 per diluted share, compared to net income of $4.5 million, or $0.23 per diluted share, reported for first quarter 2014. Total revenues were $91.5 million for the first quarter of 2015 as compared to $87.1 million for the first quarter of 2014.
“I am pleased to report a strong start to the year with quarterly underwriting results at a level not seen in five years as evidenced by a combined ratio of 93.2% for the first quarter 2015,” said Naveen Anand, President and Chief Executive Officer. “All of our reporting segments delivered improved year-to-year first quarter combined ratios driven by the consistent and effective execution of our underwriting strategies. In an increasingly competitive environment, we continue to see positive rate momentum in all of our segments.”
Mr. Anand continued, “In another step towards sharpening our focus on specialty products that drive greater underwriting results across business cycles, we have entered into an agreement to sell the renewal rights to our small, non-core, mono-line workers’ compensation business. This business that we acquired in 2011 produces approximately $10 million in annual premium and has performed well under our ownership. We expect the deal to close by the end of the second quarter.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share was $13.62 at the end of the first quarter 2015, an increase of 9% over prior year. Total cash and investments have increased 7% over prior year to $672.8 million, or $35.01 per share and cash flow from operations were $3.7 million for the quarter. Hallmark’s cash balances (including restricted balances) totaled $140.3 million as of March 31, 2015.”
| First Quarter | ||||||||||||
| 2015 | 2014 | % Change | ||||||||||
| ($ in thousands, unaudited) | ||||||||||||
| Gross premiums written | 125,059 | 116,082 | 8 | % | ||||||||
| Net premiums written | 90,374 | 82,921 | 9 | % | ||||||||
| Net premiums earned | 86,696 | 82,577 | 5 | % | ||||||||
| Investment income, net of expenses | 2,845 | 3,241 | -12 | % | ||||||||
| Net realized gains | 584 | 185 | 216 | % | ||||||||
| Total revenues | 91,450 | 87,109 | 5 | % | ||||||||
| Net income | 5,343 | 4,548 | 17 | % | ||||||||
| Net income per share - basic | $ | 0.28 | $ | 0.24 | 17 | % | ||||||
| Net income per share - diluted | $ | 0.28 | $ | 0.23 | 22 | % | ||||||
| Book value per share | $ | 13.62 | $ | 12.54 | 9 | % | ||||||
| Cash flow from operations | 3,709 | 5,107 | -27 | % | ||||||||
First Quarter 2015 Commentary
Hallmark reported net income of $5.3 million for the first three months of 2015 as compared to net income of $4.5 million for the same period the prior year. On a diluted basis per share, the Company reported net income of $0.28 per share for first three months of 2015, as compared to net income of $0.23 per share for the same period the prior year.
Hallmark's consolidated net loss ratio was 64.7% for the first three months of 2015, as compared to 63.9% for the same period the prior year. Hallmark's net expense ratio was 28.5% for the first three months of 2015 as compared to 30.4% for the same period the prior year. Hallmark’s net combined ratio was 93.2% for the first three months of 2015 as compared to 94.3% for the same period the prior year.
During the first three months of 2015, Hallmark’s total revenues were $91.5 million, representing a 5% increase over the $87.1 million in total revenues for the same period the prior year. This increase in revenue was primarily attributable to higher net earned premiums in the Personal Segment, due mostly to an increase in retained premium under a renewed quota share reinsurance agreement effective October 1, 2014, as well as increased premiums produced in the E&S Commercial business unit. Further contributing to the increased revenue were higher realized gains recognized on the Company’s investment portfolio and lower adverse profit share commission revenue adjustments in the Standard Commercial Segment during the three months ended March 31, 2015 as compared to the same period of 2014. These increases in revenue were partially offset by lower net investment income during the three months ended March 31, 2015 as compared to the same period of 2014.
The increase in revenue for the three months ended March 31, 2015 was partially offset by increased loss and loss adjustment expenses (“LAE”) of $3.3 million as compared to the same period in 2014. The increase in loss and LAE was primarily the result of an increase in retained losses in the Personal Lines Segment under the renewed quota share reinsurance agreement discussed above. During the three months ended March 31, 2015 and 2014, the Company recorded favorable prior year net loss reserve development of $1.1 million and $1.2 million, respectively. Other operating expenses decreased due mostly to increased ceding commissions in the Specialty Commercial Segment from a quota share reinsurance agreement entered into during the second quarter of 2014 on commercial auto liability risks produced by a program underwriter in the E&S Commercial business unit, partially offset by higher salary and related expenses due to increased incentive compensation accruals.
About Hallmark Financial Services, Inc.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mr. Naveen Anand, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| ($ in thousands, except par value) | Mar. 31 | Dec. 31 | ||||||
| ASSETS | 2015 | 2014 | ||||||
| Investments: | (unaudited) | |||||||
| Debt securities, available-for-sale, at fair value (cost: $466,976 in 2015 and $450,770 in 2014) | $ | 467,057 | $ | 450,785 | ||||
| Equity securities, available-for-sale, at fair value (cost: $28,120 in 2015 and $25,360 in 2014) | 65,466 | 56,444 | ||||||
| Total investments | 532,523 | 507,229 | ||||||
| Cash and cash equivalents | 130,451 | 130,985 | ||||||
| Restricted cash | 9,803 | 11,914 | ||||||
| Ceded unearned premiums | 55,123 | 53,376 | ||||||
| Premiums receivable | 82,124 | 71,003 | ||||||
| Accounts receivable | 1,839 | 3,141 | ||||||
| Receivable for securities | 1,291 | 932 | ||||||
| Reinsurance recoverable | 110,298 | 109,719 | ||||||
| Deferred policy acquisition costs | 21,130 | 20,746 | ||||||
| Goodwill | 44,695 | 44,695 | ||||||
| Intangible assets, net | 16,810 | 17,427 | ||||||
| Prepaid expenses | 4,063 | 1,823 | ||||||
| Other assets | 7,524 | 7,879 | ||||||
| Total Assets | $ | 1,017,674 | $ | 980,869 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Subordinated debt securities | $ | 56,702 | $ | 56,702 | ||||
| Reserves for unpaid losses and loss adjustment expenses | 422,605 | 415,135 | ||||||
| Unearned premiums | 202,251 | 196,826 | ||||||
| Reinsurance balances payable | 29,931 | 26,403 | ||||||
| Pension liability | 2,573 | 2,619 | ||||||
| Payable for securities | 14,524 | 1,321 | ||||||
| Deferred federal income taxes, net | 4,576 | 3,092 | ||||||
| Federal income tax payable | 3,413 | 968 | ||||||
| Accounts payable and other accrued expenses | 19,381 | 25,766 | ||||||
| Total Liabilities | 755,956 | 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 | 123,555 | 123,194 | ||||||
| Retained earnings | 124,981 | 119,638 | ||||||
| Accumulated other comprehensive income | 21,853 | 17,801 | ||||||
| Treasury stock (1,654,443 shares in 2015 and 1,655,306 shares in 2014), at cost | (12,428) | (12,353) | ||||||
| Total Stockholders’ Equity | 261,718 | 252,037 | ||||||
| Total Liabilities & Stockholders' Equity | $ | 1,017,674 | $ | 980,869 | ||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Operations | Three Months Ended | |||||||
| ($ in thousands, except share amounts; unaudited) | March 31 | |||||||
| 2015 | 2014 | |||||||
| Gross premiums written | $ | 125,059 | $ | 116,082 | ||||
| Ceded premiums written | (34,685) | (33,161) | ||||||
| Net premiums written | 90,374 | 82,921 | ||||||
| Change in unearned premiums | (3,678) | (344) | ||||||
| Net premiums earned | 86,696 | 82,577 | ||||||
| Investment income, net of expenses | 2,845 | 3,241 | ||||||
| Net realized gains | 584 | 185 | ||||||
| Finance charges | 1,299 | 1,384 | ||||||
| Commission and fees | 9 | (290) | ||||||
| Other income | 17 | 12 | ||||||
| Total revenues | 91,450 | 87,109 | ||||||
| Losses and loss adjustment expenses | 56,090 | 52,770 | ||||||
| Operating expenses | 25,914 | 26,136 | ||||||
| Interest expense | 1,140 | 1,152 | ||||||
| Amortization of intangible assets | 617 | 639 | ||||||
| Total expenses | 83,761 | 80,697 | ||||||
| Income before tax | 7,689 | 6,412 | ||||||
| Income tax expense | 2,346 | 1,864 | ||||||
| Net income | $ | 5,343 | $ | 4,548 | ||||
| Net income (loss) per share: | ||||||||
| Basic | $ | 0.28 | $ | 0.24 | ||||
| Diluted | $ | 0.28 | $ | 0.23 | ||||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||||||||||
| Consolidated Segment Data | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Mar. 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 | $ | 22,309 | $ | 20,981 | $ | 81,766 | $ | 74,922 | $ | 20,984 | $ | 20,179 | $ | - | $ | - | $ | 125,059 | $ | 116,082 | ||||||||||||||||||||
| Ceded premiums written | (1,960) | (1,969) | (23,090) | (14,229) | (9,635) | (16,963) | - | - | (34,685) | (33,161) | ||||||||||||||||||||||||||||||
| Net premiums written | 20,349 | 19,012 | 58,676 | 60,693 | 11,349 | 3,216 | - | - | 90,374 | 82,921 | ||||||||||||||||||||||||||||||
| Change in unearned premiums | (785) | 388 | 1,211 | (1,420) | (4,104) | 688 | - | - | (3,678) | (344) | ||||||||||||||||||||||||||||||
| Net premiums earned | 19,564 | 19,400 | 59,887 | 59,273 | 7,245 | 3,904 | - | - | 86,696 | 82,577 | ||||||||||||||||||||||||||||||
| Total revenues | 20,381 | 20,341 | 62,257 | 62,482 | 8,653 | 5,592 | 159 | (1,306) | 91,450 | 87,109 | ||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 12,470 | 12,823 | 37,333 | 36,941 | 6,287 | 3,006 | - | - | 56,090 | 52,770 | ||||||||||||||||||||||||||||||
| Pre-tax income (loss) | 1,886 | 1,221 | 9,721 | 9,924 | (296) | (31) | (3,622) | (4,702) | 7,689 | 6,412 | ||||||||||||||||||||||||||||||
| Net loss ratio (1) | 63.7% | 66.1% | 62.3% | 62.3% | 86.8% | 77.0% | 64.7% | 63.9% | ||||||||||||||||||||||||||||||||
| Net expense ratio (1) | 31.8% | 32.7% | 25.5% | 26.5% | 21.1% | 37.5% | 28.5% | 30.4% | ||||||||||||||||||||||||||||||||
| Net combined ratio (1) | 95.5% | 98.8% | 87.8% | 88.8% | 107.9% | 114.5% | 93.2% | 94.3% | ||||||||||||||||||||||||||||||||
| Favorable (Unfavorable) Prior Year Development | 1,362 | 1,193 | 211 | (648) | (512) | 658 | - | - | 1,061 | 1,203 | ||||||||||||||||||||||||||||||
| 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. |