EX-99.1 2 v466516_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK FINANCIAL SERVICES, INC.

ANNOUNCES FIRST QUARTER 2017 EARNINGS RESULTS

 

 

FORT WORTH, Texas, (May 9, 2017) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today announced earnings results for its first quarter 2017, including the following highlights:

 

·1st quarter 2017 net income of $4.0 million, or $0.21 per diluted share
·1st quarter 2017 total revenues of $96.9 million, increased 8% over prior year
·1st quarter 2017 favorable prior year reserve development of $0.5 million
·1st quarter 2017 net combined ratio of 98.6%

 

“The first quarter of fiscal 2017 continued to see elevated losses from our automobile lines of business. However, we are seeing improvement in our personal auto loss experience for the current accident year compared to prior year as our actions to address increased severity and frequency trends in this portfolio are beginning to have the expected impact. In the quarter, our Personal Segment did see some adverse loss reserve development from prior accident years which included a large settlement of a homeowners claim, a line that we exited beginning in late 2014,” said Naveen Anand, President and Chief Executive Officer.

 

“Our Specialty Commercial Segment grew premium production by 9% and reported a profitable 92.9% combined ratio for the quarter despite elevated commercial auto losses compared to the first quarter of the prior year. During a quarter which the industry saw significant severe convective storm losses, our Standard Commercial Segment experienced insignificant catastrophe losses as a result of our exposure reductions over the last two years and good fortune. However, during the first quarter of 2017, this segment experienced a $0.9 million hit to pre-tax income from the runoff of our occupational accident and workers’ compensation lines of business as compared to a $0.3 million adverse impact during the same period the prior year. These runoff lines adversely impacted our Standard Commercial Segment’s combined ratio by 6.2% and our consolidated combined ratio by 1.1% for the first quarter,” concluded Mr. Anand.

 

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “We reported book value per share of $14.60 as of March 31, 2017, which is an increase of 2% during the first quarter. Our total cash and investments increased by $7.7 million during the first three months of 2017 to $748.8 million, or $40.33 per share. Our balance sheet remains liquid with a very short duration in our investment portfolio and cash balances (including restricted cash) of $85.8 million as of March 31, 2017 are ready to be deployed as we see opportunity.”

 

 

 

 

First Quarter    
   2017   2016   % Change 
   ($ in thousands, unaudited) 
Gross premiums written   135,112    128,447    5%
Net premiums written   88,519    87,626    1%
Net premiums earned   89,223    84,327    6%
Investment income, net of expenses   4,479    3,879    15%
Gain (loss) on investments (1)   2,060    74    2684%
Other-than-temporary impairments   -    (301)   -100%
Total revenues    96,948    90,028    8%
Net income   3,986    4,074    -2%
Net income per share - basic  $0.21   $0.21    0%
Net income per share - diluted  $0.21   $0.21    0%
Book value per share  $14.60   $14.00    4%
Cash flow from operations   8,839    (1,311)   nm 

(1)includes change in unrealized gain (loss) on other investment recognized in earnings

 

 

First Quarter 2017 Commentary

 

Hallmark reported net income of $4.0 million for the three months ended March 31, 2017 as compared to net income of $4.1 million for the same period the prior year. On a diluted basis per share, the Company reported net income of $0.21 per share for the three months ended both March 31, 2017 and 2016.

 

Hallmark's consolidated net loss ratio was 69.3% for the three months ended March 31, 2017, as compared to 65.7% for the same period the prior year. Hallmark's net expense ratio was 29.3% for the three months ended March 31, 2017 as compared to 29.6% for the same period the prior year. Hallmark’s net combined ratio was 98.6% for the three months ended March 31, 2017 as compared to 95.3% for the same period the prior year. Hallmark’s reported net combined ratio includes a 1.1% adverse impact for the three months ended March 31, 2017, as compared to a 0.5% adverse impact for the same period the prior year, from the workers’ compensation and occupational accident lines of business no longer written by the Standard Commercial Segment. Similarly, these discontinued lines of business accounted for 6.2% of the 101.6% net combined ratio of the Standard Commercial Segment for the first quarter of 2017 and 2.4% of the 100.7% net combined ratio of the Standard Commercial Segment for the first quarter of 2016.

 

During the three months ended March 31, 2017, Hallmark’s total revenues were $96.9 million, representing an increase of 8% from the $90.0 million in total revenues for the same period of 2016. During the three months ended March 31, 2017, Hallmark’s income before tax was $5.8 million, representing a decrease of $0.2 million from the $6.0 million reported during the same period the prior year.

 

The increase in revenue for the three months ended March 31, 2017 was primarily attributable to net realized gains on the Company’s investment portfolio during the current quarter as compared to net realized losses during the same period the prior year. Also contributing to the increase in revenue were higher net premiums earned and higher net investment income, partially offset by lower finance charge revenue and lower commission and fee revenue. The higher net premiums earned were due mostly to increased premium production in the Specialty Commercial Segment.

 

The decrease in income before tax for the three months ended March 31, 2017 was due primarily to increased losses and loss adjustment expenses (“LAE”) of $6.4 million and higher operating expenses of $0.6 million, partially offset by the increase in revenue discussed above. The increase in loss and LAE was primarily the result of higher current accident year loss trends in the Specialty Commercial Segment driven by commercial auto lines of business, as well as the increased earned premium discussed above.

 

 

 

 

During the three months ended March 31, 2017, Hallmark’s cash flow provided by operations was $8.8 million compared to cash flow used by operations of $1.3 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), increased net collected premiums, higher collected net investment income and lower income taxes paid partially offset by higher paid operating expenses 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)  Mar. 31   Dec. 31 
ASSETS  2017   2016 
Investments:  (unaudited)      
Debt securities, available-for-sale, at fair value (cost: $605,438 in 2017 and $597,784 in 2016)  $605,333   $597,457 
Equity securities, available-for-sale, at fair value (cost: $30,369 in 2017 and $31,449 in 2016)   53,156    51,711 
Other investment (cost; $3,763 in 2017 and 2016)   4,510    4,951 
Total investments   662,999    654,119 
Cash and cash equivalents   82,953    79,632 
Restricted cash   2,852    7,327 
Ceded unearned premiums   82,358    81,482 
Premiums receivable   94,496    89,715 
Accounts receivable   1,708    2,269 
Receivable for securities   1,254    3,047 
Reinsurance recoverable   148,588    147,821 
Deferred policy acquisition costs   19,094    19,193 
Goodwill   44,695    44,695 
Intangible assets, net   11,875    12,491 
Deferred federal income taxes, net   575    1,365 
Federal income tax recoverable   1,955    3,951 
Prepaid expenses   3,406    1,552 
Other assets   14,416    13,801 
Total Assets  $1,173,224   $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 $988 in 2017 and $1,001 in 2016)   55,714    55,701 
Reserves for unpaid losses and loss adjustment expenses   486,971    481,567 
Unearned premiums   241,427    241,254 
Reinsurance balances payable   51,738    46,488 
Pension liability   2,152    2,203 
Payable for securities   9,036    14,215 
Accounts payable and other accrued expenses   25,160    25,296 
Total Liabilities   902,198    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   123,183    123,166 
Retained earnings   152,013    148,027 
Accumulated other comprehensive income   12,178    10,371 
Treasury stock (2,306,735 shares in 2017 and 2,260,849 shares in 2016), at cost   (20,105)   (19,585)
Total Stockholders’ Equity   271,026    265,736 
Total Liabilities & Stockholders' Equity  $1,173,224   $1,162,460 

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations  Three Months Ended 
($ in thousands, except share amounts)  March 31 
   2017   2016 
Gross premiums written  $135,112   $128,447 
Ceded premiums written   (46,593)   (40,821)
Net premiums written   88,519    87,626 
Change in unearned premiums   704    (3,299)
Net premiums earned   89,223    84,327 
           
Investment income, net of expenses   4,479    3,879 
Net realized gains (losses)   2,060    (227)
Finance charges   1,053    1,441 
Commission and fees   72    577 
Other income   61    31 
Total revenues   96,948    90,028 
           
Losses and loss adjustment expenses   61,842    55,395 
Operating expenses   27,495    26,896 
Interest expense   1,156    1,131 
Amortization of intangible assets   617    617 
Total expenses   91,110    84,039 
           
Income before tax   5,838    5,989 
Income tax expense   1,852    1,915 
Net income  $3,986   $4,074 
           
Net income per share:          
Basic  $0.21   $0.21 
Diluted  $0.21   $0.21 

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data                
Three Months Ended Mar. 31    (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  $95,507   $87,400   $20,693   $20,098   $18,912   $20,949   $-   $-   $135,112   $128,447 
Ceded premiums written   (35,924)   (28,663)   (1,841)   (2,352)   (8,828)   (9,806)   -    -    (46,593)   (40,821)
Net premiums written   59,583    58,737    18,852    17,746    10,084    11,143    -    -    88,519    87,626 
Change in unearned premiums   2,346    (1,484)   (2,138)   (1,096)   496    (719)   -    -    704    (3,299)
Net premiums earned   61,929    57,253    16,714    16,650    10,580    10,424    -    -    89,223    84,327 
                                                   
Total revenues   65,835    60,583    17,726    17,992    11,863    12,090    1,524    (637)   96,948    90,028 
                                                   
Losses and loss adjustment expenses   41,590    34,413    11,046    11,069    9,206    9,913    -    -    61,842    55,395 
                                                   
Pre-tax income (loss), net of non-controlling interest   8,098    10,312    851    1,416    (758)   (1,083)   (2,353)   (4,656)   5,838    5,989 
                                                   
Net loss ratio (1)   67.2%   60.1%   66.1%   66.5%   87.0%   95.1%             69.3%   65.7%
Net expense ratio (1)   25.7%   27.7%   35.5%   34.2%   26.0%   19.1%             29.3%   29.6%
Net combined ratio (1)   92.9%   87.8%   101.6%   100.7%   113.0%   114.2%             98.6%   95.3%
                                                   
Favorable (Unfavorable) Prior Year Development   (300)   2,347    1,458    358    (669)   (988)   -    -    489    1,717 

 

 

1The 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.