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CST: 22/07/2019 07:27:16   

Hallmark Financial Reports Strong First Quarter 2019 Results

74 Days ago

FORT WORTH, Texas, May 08, 2019 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark Financial”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2019.

       
  (Unaudited) First Quarter
 
      2019     2018  
       
  $ in millions:        
  Net Income $ 15.0   $ 0.6  
  Operating Earnings (1) $ 5.6   $ 4.5  
         
  $ per diluted share:      
  Net Income $ 0.83   $ 0.04  
  Operating Earnings (1) $ 0.31   $ 0.24  
(1) See “Non-GAAP Financial Measures” below
 

First Quarter 2019 Highlights (all comparisons to same prior year period):

  • Gross premiums written increased 22% to $187.3 million
     
  • Net premiums written increased 28% to $117.4 million
     
  • Net combined ratio improved to 96.5% compared to 97.4%
     
  • Net income of $15.0 million, or $0.83 per diluted share, compared to $0.6 million, or $0.04 per diluted share
     
  • Operating earnings of $5.6 million, or $0.31 per diluted share, compared to $4.5 million, or $0.24 per diluted share (see “Non-GAAP Financial Measures” below)
     
  • Net investment gains of $11.9 million, including $4.1 million in net realized gains and a $7.8 million increase in net unrealized capital gains, compared to net investment losses of $4.8 million
     
  • Annualized return on beginning equity of 23.5%, including the recovery of equity values
     
  • Annualized operating return on beginning tangible equity of 10.6%, driven by strong underwriting results (see “Non-GAAP Financial Measures” below)
     
  • Book value per share grew 7% to $15.10 during the first quarter
           
    First Quarter
 
      2019     2018   % Change
 
  ($ in thousands, unaudited)        
  Gross premiums written   187,316     153,505   22 %  
  Net premiums written   117,403     91,433   28 %  
  Net premiums earned   99,030     91,947   8 %  
  Investment income, net of expenses   5,111     4,440   15 %  
  Investment gains (losses), net   11,937     (4,835 ) 347 %  
  Net income   15,025     647   2,222 %  
  Operating earnings (1)   5,595     4,467   25 %  
  Net income per share - basic $ 0.83   $ 0.04   1,975 %  
  Net income per share - diluted $ 0.83   $ 0.04   1,975 %  
  Operating earnings per share - diluted (1) $ 0.31   $ 0.24   29 %  
  Book value per share $ 15.10   $ 13.85   9 %  
 
(1) See “Non-GAAP Financial Measures” below
 

Management Commentary
Overview
Naveen Anand, President and Chief Executive Officer, stated, “I am pleased to report a strong start to 2019, as we continue to build on the positive momentum from 2018. Operating earnings increased by 25% over the comparable prior year period, driven by improved underwriting results and increased premiums, reflecting our ability to achieve robust rate increases while pursuing targeted growth opportunities in our specialty markets. Additionally, we continue to maintain an industry superior net expense ratio as we scale the business, realizing the benefit from previous investments in technology, infrastructure and talent, while continuing to devote the necessary resources to improve our capabilities and level of expertise.”

Premiums / Segment Overview
Mr. Anand continued, “The Specialty Commercial Segment gross premiums grew by 17% for the first quarter as compared to the same period the prior year, taking advantage of the firming rate environment across most product lines. The first quarter net combined ratio for this segment was 93.9%, which included 2.4% attributable to catastrophe losses.

“The Standard Commercial Segment gross premiums grew by $2.7 million for the first quarter as compared to the same period the prior year. This segment produced a net combined ratio of 97.5%, which included 2.6% attributable to catastrophe losses.

“The Personal Segment produced a 93.7% net combined ratio for the first quarter as compared to 105.1% reported for the same period the prior year. The Personal Segment results continue to reflect the impact from our pricing and claims improvements as well as the current positive rate environment.

“Hallmark Financial has established itself as a specialty company and is well positioned to take advantage of the opportunities in the current market. There is increased pricing momentum and the rate increases we have been realizing in Commercial Auto and E&S Property are now being attained in other lines. In addition, we are seeing a meaningful uptick in the number of submissions, reflecting the growing demand for specialty insurance and the underserved nature of the markets in which we compete,” concluded Mr. Anand.

Executive Chairman’s Remarks
Mark E. Schwarz, Executive Chairman of Hallmark Financial, stated, “Book value per share increased 7% to $15.10 during the first quarter driven largely by an increase in the market valuation of our investment portfolio, particularly equities, as well as strong operating earnings. Our net investment income was $5.1 million for the quarter, representing a 15% increase compared to the prior year period and reflecting an increase in book yield to 3.5% as of March 31, 2019 on our debt portfolio. Our total investments and cash increased 2% during the first quarter to $681.6 million or $37.61 per share.”

First Quarter 2019 Financial Review

Hallmark Financial reported net income of $15.0 million for the three months ended March 31, 2019 as compared to $0.6 million for the three months ended March 31, 2018. On a diluted basis per share, the Company reported net income of $0.83 per share for the three months ended March 31, 2019 as compared to $0.04 per share for the three months ended March 31, 2018.

During the three months ended March 31, 2019, Hallmark Financial’s gross premiums written were $187.3 million, representing an increase of 22% from the $153.5 million in gross premiums written for the same period in 2018.

During the three months ended March 31, 2019, Hallmark Financial’s net premiums written were $117.4 million, representing an increase of 28% from the $91.4 million in net premiums written for the same period of 2018. The increase in net premiums written for the three months ended March 31, 2019 was primarily due to premium growth in both the Specialty Commercial and Personal Segments as well as increased net retention of business in the Personal Segment.

Hallmark Financial’s net premiums earned were $99.0 million for the three months ended March 31, 2019 as compared to $91.9 million for the same period in 2018.

Hallmark Financial had pre-tax income of $18.9 million for the three months ended March 31, 2019 as compared to $0.8 million reported during the same period in 2018.

The improvement in income before tax for the three months ended March 31, 2019 was largely due to increased net unrealized gains on our equity and other investments of $7.8 million as compared to a decrease in net unrealized gains of $4.8 million reported for the same period in 2018. Also contributing to the improvement in income before tax for the quarter is increased net premiums earned, higher finance charges and higher net investment income. These increases in income before tax was partially offset by increased losses and loss adjustment expenses (“LAE”) of $6.4 million as compared to the prior year due primarily to increased net premiums earned. Hallmark Financial reported $0.1 million of favorable net prior year loss reserve development during the three months ended March 31, 2019 as compared to $0.5 million during the same period of 2018.

Non-GAAP Financial Measures

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.

Operating earnings and operating earnings per share are calculated by excluding net investment gains and losses from GAAP net income. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.

           
        Weighted  
  Income Less Tax Net Average Diluted
($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share
First Quarter 2019          
Reported GAAP measures $ 18,918   $ 3,893   $ 15,025   18,193 $ 0.83  
Excluded investment (gains)/losses $ (11,937 ) $ (2,507 ) $ (9,430 ) 18,193 $ (0.52 )
Operating earnings $ 6,981   $ 1,386   $ 5,595   18,193 $ 0.31  
           
First Quarter 2018          
Reported GAAP measures $ 809   $ 162   $ 647   18,293 $ 0.04  
Excluded investment (gains)/losses $ 4,835   $ 1,015   $ 3,820   18,293 $ 0.20  
Operating earnings $ 5,644   $ 1,177   $ 4,467   18,293 $ 0.24  
                           

Operating return on beginning tangible equity is calculated as operating earnings divided by GAAP equity at the beginning of the period excluding goodwill. Management believes that operating return on beginning tangible equity provides useful information to investors about the performance of the Company’s core insurance operations relative to its core shareholder equity exclusive of non-depreciable goodwill from prior acquisitions. Return on beginning equity is the GAAP measure that is most directly comparable to operating return on beginning tangible equity. A reconciliation of operating return on beginning tangible equity to return on beginning equity is presented below.

       
1st quarter 2019 net income 15,025   a
Excluded investment gains, net of tax (9,430 )  
1st quarter 2019 operating earnings 5,595   b
Annualized 1st quarter 2019 net income 60,100   (a x 4)
Annualized 1st quarter 2019 operating earnings 22,380   (b x 4)
     
Beginning GAAP equity 255,532   c
Reverse goodwill (44,695 )  
Beginning tangible equity 210,837   d
     
Annualized return on beginning GAAP equity 23.5 % (a x 4) / c
Annualized operating return on beginning tangible equity 10.6 % (b x 4) / d
       

About Hallmark Financial

Hallmark Financial is a specialty property and casualty insurance holding company with a diversified portfolio of insurance products written on a national platform. With six insurance subsidiaries and offices in Dallas-Fort Worth, San Antonio, Chicago, Jersey City and Atlanta, Hallmark Financial markets, underwrites and services over $650 million annually in commercial and personal insurance premiums in select markets. Hallmark Financial 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 materially 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   2019     2018  
Investments:   (unaudited)  
Debt securities, available-for-sale, at fair value (amortized cost: $523,745 in 2019 and $550,268 in 2018) $ 522,977   $ 545,870  
Equity securities (cost: $68,709 in 2019 and $68,709 in 2018)   88,656     80,896  
Other investment (cost: $3,763 in 2019 and $3,763 in 2018)   1,184     1,148  
Total investments   612,817     627,914  
Cash and cash equivalents   65,490     35,594  
Restricted cash   3,322     4,877  
Ceded unearned premiums   132,799     133,031  
Premiums receivable   132,025     119,778  
Accounts receivable   1,851     1,619  
Receivable for securities   2,292     3,369  
Reinsurance recoverable   268,648     252,029  
Deferred policy acquisition costs   19,225     14,291  
Goodwill   44,695     44,695  
Intangible assets, net   6,940     7,555  
Deferred federal income taxes, net   1,727     4,983  
Prepaid expenses   4,128     2,588  
Other assets   32,772     12,571  
Total Assets $ 1,328,731   $ 1,264,894  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
Revolving credit facility payable $ 30,000   $ 30,000  
Subordinated debt securities (less unamortized debt issuance cost of $885 in 2019 and $898 in 2018)   55,817     55,804  
Reserves for unpaid losses and loss adjustment expenses   530,226     527,247  
Unearned premiums   316,201     298,061  
Reinsurance balances payable   68,681     67,328  
Current federal income tax payable   1,411     4  
Pension liability   1,982     2,018  
Payable for securities   1,503     698  
Accounts payable and other accrued expenses   49,258     28,202  
Total Liabilities   1,055,079     1,009,362  
Commitments and contingencies        
Stockholders’ equity:        
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2019 and 2018   3,757     3,757  
Additional paid-in capital   122,638     123,168  
Retained earnings   176,220     161,195  
Accumulated other comprehensive loss   (3,762 )   (6,660 )
Treasury stock (2,749,738 shares in 2019 and 2,846,131 shares in 2018), at cost   (25,201 )   (25,928 )
Total Stockholders’ Equity   273,652     255,532  
Total Liabilities & Stockholders' Equity $ 1,328,731   $ 1,264,894  


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations   Three Months Ended
($ in thousands, except per share amounts)   March 31,
    2019
2018
    (unaudited)
(unaudited)
Gross premiums written   $ 187,316   $ 153,505  
Ceded premiums written     (69,913 )   (62,072 )
Net premiums written     117,403     91,433  
Change in unearned premiums     (18,373 )   514  
Net premiums earned     99,030     91,947  
           
Investment income, net of expenses     5,111     4,440  
Investment gains (losses), net     11,937     (4,835 )
Finance charges     1,734     1,040  
Commission and fees     293     703  
Other income     16     46  
Total revenues     118,121     93,341  
           
Losses and loss adjustment expenses     70,087     63,675  
Operating expenses     27,246     27,213  
Interest expense     1,253     1,027  
Amortization of intangible assets     617     617  
Total expenses     99,203     92,532  
           
Income before tax     18,918     809  
Income tax expense     3,893     162  
Net income   $ 15,025   $ 647  
           
Net income per share:          
Basic   $ 0.83   $ 0.04  
Diluted   $ 0.83   $ 0.04  


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Mar. 31
  Specialty Commercial
Segment
Standard Commercial
Segment
Personal
Segment
Corporate Consolidated
($ in thousands, unaudited)   2019     2018     2019     2018     2019     2018     2019     2018   2019 2018
Gross premiums written $ 134,399   $ 114,813   $ 25,528   $ 22,797   $ 27,389   $ 15,895   $ -   $ -   $187,316   $153,505  
Ceded premiums written   (57,361 )   (50,658 )   (8,103 )   (2,555 )   (4,449 )   (8,859 )   -     -   (69,913 ) (62,072 )
Net premiums written   77,038     64,155     17,425     20,242     22,940     7,036     -     -   117,403   91,433  
Change in unearned premiums   (12,850 )   3,535     (51 )   (2,375 )   (5,472 )   (646 )   -     -   (18,373 ) 514  
Net premiums earned   64,188     67,690     17,374     17,867     17,468     6,390     -     -   99,030   91,947  
                     
Total revenues   67,967     73,124     18,373     18,875     19,483     7,620     12,298     (6,278 ) 118,121   93,341  
                     
Losses and loss adjustment expenses   45,949     47,543     11,651     11,680     12,487     4,452     -     -   70,087   63,675  
                     
Pre-tax income (loss)   7,968     9,758     1,507     1,319     1,573     (22 )   7,870     (10,246 ) 18,918   809  
                     
Net loss ratio (1)   71.6 %   70.2 %   67.1 %   65.4 %   71.5 %   69.7 %     70.8 % 69.3 %
Net expense ratio (1)   22.3 %   23.8 %   30.4 %   33.1 %   22.2 %   35.4 %     25.7 % 28.1 %
Net combined ratio (1)   93.9 %   94.0 %   97.5 %   98.5 %   93.7 %   105.1 %     96.5 % 97.4 %
                     
Net Favorable (Unfavorable) Prior Year Development   (1,926 )   (1,012 )   1,805     1,053     187     489     -     -   66   530  
 
(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.
 

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