Exhibit 99.1

 

 

 

 

 

Hallmark Financial Services, Inc.

777 Main Street, Suite 1000,

Fort Worth, TX 76102

817.348.1600

hallmarkgrp.com

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK FINANCIAL SERVICES, INC.

ANNOUNCES SECOND QUARTER 2018 EARNINGS RESULTS

 

 

FORT WORTH, Texas, (August 7, 2018) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today announced results for its second quarter ended June 30, 2018, including the following highlights:

 

·2nd quarter 2018 net income of $5.1 million, or $0.28 per diluted share, versus a net loss of ($3.4) million, or ($0.18) per diluted share, for 2nd quarter 2017
·Year-to-date 2018 net income of $5.7 million, or $0.31 per diluted share, versus $0.6 million, or $0.03 per diluted share, for prior year-to-date
·2nd quarter 2018 operating earnings (1) of $4.7 million, or $0.26 per diluted share, versus ($1.1) million, or ($0.06) per diluted share, for 2nd quarter 2017
·Year-to-date 2018 operating earnings (1) of $9.1 million, or $0.50 per diluted share, versus $1.6 million, or $0.08 per diluted share, for prior year-to-date
·2nd quarter 2018 net combined ratio of 97.0% versus 105.1% for 2nd quarter 2017
·Year-to-date 2018 net combined ratio of 97.1% versus 101.9% for prior year-to-date
·Year-to-date 2018 gross premiums written of $326.7 million increased 10% from $297.2 million for prior year-to-date
·Year-to-date 2018 net premiums written of $181.3 million declined 4% from $189.4 million for prior year-to-date

 

(1)See “Non-GAAP Financial Measures” below

 

“I am pleased to report continued progress in our results that reflect improvement and momentum from the various actions we have undertaken the past couple of years to address the challenges that had emerged in our commercial and personal auto portfolios. We are also seeing results from our efforts to diversify into new specialty product lines and re-balance the geographic footprint of our book. We reported a net combined ratio of 97.0% for the quarter which was significantly improved from last year and in line with our expectations for the quarter. We continue to see strong rate increases in many of our product lines which contributed to the 7% increase in gross premiums for the quarter,” said Naveen Anand, President and Chief Executive Officer.

 

“Severity and litigation trends in commercial auto continue to be challenging. In addition to having successfully transitioned our claims operations to address the new realities in this line, we continue to drive meaningful rate increases and underwriting actions within our commercial auto portfolio and our more current accident years are performing in line with expectations. We are however, seeing irresponsible new competitors buying their way into the market by underpricing business. We continue to walk away from risks that don’t meet our pricing requirements or quality standards,” continued Naveen Anand.

 

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Book value per share at June 30, 2018 increased to $14.23 compared to $13.82 at December 31, 2017. Year-to-date net investment income was $8.8 million, a 2% decline compared to the prior year-to-date. Total cash and investments was $712.5 million, or $39.45 per share, as of June 30, 2018, a decrease of 2% from $40.12 per share as of December 31, 2017.”

 

 

 

 

 

 

 

Second Quarter    
   2018   2017   % Change 
   ($ in thousands, unaudited) 
Gross premiums written   173,219    162,056    7%
Net premiums written   89,846    100,894    -11%
Net premiums earned   90,978    90,707    0%
Investment income, net of expenses   4,406    4,587    -4%
Investment (losses) gains, net   533    (72)   840%
Other-than-temporary impairments   -    (3,407)   100%
Net income (loss)   5,090    (3,350)   252%
Operating earnings (loss)   4,669    (1,089)   529%
Net income (loss) per share - basic  $0.28   $(0.18)   256%
Net income (loss) per share - diluted  $0.28   $(0.18)   256%
Operating earnings per share - diluted  $0.26   $(0.06)   533%
Book value per share  $14.23   $14.57    -2%
Cash flow from operations   9,320    3,545    163%

 

Year-to-Date    
   2018   2017   % Change 
   ($ in thousands, unaudited) 
Gross premiums written   326,724    297,168    10%
Net premiums written   181,279    189,413    -4%
Net premiums earned   182,925    179,930    2%
Investment income, net of expenses   8,846    9,066    -2%
Investment (losses) gains, net   (4,302)   1,988    -316%
Other-than-temporary impairments   -    (3,407)   100%
Net income (loss)   5,737    636    802%
Operating earnings   9,136    1,558    486%
Net (loss) income per share - basic  $0.32   $0.03    967%
Net (loss) income per share - diluted  $0.31   $0.03    933%
Operating earnings per share - diluted  $0.50   $0.08    525%
Book value per share  $14.23   $14.57    -2%
Cash flow from operations   (9,895)   12,384    -180%

 

Second Quarter 2018 Commentary

 

Hallmark reported net income of $5.1 million and $5.7 million for the three months and six months ended June 30, 2018, respectively, as compared to ($3.4) million and $0.6 million for the three months and six months ended June 30, 2017, respectively. On a diluted basis per share, the Company reported net income of $0.28 per share and $0.31 per share for the three months and six months ended June 30, 2018, respectively, as compared to ($0.18) per share and $0.03 per share for the three months and six months ended June 30, 2017, respectively.

 

 

 

  

 

 

 

Hallmark's consolidated net loss ratio was 70.0% and 69.6% for the three months and six months ended June 30, 2018, respectively, as compared to 77.9% and 73.7% for the three months and six months ended June 30, 2017, respectively. Hallmark's net expense ratio was 27.0% and 27.5% for the three months and six months ended June 30, 2018, respectively, as compared to 27.2% and 28.2% for the three months and six months ended June 30, 2017, respectively. Hallmark’s net combined ratio was 97.0% and 97.1% for the three months and six months ended June 30, 2018, respectively, as compared to 105.1% and 101.9% for the three months and six months ended June 30, 2017, respectively.

 

During the three months and six months ended June 30, 2018, Hallmark’s gross premiums written were $173.2 million and $326.7 million, representing an increase of 7% and 10%, respectively from the $162.1 million and $297.2 million in gross premiums written for the same periods in 2017. Hallmark’s net premiums earned were $91.0 million and $182.9 million for the three months and six months ended June 30, 2018, respectively, as compared to $90.7 million and $179.9 million for the same periods in 2017. During the three months and six months ended June 30, 2018, Hallmark’s income before tax was $6.4 million and $7.2 million, respectively, as compared to ($4.9) million and $0.9 million reported during the same periods in 2017.

 

The increase in net premiums earned for both the three months and six months ended June 30, 2018 was driven by improvement in the Specialty Commercial and Standard Commercial Segments, partially offset by lower net premiums earned in the Personal Segment. The increase in income before tax for the three months and six months ended June 30, 2018 was due primarily to the increase in net earned premiums, as well as higher commissions, fees and finance charges and decreased losses and loss adjustment expenses (“LAE”). The quarterly results were also favorably impacted by investment gains of $0.5 million in 2018 as compared to investment losses of $3.5 million in 2017, while the year to date results were adversely impacted by higher net investment losses of $4.3 million for 2018 as compared to $1.4 million for 2017. The decrease in loss and LAE was primarily the result of unfavorable net prior year loss reserve development of $5.0 million and $4.5 million for the three and six months ended June 30, 2018, respectively, as compared to unfavorable net prior year loss reserve development of $10.2 million and $9.7 million during the same periods of 2017. The investment loss during the six months ended June 30, 2018 includes $3.9 million in loss attributable to the adoption effective January 1, 2018 of Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income.

 

Hallmark’s effective tax rate was 20.1% for the six months ended June 30, 2018 as compared to 30.9% for the same period in 2017. The decrease in the effective tax rate was due primarily to the lower statutory rate from the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

 

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, our 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 
                     
Second Quarter 2018                         
Reported GAAP measures  $6,372   $1,282   $5,090    18,174   $0.28 
                          
Excluded investment losses/gains  $(533)   (112)   (421)   18,174   $(0.02)
                          
Operating earnings  $5,839   $1,170   $4,669    18,174   $0.26 
                          
Second Quarter 2017                         
Reported GAAP measures  $(4,918)  $(1,568)  $(3,350)   18,424   $(0.18)
                          
Excluded investment losses/gains   3,479    1,218    2,261    18,424   $0.12 
                          
Operating loss  $(1,439)  $(350)  $(1,089)   18,424   $(0.06)
                          
Year-to-Date 2018                         
Reported GAAP measures  $7,181   $1,444   $5,737    18,230   $0.31 
                          
Excluded investment losses/gains   4,302    903    3,399    18,230   $0.19 
                          
Operating earnings  $11,483   $2,347   $9,136    18,230   $0.50 
                          
Year-to-Date 2017                         
Reported GAAP measures  $920   $284   $636    18,663   $0.03 
                          
Excluded investment losses/gains   1,419    497    922    18,663   $0.05 
                          
Operating earnings  $2,339   $781   $1,558    18,663   $0.08 

 

 

 

  

 

 

 

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, , Atlanta and Jersey City. 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  2018   2017 
Investments:  (unaudited)      
 Debt securities, available-for-sale, at fair value (amortized cost: $566,520 in 2018 and $604,999 in 2017)  $568,826   $605,746 
 Equity securities (cost: $40,308 in 2018 and $30,253 in 2017)   57,914    51,763 
 Other investment (cost: $3,763 in 2018 and 2017)   3,060    3,824 
Total investments   629,800    661,333 
Cash and cash equivalents   79,583    64,982 
Restricted cash   3,078    2,651 
Ceded unearned premiums   127,504    112,323 
Premiums receivable   112,188    104,373 
Accounts receivable   2,051    1,513 
Receivable for securities   3,780    5,235 
Reinsurance recoverable   215,045    182,928 
Deferred policy acquisition costs   14,058    16,002 
Goodwill   44,695    44,695 
Intangible assets, net   8,791    10,023 
Deferred federal income taxes, net   2,584    1,937 
Federal income tax recoverable   0    7,532 
Prepaid expenses   2,692    1,743 
Other assets   13,431    13,856 
Total Assets  $1,259,280   $1,231,126 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Liabilities:          
Revolving credit facility payable  $30,000   $30,000 
Subordinated debt securities (less unamortized debt issuance cost of $924 in 2018 and $949 in 2017)   55,778    55,753 
Reserves for unpaid losses and loss adjustment expenses   520,552    527,100 
Unearned premiums   290,177    276,642 
Reinsurance balances payable   65,559    52,487 
Current federal income tax payable   187    - 
Pension liability   1,470    1,605 
Payable for securities   6,706    7,488 
Accounts payable and other accrued expenses   31,942    28,933 
Total Liabilities   1,002,371    980,008 
Commitments and contingencies          
Stockholders’ equity:          
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2018 and 2017   3,757    3,757 
Additional paid-in capital   123,017    123,180 
Retained earnings   156,585    136,474 
Accumulated other comprehensive income   (865)   12,234 
Treasury stock (2,814,155 shares in 2018 and 2,703,803 shares in 2017), at cost   (25,585)   (24,527)
Total Stockholders’ Equity   256,909    251,118 
Total Liabilities & Stockholders' Equity  $1,259,280   $1,231,126 

  

 

 

 

 

 

 

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 
   2018   2017   2018   2017 
   (unaudited)   (unaudited) 
Gross premiums written  $173,219   $162,056   $326,724   $297,168 
Ceded premiums written   (83,373)   (61,162)   (145,445)   (107,755)
Net premiums written   89,846    100,894    181,279    189,413 
Change in unearned premiums   1,132    (10,187)   1,646    (9,483)
Net premiums earned   90,978    90,707    182,925    179,930 
                     
Investment income, net of expenses   4,406    4,587    8,846    9,066 
Investment gains (losses), net   533    (3,479)   (4,302)   (1,419)
Finance charges   1,161    936    2,201    1,989 
Commission and fees   1,032    653    1,735    725 
Other income   15    71    61    132 
Total revenues   98,125    93,475    191,466    190,423 
                     
Losses and loss adjustment expenses   63,648    70,704    127,323    132,546 
Operating expenses   26,360    25,879    53,573    53,374 
Interest expense   1,128    1,193    2,155    2,349 
Amortization of intangible assets   617    617    1,234    1,234 
Total expenses   91,753    98,393    184,285    189,503 
                     
Income (loss) before tax   6,372    (4,918)   7,181    920 
Income tax expense (benefit)   1,282    (1,568)   1,444    284 
Net income (loss)  $5,090   $(3,350)  $5,737   $636 
                     
Net income (loss) per share:                    
Basic  $0.28   $(0.18)  $0.32   $0.03 
Diluted  $0.28   $(0.18)  $0.31   $0.03 

 

 

 

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Segment Data 

Three Months Ended Jun. 30                                        
   Specialty Commercial
Segment
   Standard Commercial
Segment
   Personal
Segment
   Corporate   Consolidated 
($ in thousands)  2018   2017   2018   2017   2018   2017   2018   2017   2018   2017 
Gross premiums written  $136,079   $127,805   $21,574   $19,769   $15,566   $14,482   $-   $-   $173,219   $162,056 
Ceded premiums written   (72,083)   (52,386)   (2,645)   (2,086)   (8,645)   (6,690)   -    -    (83,373)   (61,162)
Net premiums written   63,996    75,419    18,929    17,683    6,921    7,792    -    -    89,846    100,894 
Change in unearned premiums   2,333    (10,635)   (824)   (1,301)   (377)   1,749    -    -    1,132    (10,187)
Net premiums earned   66,329    64,784    18,105    16,382    6,544    9,541    -    -    90,978    90,707 
                                                   
Total revenues   72,081    69,501    19,247    17,322    7,916    10,684    (1,119)   (4,032)   98,125    93,475 
                                                   
Losses and loss adjustment expenses   48,352    50,529    10,621    11,863    4,675    8,312    -    -    63,648    70,704 
                                                   
Pre-tax income (loss)   8,770    3,632    2,656    (199)   (1)   (892)   (5,053)   (7,459)   6,372    (4,918)
                                                   
Net loss ratio (1)   72.9%   78.0%   58.7%   72.4%   71.4%   87.1%             70.0%   77.9%
Net expense ratio (1)   22.3%   23.2%   33.2%   34.9%   33.7%   26.6%             27.0%   27.2%
Net combined ratio (1)   95.2%   101.2%   91.9%   107.3%   105.1%   113.7%             97.0%   105.1%
                                                   
Favorable (Unfavorable) Prior Year Development   (5,849)   (8,032)   507    (1,722)   359    (419)   -    -    (4,983)   (10,173)

 

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.

 

 

 

 

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Segment Data

Six Months Ended Jun. 30                                        
   Specialty Commercial
Segment
   Standard Commercial
Segment
   Personal
Segment
   Corporate   Consolidated 
($ in thousands)  2018   2017   2018   2017   2018   2017   2018   2017   2018   2017 
Gross premiums written  $250,892   $223,312   $44,371   $40,462   $31,461   $33,394   $-   $-   $326,724   $297,168 
Ceded premiums written   (122,741)   (88,310)   (5,200)   (3,927)   (17,504)   (15,518)   -    -    (145,445)   (107,755)
Net premiums written   128,151    135,002    39,171    36,535    13,957    17,876    -    -    181,279    189,413 
Change in unearned premiums   5,868    (8,289)   (3,199)   (3,439)   (1,023)   2,245    -    -    1,646    (9,483)
Net premiums earned   134,019    126,713    35,972    33,096    12,934    20,121    -    -    182,925    179,930 
                                                   
Total revenues   145,205    135,336    38,122    35,048    15,536    22,547    (7,397)   (2,508)   191,466    190,423 
                                                   
Losses and loss adjustment expenses   95,895    92,119    22,301    22,909    9,127    17,518    -    -    127,323    132,546 
                                                   
Pre-tax income (loss)   18,528    11,730    3,975    652    (23)   (1,650)   (15,299)   (9,812)   7,181    920 
                                                   
Net loss ratio (1)   71.6%   72.7%   62.0%   69.2%   70.6%   87.1%             69.6%   73.7%
Net expense ratio (1)   23.0%   24.4%   33.2%   35.2%   34.6%   26.3%             27.5%   28.2%
Net combined ratio (1)   94.6%   97.1%   95.2%   104.4%   105.2%   113.4%             97.1%   101.9%
                                                   
Favorable (Unfavorable) Prior Year Development   (6,861)   (8,332)   1,560    (264)   848    (1,088)   -    -    (4,453)   (9,684)

 

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.

 

 

 

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