DALLAS, June 29, 2020 (GLOBE NEWSWIRE) — Hallmark Financial Services, Inc. (“Hallmark Financial”) (NASDAQ:HALL) today announced financial results for the fourth quarter and fiscal year ended December 31, 2019.

           
  Fourth Quarter   Fiscal Year
    2019     2018       2019     2018
$ in millions: (unaudited)  (unaudited)      
Net Income $ (34.0 ) $ (5.1 )   $ (0.6 ) $ 10.3
Operating (Loss) Earnings (1) $ (36.5 ) $ 5.1     $ (16.9 ) $ 18.4
           
$ per diluted share:          
Net Income $ (1.87 ) $ (0.28 )   $ (0.03 ) $ 0.57
Operating (Loss) Earnings (1) $ (2.01 ) $ 0.28     $ (0.93 ) $ 1.01

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

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

  • Gross premiums written increased 28% to $214.1 million
     
  • Net premiums written increased 35% to $127.5 million
     
  • Net combined ratio of 141.4% compared to 96.3%.  Net unfavorable prior year loss reserve development of $53.1 million added 44.7 percentage points to the net combined ratio compared to $0.1 million of net favorable prior year loss reserve development having a negligible impact on the net combined ratio.
     
  • Net loss of $34.0 million, or $1.87 per diluted share, compared to a net loss of $5.1 million, or $0.28 per diluted share
     
  • Operating loss of $36.5 million, or $2.01 per diluted share, compared to operating earnings of $5.1 million, or $0.28 per diluted share (see “Non-GAAP Financial Measures” below)
     
  • Net investment gains of $3.2 million compared to net investment losses of $12.9 million 

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

  • Gross premiums written increased 27% to $843.8 million
     
  • Net premiums written increased 36% to $496.6 million
     
  • Net combined ratio of 108.0% compared to 97.1%.  Net unfavorable prior year loss reserve development of $60.9 million added 13.9 percentage points to the net combined ratio compared to $6.0 million adding 1.6 percentage points to the net combined ratio.
     
  • Net loss of $0.6 million, or $0.03 per diluted share, compared to net income of $10.3 million, or $0.57 per diluted share
     
  • Operating loss of $16.9 million, or $0.93 per diluted share, compared to operating earnings of $18.4 million, or $1.01 per diluted share (see “Non-GAAP Financial Measures” below)
     
  • Net investment gains of $20.6 million, including $4.5 million in net realized gains and a $16.1 million increase in net unrealized gains, compared to net investment losses of $10.2 million, which included $1.8 million in net realized gains and $12.0 million in net unrealized losses 
     
  • Operating cash inflow of $27.7 million compared to operating cash outflow of $32.9 million
     
  • Book value per share grew 2% to $14.53
               
  Fourth Quarter   Fiscal Year
    2019     2018   % Change     2019     2018   % Change
($ in thousands) (unaudited) (unaudited)               
Gross premiums written   214,101     167,179   28 %     843,831     663,015   27 %
Net premiums written   127,533     94,507   35 %     496,552     363,798   36 %
Net premiums earned   118,849     91,300   30 %     436,877     363,087   20 %
Investment income, net of expenses   5,031     4,526   11 %     20,604     18,232   13 %
Investment gains (losses), net   3,206     (12,873 ) 125 %     20,618     (10,195 ) 302 %
Net (loss) income   (33,966 )   (5,075 ) -569 %     (625 )   10,347   -106 %
Operating (loss) earnings (1)   (36,499 )   5,095   -816 %     (16,913 )   18,401   -192 %
Net (loss) income per share – basic $ (1.87 ) $ (0.28 ) -568 %   $ (0.03 ) $ 0.57   -105 %
Net (loss) income per share – diluted $ (1.87 ) $ (0.28 ) -568 %   $ (0.03 ) $ 0.57   -105 %
Operating (loss) earnings per share – diluted (1) $ (2.01 ) $ 0.28   -818 %   $ (0.93 ) $ 1.01   -192 %
Operating cash flow   4,770     (13,952 ) 134 %     27,670     (32,935 ) 184 %
Book value per share $ 14.53   $ 14.17   2 %        
Tangible book value per share (1) $ 11.82   $ 11.35   4 %        

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

Fourth Quarter and Fiscal 2019 Financial Review

Gross Premiums Written
During the three months and fiscal year ended December 31, 2019, Hallmark Financial’s gross premiums written were $214.1 million and $843.8 million, respectively, representing an increase of 28% and 27%, respectively, from the $167.2 million and $663.0 million in gross premiums written for the same periods in 2018.

Net Premiums Written
During the three months and fiscal year ended December 31, 2019, Hallmark Financial’s net premiums written were $127.5 million and $496.6 million, respectively, representing an increase of 35% and 36%, respectively, from the $94.5 million and $363.8 million in net premiums written for the same periods of 2018.  The increase in net premiums written for the three months and fiscal year ended December 31, 2019 was due to premium growth in each of its Segments, as well as overall increased net retention of business. 

Net Premiums Earned
Hallmark Financial’s net premiums earned were $118.8 million and $436.9 million for the three months and fiscal year ended December 31, 2019, respectively, as compared to $91.3 million and $363.1 million for the same periods in 2018. 

Investments
Hallmark Financial’s fiscal year 2019 total investment income and gains on investments were $50.4 million, comprised of $20.6 million net investment income, $20.6 million net investment gains, and $9.2 million net unrealized holding gains reported in comprehensive income.  The 2019 total portfolio return was 8.0%.

During the three months and fiscal year ended December 31, 2019, net investment income was $5.0 million and $20.6 million, respectively, representing an increase of 11% and 13% for the same periods of 2018. 

At December 31, 2019 fixed-income securities were $574.3 million, with a tax equivalent book yield of 3.2% compared to 3.4% as of December 31, 2018.  As of December 31, 2019, our fixed-income portfolio had an average modified duration of 1.5 years and 79% of the securities had remaining time to maturity of five years or less.  As of December 31, 2019, 15% of our investment portfolio was invested in equity securities.

At December 31, 2019, total investments were $675.7 million, including net unrealized gains of $30.5 million. Cash and cash equivalents, including restricted cash were $54.9 million. Total investments, cash and cash equivalents, and restricted cash were $730.6 million or $40.31 per share.

Pre-Tax Income
Hallmark Financial had pre-tax loss of $43.1 million and $1.0 million for the three months and fiscal year ended December 31, 2019, respectively, as compared to a pre-tax loss of $6.5 million and pre-tax income of $12.8 million reported during the same periods in 2018. 

The decline in pre-tax results for the three months and fiscal year ended December 31, 2019 was predominately driven by adverse prior year loss reserve development, partially offset by increased revenue from higher net premiums earned, net investment income and finance charges, as well as investment gains compared to investment losses reported for the same periods in 2018.

Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios
Increases in revenue were offset by increased losses and LAE for the three months and fiscal year ended December 31, 2019 of $75.8 million and $106.1 million, respectively, as compared to the prior year periods due primarily to unfavorable net prior year reserve development, as well as increased net premiums earned.  Hallmark Financial reported $53.1 million and $60.9 million, respectively, of unfavorable net prior year loss reserve development during the three months and fiscal year ended December 31, 2019 as compared to favorable prior year loss reserve development of $0.1 million during the three months ended December 31, 2018 and unfavorable prior year loss reserve development of $6.0 million during the fiscal year ended December 31, 2018.  The unfavorable net prior year loss reserve development for fiscal 2019 was primarily related to commercial auto claims incurred in the years 2016 and 2017.

Hallmark Financial had a net loss ratio of 118.1% and 82.9% for the three months and fiscal year ended December 31, 2019, respectively, as compared to 70.6% and 70.5% reported during the same periods in 2018.  Catastrophe losses contributed 0.6% and 1.2% to the net loss ratios for the three months and fiscal year ended December 31, 2019, as compared to 5.1% and 2.6% for the same periods of the prior year. 

The expense ratio was 23.3% and 25.1% for the three months and fiscal year ended December 31, 2019, respectively, as compared to 25.7% and 26.6% reported during the same periods in 2018.  The Company reported a net combined ratio of 141.4% and 108.0% for the three months and fiscal year ended December 31, 2019, compared to 96.3% and 97.1% during the same periods in 2018. 

Net Income
Hallmark Financial reported a net loss of $34.0 million and $0.6 million for the three months and fiscal year ended December 31, 2019 as compared to a net loss of $5.1 million and net income of $10.3 million for the three months and fiscal year ended December 31, 2018. 

On a diluted basis per share, the Company reported a net loss of $1.87 per share and $0.03 per share for the three months and fiscal year ended December 31, 2019 as compared to a net loss of $0.28 per share and net income of $0.57 per share for the three months and fiscal year ended December 31, 2018.

Hallmark Financial expects to file its first quarter 2020 Form 10-Q within the next few weeks and to timely file its second quarter 2020 Form 10-Q.

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
Fourth Quarter 2019          
Reported GAAP measures (unaudited) $ (43,094 ) $ (9,128 ) $   (33,966 ) 18,123 $   (1.87 )
Excluded investment (gains)/losses $ (3,206 ) $ (673 ) $ (2,533 ) 18,123 $ (0.14 )
Operating earnings $ (46,300 ) $ (9,801 ) $   (36,499 ) 18,123 $   (2.01 )
           
Fourth Quarter 2018          
Reported GAAP measures (unaudited) $ (6,453 ) $ (1,378 ) $   (5,075 ) 18,055 $   (0.28 )
Excluded investment (gains)/losses $ 12,873   $ 2,703   $ 10,170   18,198 $ 0.56  
Operating earnings $ 6,420   $ 1,325   $   5,095   18,198 $   0.28  
           
Fiscal 2019          
Reported GAAP measures $ (1,032 ) $ (407 ) $   (625 ) 18,107 $   (0.03 )
Excluded investment (gains)/losses $ (20,618 ) $ (4,330 ) $ (16,288 ) 18,107 $ (0.90 )
Operating earnings $ (21,650 ) $ (4,737 ) $   (16,913 ) 18,107 $   (0.93 )
           
Fiscal 2018          
Reported GAAP measures $ 12,803   $ 2,456   $   10,347   18,201 $   0.57  
Excluded investment (gains)/losses $ 10,195   $ 2,141   $ 8,054   18,201 $ 0.44  
Operating earnings $ 22,998   $ 4,597   $   18,401   18,201 $   1.01  
           

Tangible book value per share is calculated by dividing tangible stockholders’ equity by common shares outstanding.  Tangible stockholders’ equity is calculated by excluding goodwill, net intangible assets and related deferred tax liabilities from GAAP stockholders’ equity.  Management believes that tangible book value per share provides useful information to investors about the Company’s per share equity value exclusive of goodwill and net intangible assets from prior acquisitions.  Stockholders’ equity is the GAAP measure that is most directly comparable to tangible stockholder’s equity.  A reconciliation of tangible stockholders’ equity and tangible book value per share to the most comparable GAAP financial measures is presented below.

  As of December 31,
(amounts in thousands, except per share)   2019     2018  
Reported GAAP stockholders’ equity $ 263,282   $ 255,532  
Excluded:    
Goodwill   (44,695 )   (44,695 )
Intangible assets, net   (5,087 )   (7,555 )
Deferred tax liability related to    
intangible assets, net   795     1,314  
Tangible stockholders’ equity   214,295     204,596  
Common shares outstanding   18,123     18,027  
Tangible book value per share $   11.82   $   11.35  
             

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 approximately $800 million annually in commercial and personal insurance premiums in select markets.  Hallmark Financial is headquartered in Dallas, 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. David Webb, Senior Vice President of Corporate Development at 817.348.1600
www.hallmarkgrp.com

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets        
($ in thousands, except par value)   Dec. 31   Dec. 31
ASSETS   2019     2018  
Investments:      
Debt securities, available-for-sale, at fair value (amortized cost: $569,498 in 2019 and $550,268 in 2018) $ 574,279   $ 545,870  
Equity securities (cost: $71,895 in 2019 and $68,709 in 2018)   99,215     80,896  
Other investment (cost: $3,763 in 2019 and $3,763 in 2018)   2,169     1,148  
Total investments   675,663     627,914  
Cash and cash equivalents   53,336     35,594  
Restricted cash   1,612     4,877  
Ceded unearned premiums   164,221     133,031  
Premiums receivable   148,288     119,778  
Accounts receivable   4,286     1,619  
Receivable for securities   12,581     3,369  
Reinsurance recoverable   315,466     252,029  
Deferred policy acquisition costs   22,994     14,291  
Goodwill   44,695     44,695  
Intangible assets, net   5,087     7,555  
Federal income tax recoverable   8,995      
Deferred federal income taxes, net   2,185     4,983  
Prepaid expenses   2,603     2,588  
Other assets   33,262     12,571  
Total Assets $ 1,495,274   $ 1,264,894  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
Senior unsecured notes due 2029 (less unamortized debt issuance cost of $942 in 2019) $ 49,058   $  
Revolving credit facility payable       30,000  
Subordinated debt securities (less unamortized debt issuance cost of $846 in 2019 and $898 in 2018)   55,856     55,804  
Reserves for unpaid losses and loss adjustment expenses   620,355     527,247  
Unearned premiums   388,926     298,061  
Reinsurance balances payable   59,274     67,328  
Current federal income tax payable       4  
Pension liability   1,388     2,018  
Payable for securities   1,648     698  
Accounts payable and other accrued expenses   55,487     28,202  
Total Liabilities   1,231,992     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   123,468     123,168  
Retained earnings   160,570     161,195  
Accumulated other comprehensive income (loss)   688     (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   263,282     255,532  
Total Liabilities & Stockholders’ Equity $ 1,495,274   $ 1,264,894  
 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations Three Months Ended   Fiscal Year Ended
($ in thousands, except per share amounts) December 31,   December 31,
  2019 2018     2019   2018  
    (unaudited)   (unaudited)          
Gross premiums written $ 214,101   $ 167,179     $ 843,831   $ 663,015  
Ceded premiums written   (86,568 )   (72,672 )     (347,279 )   (299,217 )
Net premiums written   127,533     94,507       496,552     363,798  
Change in unearned premiums   (8,684 )   (3,207 )     (59,675 )   (711 )
Net premiums earned   118,849     91,300       436,877     363,087  
                   
Investment income, net of expenses   5,031     4,526       20,604     18,232  
Investment gains (losses), net   3,206     (12,873 )     20,618     (10,195 )
Finance charges   1,717     1,567       7,026     5,115  
Commission and fees   246     324       1,190     2,928  
Other income   13     12       56     101  
Total revenues   129,062     84,856       486,371     379,268  
                   
Losses and loss adjustment expenses   140,304     64,460       362,165     256,028  
Operating expenses   29,704     25,022       117,360     103,424  
Interest expense   1,531     1,210       5,410     4,545  
Amortization of intangible assets   617     617       2,468     2,468  
Total expenses   172,156     91,309       487,403     366,465  
                   
Income before tax   (43,094 )   (6,453 )     (1,032 )   12,803  
Income tax expense   (9,128 )   (1,378 )     (407 )   2,456  
Net income $ (33,966 ) $ (5,075 )   $ (625 ) $ 10,347  
                   
Net income per share:                  
Basic $ (1.87 ) $ (0.28 )   $ (0.03 ) $ 0.57  
Diluted $ (1.87 ) $ (0.28 )   $ (0.03 ) $ 0.57  
           
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data        
Three Months Ended Dec. 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 $ 169,879   $ 125,315   $ 21,719   $ 20,190   $ 22,503   $ 21,674   $   $   $ 214,101   $ 167,179  
Ceded premiums written   (76,766 )   (60,930 )   (6,666 )   (9,301 )   (3,136 )   (2,441 )           (86,568 )   (72,672 )
Net premiums written   93,113     64,385     15,053     10,889     19,367     19,233             127,533     94,507  
Change in unearned premiums   (10,350 )   (2,616 )   108     6,747     1,558     (7,338 )           (8,684 )   (3,207 )
Net premiums earned   82,763     61,769     15,161     17,636     20,925     11,895             118,849     91,300  
                     
Total revenues   86,719     66,776     16,152     18,569     22,683     13,732     3,508     (14,221 )   129,062     84,856  
                     
Losses and loss adjustment expenses   104,351     46,267     16,339     10,834     19,614     7,359             140,304     64,460  
                     
Pre-tax income (loss)   (34,532 )   7,800     (4,467 )   1,851     (2,847 )   2,400     (1,248 )   (18,504 )   (43,094 )   (6,453 )
                     
Net loss ratio (1)   126.1 %   74.9 %   107.8 %   61.4 %   93.7 %   61.9 %       118.1 %   70.6 %
Net expense ratio (1)   21.1 %   21.9 %   28.5 %   33.7 %   21.2 %   21.3 %       23.3 %   25.7 %
Net combined ratio (1)   147.2 %   96.8 %   136.3 %   95.1 %   114.9 %   83.2 %       141.4 %   96.3 %
                     
Favorable (Unfavorable) Prior Year Development   (48,906 )   (727 )   (4,234 )   164     21     672             (53,119 )   109  

(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        
Fiscal Year Ended Dec. 31                    
                     
  Specialty Commercial
Segment
Standard Commercial
Segment
Personal Segment Corporate Consolidated
($ in thousands)   2019     2018     2019     2018     2019     2018     2019   2018     2019     2018  
Gross premiums written $ 651,913   $ 501,806   $ 92,645   $ 86,121   $ 99,273   $ 75,088   $ $   $ 843,831   $ 663,015  
Ceded premiums written   (301,866 )   (250,075 )   (29,753 )   (16,899 )   (15,660 )   (32,243 )         (347,279 )   (299,217 )
Net premiums written   350,047     251,731     62,892     69,222     83,613     42,845           496,552     363,798  
Change in unearned premiums   (57,459 )   6,455     1,078     3,099     (3,294 )   (10,265 )         (59,675 )   (711 )
Net premiums earned   292,588     258,186     63,970     72,321     80,319     32,580           436,877     363,087  
                     
Total revenues   309,619     280,283     68,179     76,548     88,225     38,623     20,348   (16,186 )   486,371     379,268  
                     
Losses and loss adjustment expenses   248,781     194,268     50,036     39,396     63,348     22,364           362,165     256,028  
                     
Pre-tax income (loss)   (1,371 )   28,780     (841 )   13,090     427     3,061     753   (32,128 )   (1,032 )   12,803  
                     
Net loss ratio (1)   85.0 %   75.2 %   78.2 %   54.5 %   78.9 %   68.6 %       82.9 %   70.5 %
Net expense ratio (1)   21.8 %   22.6 %   30.0 %   33.5 %   22.7 %   26.3 %       25.1 %   26.6 %
Net combined ratio (1)   106.8 %   97.8 %   108.2 %   88.0 %   101.6 %   94.9 %       108.0 %   97.1 %
                     
Net Favorable (Unfavorable) Prior Year Development   (60,138 )   (16,457 )   (726 )   8,993     (36 )   1,511           (60,900 )   (5,953 )

(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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