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.

Legal Disclaimer:

EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.