Hallmark Announces First Quarter 2022 Results
05/12/2022 - 04:05 PM
DALLAS, May 12, 2022 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2022.
First Quarter 2022 2021 $ in millions: Net (Loss) Income $ (3.2 ) $ 9.0 Operating (Loss) Income (1) $ (3.3 ) $ 4.4 $ per diluted share: Net (Loss) Income $ (0.18 ) $ 0.49 Operating (Loss) Income (1) $ (0.18 ) $ 0.24
(1) See “Non-GAAP Financial Measures” below
Highlights:
Net loss of $3.2 million , or $0.18 per share, in the first quarter of 2022 as compared to net income of $9.0 million , or $0.49 per share, for the same period of 2021. Net combined ratio of 106.0% for the first quarter of 2022 declined from 95.4% for the same period the prior year. Although moderating in 2022, achieved rate increases, particularly in the Specialty Commercial Segment with increases for this business averaging 8.2% for the first quarter. Gross premiums written for the quarter ended March 31, 2022 decreased 7% compared to the quarter ended March 31, 2021 and decreased 1% compared to the previous quarter ended December 31, 2021. Net catastrophe losses were $1.1 million in the first quarter of 2022, or 1.3 points of the net combined ratio. Net investment gains of $0.1 million during the first quarter of 2022, which included $0.1 million of unrealized losses on equity securities, as compared to net investment gains of $5.8 million , which included $4.4 million of unrealized gains on equity securities, during the same period the prior year. First Quarter 2022 Financial Review
First Quarter 2022 2021 % Change ($ in thousands) Gross premiums written $ 150,959 $ 163,018 -7 % Net premiums written $ 78,321 $ 91,497 -14 % Net premiums earned $ 82,476 $ 101,852 -19 % Investment income, net of expenses $ 1,859 $ 3,010 -38 % Investment gains (losses), net $ 51 $ 5,779 -99 % Net (loss) income $ (3,219 ) $ 8,971 -136 % Operating (loss) income (1) $ (3,259 ) $ 4,406 -174 % Net (loss) income per share - basic $ (0.18 ) $ 0.49 -137 % Net (loss) income per share - diluted $ (0.18 ) $ 0.49 -137 % Operating (loss) income per share - diluted (1) $ (0.18 ) $ 0.24 -175 % Book value per share $ 9.34 $ 9.69 -4 %
(1) See “Non-GAAP Financial Measures” below
Gross Premiums Written $151.0 million during the three months ended March 31, 2022, representing a decrease of 7% from the $163.0 million in gross premiums written for the same period in 2021.
Net Premiums Written $78.3 million during the three months ended March 31, 2022, representing a decrease of 14% from the $91.5 million in net premiums written for the same period of 2021.
Net Premiums Earned $82.5 million for the three months ended March 31, 2022, representing a 19% decrease from the $101.9 million in net premiums earned for the same period in 2021.
Investments 0.2% during the three months ended March 31, 2022, significantly outperforming market averages, including the 5% decline in the S&P 500 Stock Index and a 5.9% decline in the Bloomberg Aggregate Bond Index. Notably, common stock performance was positive during the quarter. Fixed maturity securities also performed favorably compared to fixed-income benchmarks.
Beginning in second quarter of 2020, following the steep decline in interest rates resulting from COVID-19 related stimulus measures, significant restraint was exercised in consideration of new bond investments. Instead, the amount of cash held steadily increased, growing to more than $350 million by 2021 yearend. As interest rates rose significantly in the latter part of the quarter just ended, $154 million of cash was deployed into fixed income securities at yields comparable to, or higher than, the average yield of the existing portfolio.
These actions had two primary effects. First, the cash reserves and short duration of debt securities held provided significant protection to the balance sheet during what has been described as among the worst quarters of performance in bond markets in U.S. history – avoiding unrealized losses in longer dated maturities that will likely persist for years. Second, opportunistic reinvestment of large sums of cash into securities with comparatively attractive yields is expected to contribute to an increase in investment income in future periods. Subsequent to quarter end, an additional $60 million has been deployed in debt securities of similar or better yields.
Net investment income was $1.9 million during the three months ended March 31, 2022, as compared to $3.0 million during the same period in 2021. The decline in net investment income was primarily due to a lower average amount of debt securities owned during the current quarter compared to the prior year and a $500 thousand special common stock dividend received on an arbitrage trading position in the prior year.
Net investment gains were $51 thousand for the three months ended March 31, 2022, as compared to net investment gains of $5.8 million for the same period in 2021. Net realized and unrealized gains on common stocks were offset by a reduction in the amount of unrealized gains on preferred stocks existing at 2021 yearend.
Fixed-income securities were $388.3 million at March 31, 2022, with a tax equivalent book yield of 2.5% compared to 2.6% as of March 31, 2021. As of March 31, 2022, the fixed-income portfolio had an average modified duration of 1.0 years and 82% of the securities had remaining time to maturity of five years or less. As of March 31, 2022, 12% of the investment portfolio was invested in equity securities.
Total investments were $440.9 million at March 31, 2022. Cash and cash equivalents, including restricted cash were $187.6 million . Total investments, cash and cash equivalents, and restricted cash were $628.5 million or $34.55 per share.
Pre-Tax Income $4.1 million for the three months ended March 31, 2022, as compared to a pre-tax income of $11.2 million reported during the same period in 2021. The decline in pre-tax results for the three months ended March 31, 2021, was predominately driven by decreased revenue and lower net investment gains, partially offset by lower losses and loss adjustment expenses (“LAE”) and lower operating expenses.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios 106.0% for the quarter ended March 31, 2022, as compared to 95.4% for the same period during 2021.
The decrease in losses and LAE was primarily due to decreased net premiums earned and lower net catastrophe losses, partially offset by unfavorable net prior year loss reserve development during the first quarter of 2022 compared to favorable net prior year loss development during the same period of 2021. Losses and LAE for the first quarter of 2022 included $1.1 million of net catastrophe losses as compared to $5.9 million during the same period of the prior year. During the first quarter of 2022, we experienced $7.7 million of unfavorable net prior year loss reserve development, driven primarily by our exited contract binding line of business, compared to $2.1 million of favorable net prior year loss development during the same period of 2021.
The net loss ratio was 77.6% for the three months ended March 31, 2022 as compared to 68.2% reported during the same period in 2021. Net unfavorable prior year loss reserve development increased the net loss ratio by 9.3 points for the three months ended March 31, 2022, as compared to 2.0 points reduction in the net loss ratio from net favorable prior year loss reserve development for the same period during 2021. Catastrophe losses contributed 1.3 points to the net loss ratio for the three months ended March 31, 2022, as compared to 5.8 points for the same period during 2021.
The expense ratio was 28.4% for the three months ended March 31, 2022 as compared to 27.2% during the same period in 2021.
Net (Loss) Income $3.2 million for the three months ended March 31, 2022 as compared to net income of $9.0 million for the same period during 2021. On a diluted basis per share, net loss was $0.18 per share for the three months ended March 31, 2022 as compared to a net income of $0.49 per share for the three months ended March 31, 2021.
Book Value Per Share 4% to $9.34 per share as of March 31, 2022 as compared to $9.66 per share as of December 31, 2021.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating income and operating income per share are calculated by excluding net investment gains and losses and impairment of long lived assets from GAAP net income. Impairments are unusual and infrequent charges for the Company. Management believes that operating income and operating income per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating income and operating income per share to the most comparable GAAP financial measures is presented below.
Weighted Income (Loss) Less Tax Net Average Diluted ($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share First Quarter 2022 Reported GAAP measures $ (4,119 ) $ (900 ) $ (3,219 ) 18,172 $ (0.18 ) Excluded investment (gains)/losses $ (51 ) $ (11 ) $ (40 ) 18,172 $ (0.00 ) Operating loss $ (4,170 ) $ (911 ) $ (3,259 ) 18,172 $ (0.18 ) First Quarter 2021 Reported GAAP measures $ 11,227 $ 2,256 $ 8,971 18,142 $ 0.49 Excluded investment (gains)/losses $ (5,779 ) $ (1,214 ) $ (4,565 ) 18,142 $ (0.25 ) Operating income $ 5,448 $ 1,042 $ 4,406 18,142 $ 0.24
Hallmark 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, Hallmark markets, underwrites and services commercial and personal insurance in select markets. Hallmark 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:
Chris Kenneywww.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except par value) Mar. 31 Dec. 31 ASSETS 2022 2021 Investments: (unaudited) Debt securities, available-for-sale, at fair value (amortized cost: $389,582 in 2022 and $288,175 in 2021) $ 388,254 $ 290,073 Equity securities (cost: $46,124 in 2022 and $42,120 in 2021) 52,604 48,695 Total investments 440,858 338,768 Cash and cash equivalents 183,377 352,867 Restricted cash 4,239 3,810 Ceded unearned premiums 142,645 146,433 Premiums receivable 88,420 90,621 Accounts receivable 20,094 6,914 Receivable for securities 1,209 1,326 Reinsurance recoverable 545,266 549,964 Deferred policy acquisition costs 6,847 6,811 Intangible assets, net 693 819 Federal income tax recoverable 14,748 18,217 Deferred federal income taxes, net 9,412 8,906 Prepaid expenses 5,389 2,389 Other assets 26,666 25,753 Total Assets $ 1,489,863 $ 1,553,598 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $721 in 2022 and $746 in 2021) $ 49,279 $ 49,254 Subordinated debt securities (less unamortized debt issuance costs of $730 in 2022 and $744 in 2021) 55,972 55,959 Reserves for unpaid losses and loss adjustment expenses 798,338 816,681 Unearned premiums 276,485 284,427 Reinsurance payable 85,980 117,908 Pension liability 59 174 Payable for securities 2,374 3,280 Accounts payable and other liabilites 51,540 50,394 Total Liabilities 1,320,027 1,378,077 Commitments and contingencies Stockholders' equity: Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2022 and 2021 3,757 3,757 Additional paid-in capital 122,741 122,844 Retained earnings 71,484 74,703 Accumulated other comprehensive loss (3,563 ) (1,035 ) Treasury stock (2,682,413 shares in 2022 and 2,700,364 shares in 2021), at cost (24,583 ) (24,748 ) Total Stockholders Equity 169,836 175,521 Total Liabilities & Stockholders Equity $ 1,489,863 $ 1,553,598
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended ($ in thousands, except per share amounts, unaudited) March 31, 2022 2021 Gross premiums written $ 150,959 $ 163,018 Ceded premiums written (72,638 ) (71,521 ) Net premiums written 78,321 91,497 Change in unearned premiums 4,155 10,355 Net premiums earned 82,476 101,852 Investment income, net of expenses 1,859 3,010 Investment gains, net 51 5,779 Finance charges 983 1,133 Commission and fees 287 260 Other income 16 19 Total revenues 85,672 112,053 Losses and loss adjustment expenses 64,024 69,479 Operating expenses 24,377 29,972 Interest expense 1,264 1,249 Amortization of intangible assets 126 126 Total expenses 89,791 100,826 (Loss) income before tax (4,119 ) 11,227 Income tax (benefit) expense (900 ) 2,256 Net (loss) income $ (3,219 ) $ 8,971 Net (loss) income per share: Basic $ (0.18 ) $ 0.49 Diluted $ (0.18 ) $ 0.49
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) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Gross premiums written $ 103,850 $ 113,990 $ 30,277 $ 29,735 $ 16,832 $ 19,293 $ - $ - $ 150,959 $ 163,018 Ceded premiums written (61,069 ) (61,204 ) (11,493 ) (10,250 ) (76 ) (67 ) - - (72,638 ) (71,521 ) Net premiums written 42,781 52,786 18,784 19,485 16,756 19,226 - - 78,321 91,497 Change in unearned premiums 7,429 14,425 (2,077 ) (2,419 ) (1,197 ) (1,651 ) - - 4,155 10,355 Net premiums earned 50,210 67,211 16,707 17,066 15,559 17,575 - - 82,476 101,852 Total revenues 51,911 69,599 17,128 17,688 16,819 18,959 (186 ) 5,807 85,672 112,053 Losses and loss adjustment expenses 39,312 42,983 12,133 12,091 12,579 14,405 - - 64,024 69,479 Pre-tax income (loss) 2,565 11,348 (692 ) 366 (1,026 ) (1,623 ) (4,966 ) 1,136 (4,119 ) 11,227 Net loss ratio (1) 78.3 % 64.0 % 72.6 % 70.8 % 80.8 % 82.0 % 77.6 % 68.2 % Net expense ratio (1) 22.1 % 24.1 % 34.7 % 31.6 % 29.0 % 30.4 % 28.4 % 27.2 % Net combined ratio (1) 100.4 % 88.1 % 107.3 % 102.4 % 109.8 % 112.4 % 106.0 % 95.4 % Net (Unfavorable) Favorable Prior Year Development (6,380 ) 1,899 262 1,361 (1,573 ) (1,174 ) (7,691 ) 2,086
(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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