Hallmark Announces Second Quarter Results
08/14/2023 - 04:05 PM
DALLAS, Aug. 14, 2023 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today filed its Form 10-Q and announced financial results for the second quarter and six months ended June 30, 2023.
Second Quarter Year-to-Date 2023 2022 2023 2022 $ in millions: Net loss from continuing operations $ (17.8 ) $ (67.0 ) $ (57.0 ) $ (78.7 ) Net income (loss) from discontinued operations $ 5.9 $ (2.4 ) $ 6.0 $ 6.1 Net loss $ (11.9 ) $ (69.4 ) $ (51.0 ) $ (72.6 ) Operating loss (1) $ (12.4 ) $ (63.9 ) $ (17.4 ) $ (75.6 ) $ per diluted share (2): Net loss from continuing operations $ (9.78 ) $ (36.85 ) $ (31.37 ) $ (43.30 ) Net income (loss) from discontinued operations $ 3.23 $ (1.31 ) $ 3.29 $ 3.35 Net loss $ (6.55 ) $ (38.16 ) $ (28.08 ) $ (39.95 ) Operating loss (1) $ (6.83 ) $ (35.12 ) $ (9.56 ) $ (41.58 )
(1) See “Non-GAAP Financial Measures” below(2) Per share amounts have been restated to reflect one-for-ten reverse stock split
Highlights of results from the quarter:
Net loss from continuing operations in the second quarter of 2023 of $17.8 million , or $9.78 per share, as compared to a net loss of $67.0 million , or $36.85 per share for the comparable period in 2022. Year-to-date net loss from continuing operations of $57.0 million , or $31.37 per share, for 2023 as compared to a net loss of $78.7 million , or $43.30 per share, for the comparable period in 2022. Net income from discontinued operations of $5.9 million , or $3.23 per share, in the second quarter of 2023 as compared to a net loss from discontinued operations of $2.4 million , or $1.31 per share, for the comparable period in 2022. Year-to-date net income from discontinued operations of $6.0 million , or $3.29 per share, for 2023 as compared to net income of $6.1 million , or $3.35 per share, for the comparable period in 2022. Net loss of $11.9 million , or $6.55 per share, in the second quarter of 2023 includes $3.1 million or $1.72 per share related to the DARAG( a ) write-off to bad debt expense based on the final definitive award declared on June 2, 2023, compared to a net loss of $69.4 million , or $38.16 per share, for the comparable period in 2022. Year-to-date net loss of $51.0 million , or $28.08 per share, for 2023 includes $29.1 million , or $16.00 per share, related to the DARAG( a ) write-off to bad debt expense on the final definitive award declared on June 2, 2023, as compared to a net loss of $72.6 million , or $39.95 per share, for the comparable period in 2022. See Non-GAAP Financial Measures below. Net combined ratio of 157.3% for the three months ended June 30, 2023, compared to 240.9% for the same periods the prior year. Year-to-date net combined ratio for 2023 of 185.9% as compared to 187.3% for the comparable period in 2022. Underlying combined ratio (excluding net prior year development, catastrophe losses and write-off of DARAG( a ) receivable) of 119.4% for the three months ended June 30, 2023, compared to 117.7% for the same period the prior year. Year-to-date underlying combined ratio for 2023 of 114.9% as compared to 113.6% for the comparable period in 2022. See Non-GAAP Financial Measures below. Net investment income was $4.0 million during the three months ended June 30, 2023, as compared to $3.1 million during the same period in 2022. Year-to-date net investment income for 2023 of $8.4 million as compared to $5.0 million for the comparable period in 2022. As of June 30, 2023, the Company has $150.5 million in cash and cash equivalents. Our debt securities were $295.8 million as of June 30, 2023 as compared to $426.6 million as of December 31, 2022. Furthermore, 92% of debt securities have maturities of five years or less and overall our debt securities portfolio has an average modified duration of 0.7 years. The Company continues to maintain a full valuation allowance for income tax in fiscal 2023. Due to the Maui, Hawaii wildfires on August 9, 2023, we preliminarily estimate our net loss exposure to be $7.5 million plus additional cost in the form of reinstatement premiums to restore any necessary reinsurance layers. The net loss and any additional cost incurred will be recognized in our third quarter 2023 financial statements. On May 5, 2023, the Company entered into an agreement with an A.M. Best rated “A” insurance company to continue to write new business in circumstances that require an A.M. Best financial strength rating. a) As previously disclosed in Hallmark’s public filings, certain of Hallmark’s subsidiaries were parties to an arbitration proceeding relating to a Loss Portfolio Transfer Reinsurance Contract with DARAG Bermuda Ltd. and DARAG Insurance Limited. On May 4, 2023, the arbitration panel rendered an interim final award, which resulted in a write-off of $32.9 million recognized during the first quarter of 2023, subject to final determination of certain amounts under settlement which may increase or decrease our total write-off. As of March 31, 2023, our consolidated balance sheet included $3.9 million of account receivable from DARAG related to cost incurred in which we contended we have right of reimbursement. On June 2, 2023, the final definitive binding award was declared by the arbitration panel which resulted in an additional write-off to Hallmark of $3.9 million , or $3.1 million if tax effected, during the second quarter of 2023. This additional write-off results in a total write-off of $36.8 million , or $29.1 million if tax effected, included in our year-to-date net loss.
Second Quarter and Year-to-Date 2023 Financial Review
Second Quarter Year-to-Date 2023 2022 2023 2022 ($ in thousands) Gross premiums written $ 54,511 $ 56,004 $ 111,683 $ 115,337 Net premiums written $ 43,875 $ 37,438 $ 86,256 $ 78,707 Net premiums earned $ 36,847 $ 37,037 $ 72,127 $ 76,352 Investment income, net of expenses $ 4,019 $ 3,120 $ 8,361 $ 4,979 Investment gains (losses), net $ 248 $ (3,994 ) $ (392 ) $ (3,943 ) Net (loss) from continuing operations $ (17,785 ) $ (67,035 ) $ (57,031 ) $ (78,712 ) Net income from discontinued operations $ 5,876 $ (2,382 ) $ 5,980 $ 6,076 Net (loss) income $ (11,909 ) $ (69,417 ) $ (51,051 ) $ (72,636 ) Operating (loss) income (2) $ (12,416 ) $ (63,880 ) $ (17,389 ) $ (75,597 ) Net (loss) income per share from continuing operations basic & diluted (1) $ (9.78 ) $ (36.85 ) $ (31.37 ) $ (43.30 ) Net income per share from discontinued operations - basic & diluted $ 3.23 $ (1.31 ) $ 3.29 $ 3.35 Net loss per share - basic & diluted $ (6.55 ) $ (38.16 ) $ (28.08 ) $ (39.95 ) Operating (loss) per share - basic & diluted (2) $ (6.83 ) $ (35.12 ) $ (9.56 ) $ (41.58 ) Book value per share $ 6.81 $ 53.01 $ 6.81 $ 53.01
(1) Per share amounts have been restated for a reverse stock split(2) See “Non-GAAP Financial Measures” below
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 asset impairments or valuation allowances from GAAP net income from continuing operations. Asset impairments and valuation allowances 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 from continuing operations and net income per share from continuing operations 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.
Hallmark Financial Services, Inc. and Subsidiaries Non-GAAP Financial Measures Reconciliation ($ in thousands) Income (Loss) from Continuing Operations Before Tax Less Tax Effect Net After Tax Weighted Average Shares Diluted Diluted Per Share Second Quarter 2023 Reported GAAP measures $ (17,918 ) $ (133 ) $ (17,785 ) 1,818 $ (9.78 ) Excluded deferred tax valuation allowance $ - $ (2,441 ) $ 2,441 1,818 $ 1.34 Excluded write-off receivable from reinsurer $ 3,954 $ 830 $ 3,124 1,818 $ 1.72 Excluded investment (gains)/losses $ (248 ) $ (52 ) $ (196 ) 1,818 $ (0.11 ) Operating loss $ (14,212 ) $ (1,796 ) $ (12,416 ) 1,818 $ (6.83 ) Second Quarter 2022 Reported GAAP measures $ (54,585 ) $ 12,450 $ (67,035 ) 1,819 $ (36.85 ) Excluded investment (gains)/losses $ 3,994 $ 839 $ 3,155 1,819 $ 1.73 Operating loss $ (50,591 ) $ 13,289 $ (63,880 ) 1,819 $ (35.12 ) Year-to-Date 2023 Reported GAAP measures $ (57,698 ) $ (667 ) $ (57,031 ) 1,818 $ (31.37 ) Excluded deferred tax valuation allowance $ - $ (10,239 ) $ 10,239 1,818 $ 5.63 Excluded write-off receivable from reinsurer $ 36,826 $ 7,733 $ 29,093 1,818 $ 16.00 Excluded investment (gains)/losses $ 392 $ 82 $ 310 1,818 $ 0.17 Operating loss $ (20,480 ) $ (3,091 ) $ (17,389 ) 1,818 $ (9.56 ) Year-to-Date 2022 Reported GAAP measures $ (69,442 ) $ 9,270 $ (78,712 ) 1,818 $ (43.30 ) Excluded investment (gains)/losses $ 3,943 $ 828 $ 3,115 1,818 $ 1.71 Operating income $ (65,499 ) $ 10,098 $ (75,597 ) 1,818 $ (41.58 )
Underlying combined ratio is calculated by excluding the impact of net favorable or unfavorable prior year loss development and catastrophe losses from the calculation of the net combined ratio. Management believes that the underlying combined ratio provides useful information to investors about the current performance of the Company's insurance operations absent historical developments and uncontrollable events. Combined ratio is the GAAP measure most comparable to underlying combined ratio. A reconciliation of the underlying combined ratio to the combined ratio is presented below.
2ndQ 2023 2ndQ 2022 YTD 2023 YTD 2022 Net combined ratio 157.3 % 240.9 % 185.9 % 187.3 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 24.5 % 120.9 % 16.1 % 72.3 % Catastrophes, net of reinsurance 2.8 % 2.3 % 3.8 % 1.4 % Write-off receivable from reinsurer 10.7 % 0.0 % 51.1 % 0.0 % Underlying combined ratio 119.4 % 117.7 % 114.9 % 113.6 %
A copy of our Form 10-Q is available on our website at www.hallmarkgrp.com or on the SEC website at www.sec.gov. Readers are urged to review the Form 10-Q for a more complete discussion of our financial performance.
About Hallmark
Hallmark is a 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 Kenney Chief Executive Officer 817.348.1600www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except par value) Jun. 30 Dec. 31 ASSETS 2023 2022 Investments: Debt securities, available-for-sale, at fair value (amortized cost: $299,544 in 2023 and $434,119 in 2022; allowance for expected credit losses of $0 in 2023) $ 295,761 $ 426,597 Equity securities (cost: $24,284 in 2023 and $30,058 in 2022) 22,763 28,199 Total investments 318,524 454,796 Cash and cash equivalents 150,528 59,133 Restricted cash 14,781 29,486 Ceded unearned premiums 86,661 237,086 Premiums receivable 49,506 78,355 Accounts receivable 1,076 10,859 Receivable from reinsurer - 58,882 Receivable for securities 476 945 Reinsurance recoverable (net of allowance for expected credit losses of $200 in 2023) 593,635 578,424 Deferred policy acquisition costs 9,858 8 Federal income tax recoverable - 2,668 Prepaid pension assets 239 163 Prepaid expenses 1,878 1,508 Other assets 22,186 24,389 Total Assets $ 1,249,348 $ 1,536,702 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $599 in 2023 and $648 in 2022) $ 49,401 $ 49,352 Subordinated debt securities (less unamortized debt issuance costs of $666 in 2023 and $691 in 2022) 56,036 56,011 Reserves for unpaid losses and loss adjustment expenses 784,846 880,869 Unearned premiums 156,394 292,691 Reinsurance payable 111,176 128,950 Federal income tax payable 464 - Accounts payable and other liabilities 78,646 68,535 Total Liabilities 1,236,963 1,476,408 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, authorized 3,333,333 shares; issued 2,087,283 shares in 2023 and 2022 2,087 2,087 Additional paid-in capital 124,879 124,740 (Accumulated deficit) retained earnings (84,458 ) (33,407 ) Accumulated other comprehensive loss (5,489 ) (8,492 ) Treasury stock (268,801 shares in 2023 and 2022), at cost (24,634 ) (24,634 ) Total Stockholders Equity 12,385 60,294 Total Liabilities & Stockholders Equity $ 1,249,348 $ 1,536,702
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Year-to-Date ($ in thousands, except per share amounts) June 30, June 30, 2023 2022 2023 2022 Gross premiums written $ 54,511 $ 56,004 $ 111,683 $ 115,337 Ceded premiums written (10,636 ) (18,566 ) (25,427 ) (36,630 ) Net premiums written 43,875 37,438 86,256 78,707 Change in unearned premiums (7,028 ) (401 ) (14,129 ) (2,355 ) Net premiums earned 36,847 37,037 72,127 76,352 Investment income, net of expenses 4,019 3,120 8,361 4,979 Investment gains (losses), net 248 (3,994 ) (392 ) (3,943 ) Finance charges 732 980 1,511 1,963 Other income 64 14 134 29 Total revenues 41,910 37,157 81,741 79,380 Losses and loss adjustment expenses 36,752 72,646 66,516 112,028 Operating expenses 21,138 17,723 69,087 34,150 Interest expense 1,938 1,366 3,836 2,630 Amortization of intangible assets 0 7 0 14 Total expenses 59,828 91,742 139,439 148,822 (Loss) income from continuing operations before tax (17,918 ) (54,585 ) (57,698 ) (69,442 ) Income tax (benefit) expense from continuing operations (133 ) 12,450 (667 ) 9,270 Net (loss) income from continuing operations $ (17,785 ) $ (67,035 ) $ (57,031 ) $ (78,712 ) Discontinued operations: Total pretax income from discontinued operations $ 5,876 $ (2,965 ) $ 5,980 $ 7,773 Income tax (benefit) expense on discontinued operations - (583 ) - 1,697 Income (loss) from discontinued operations, net of tax $ 5,876 $ (2,382 ) $ 5,980 $ 6,076 Net (loss) income $ (11,909 ) $ (69,417 ) $ (51,051 ) $ (72,636 ) Net (loss) basic income per share: Net loss from continuing operations $ (9.78 ) $ (36.85 ) $ (31.37 ) $ (43.30 ) Net income (loss) from discontinued operations 3.23 (1.31 ) 3.29 3.35 Basic net (loss) income per share $ (6.55 ) $ (38.16 ) $ (28.08 ) $ (39.95 ) Net (loss) diluted income per share: Net loss from continuing operations $ (9.78 ) $ (36.85 ) $ (31.37 ) $ (43.30 ) Net income (loss) from discontinued operations 3.23 (1.31 ) 3.29 3.35 Diluted net (loss) income per share $ (6.55 ) $ (38.16 ) $ (28.08 ) $ (39.95 )
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Three Months Ended Jun. 30 Commercial Lines Segment Personal Lines Segment Runoff Specialty Segment Corporate Consolidated ($ in thousands, unaudited) 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Gross premiums written $ 39,292 $ 37,385 $ 15,073 $ 15,118 $ 146 $ 3,501 $ - $ - $ 54,511 $ 56,004 Ceded premiums written (10,510 ) (17,890 ) (78 ) (74 ) (48 ) (602 ) - - (10,636 ) (18,566 ) Net premiums written 28,782 19,495 14,995 15,044 98 2,899 - - 43,875 37,438 Change in unearned premiums (5,610 ) (1,305 ) (1,420 ) 809 2 95 - - (7,028 ) (401 ) Net premiums earned 23,172 18,190 13,575 15,853 100 2,994 - - 36,847 37,037 Total revenues 23,185 18,210 14,308 16,827 99 2,994 4,318 (874 ) 41,910 37,157 Losses and loss adjustment expenses 17,796 13,002 13,474 14,094 5,482 45,550 - - 36,752 72,646 Pre-tax (loss) income $ (2,323 ) $ (863 ) $ (4,717 ) $ (3,040 ) $ (10,030 ) $ (44,279 ) $ (848 ) $ (6,403 ) $ (17,918 ) $ (54,585 ) Net loss ratio (1) 76.8 % 71.5 % 99.3 % 88.9 % N/A (2) 1521.4 % 99.7 % 196.1 % Net expense ratio (1) 31.8 % 34.4 % 33.7 % 31.6 % N/A (2) 51.2 % 57.6 % 44.8 % Net combined ratio (1) 108.6 % 105.9 % 133.0 % 120.5 % N/A (2) 1572.6 % 157.3 % 240.9 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 3.1 % 2.1 % 18.4 % 11.6 % N/A (2) 1421.5 % 24.5 % 120.9 % Catastrophes, net of reinsurance 3.4 % 4.3 % 1.7 % 0.4 % N/A (2) 0.0 % 2.8 % 2.3 % Write-off receivable from reinsurer 0.0 % 0.0 % 0.0 % 0.0 % N/A (2) 0.0 % 10.7 % 0.0 % Underlying combined ratio (1) 102.1 % 99.5 % 112.9 % 108.5 % N/A (2) 151.1 % 119.4 % 117.7 % Net Unfavorable (Favorable) Prior Year Development 715 378 2,493 1,835 5,804 42,560 - - 9,012 44,773
(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. The underlying combined ratio is the net combined ratio excluding the impact of net prior year reserve development and catastrophes and excluding the write-off of a receivable from reinsurer. (2) The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Year-to-Date Ended Jun. 30 Commercial Lines Segment Personal Lines Segment Runoff Segment Corporate Consolidated ($ in thousands, unaudited) 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Gross premiums written $ 82,637 $ 75,456 $ 28,725 $ 31,950 $ 321 $ 7,931 $ - $ - $ 111,683 $ 115,337 Ceded premiums written (24,999 ) (35,633 ) (211 ) (150 ) (217 ) (847 ) - - (25,427 ) (36,630 ) Net premiums written 57,638 39,823 28,514 31,800 104 7,084 - - 86,256 78,707 Change in unearned premiums (12,856 ) (3,378 ) (1,282 ) (388 ) 9 1,411 - - (14,129 ) (2,355 ) Net premiums earned 44,782 36,445 27,232 31,412 113 8,495 - - 72,127 76,352 Total revenues 44,811 36,490 28,744 33,359 113 8,495 8,073 1,036 81,741 79,380 Losses and loss adjustment expenses 33,413 25,914 24,643 26,673 8,460 59,441 - - 66,516 112,028 Pre-tax (loss) income $ (1,497 ) $ (1,499 ) $ (6,492 ) $ (4,353 ) $ (47,225 ) $ (54,317 ) $ (2,484 ) $ (9,273 ) $ (57,698 ) $ (69,442 ) Net loss ratio (1) 74.6 % 71.1 % 90.5 % 84.9 % N/A (2) 699.7 % 92.2 % 146.7 % Net expense ratio (1) 28.7 % 34.1 % 33.5 % 30.3 % N/A (2) 38.5 % 93.7 % 40.6 % Net combined ratio (1) 103.3 % 105.2 % 124.0 % 115.2 % N/A (2) 738.2 % 185.9 % 187.3 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 1.7 % -0.1 % 11.0 % 10.8 % N/A (2) 610.2 % 16.1 % 72.3 % Catastrophes, net of reinsurance 5.3 % 2.7 % 1.5 % 0.3 % N/A (2) 0.0 % 3.8 % 1.4 % Write-off receivable from reinsurer 0.0 % 0.0 % 0.0 % 0.0 % N/A (2) 0.0 % 51.1 % 0.0 % Underlying combined ratio (1) 96.3 % 102.7 % 111.5 % 104.1 % N/A (2) 128.0 % 114.9 % 113.6 % Net Unfavorable (Favorable) Prior Year Development 769 (51 ) 2,992 3,408 7,839 51,836 11,600 55,193
(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. The underlying combined ratio is the net combined ratio excluding the impact of net prior year reserve development and catastrophes and excluding the write-off of a receivable from reinsurer. (2) The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.
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Hallmark Financial Services, Inc
HALL Rankings
N/A Ranked by Stock Gains
HALL Stock Data
Industry
Other Direct Insurance (except Life, Health, and Medical) Carriers
Sector
Finance and Insurance
Tags
Finance, Property/Casualty Insurance, Other Direct Insurance (except Life, Health, and Medical) Carriers , Finance and Insurance
Country
US
City
Fort Worth
About HALL
hallmark financial services, inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. hallmark's business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. hallmark is headquartered in fort worth, texas and its common stock is listed on nasdaq under the symbol "hall."