EX-99.1 2 tm2215428d1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK ANNOUNCES FIRST QUARTER 2022 RESULTS

 

DALLAS, Texas, (May 12, 2022) - Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2022.

 

   First Quarter 
$ in millions:  2022   2021 
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 
($ in thousands)  2022   2021   % Change 
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

 

Gross premiums written were $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

 

Net premiums written were $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

Net premiums earned were $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

 

Total return on investment securities was -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

 

Pre-tax loss was $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

 

The net combined ratio was 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

 

Net loss was $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

Book value per share decreased 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 

 

About Hallmark

 

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 Kenney

President

Chief Financial Officer

817.348.1600

www.hallmarkgrp.com

 

 

 

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   Mar. 31   Dec. 31 
($ in thousands, except par value)  2022   2021 
    (unaudited)      
ASSETS          
Investments:          
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 
   March 31, 
($ in thousands, except per share amounts, unaudited)  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.