Exhibit 99.1

 

 

FOR IMMEDIATE RELEASE

 

HALLMARK ANNOUNCES FIRST QUARTER 2021 RESULTS

 

DALLAS, Texas, (May 13, 2021) - Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2021.

 

		First Quarter
$ in millions:		2021				2020
Net Income (Loss)		$	9.3			$	(64.3	)
Operating Income (1)		$	4.8			$	4.6
$ per diluted share:
Net Income (Loss)		$	0.52			$	(3.55	)
Operating Income (1)		$	0.27			$	0.25

 

(1)

See “Non-GAAP Financial Measures” below

 

Highlights:

 

·

Net income of $9.3 million, or $0.52 per share, in the first quarter of 2021 as compared to net loss of $64.3 million, or $3.55 per share, for the same period of 2020.

 

·

Net combined ratio of 96.1% for the first quarter of 2021 improved from 97.6% for the same period the prior year.

 

·

Substantial rate increases achieved, particularly in the Specialty Commercial Segment, with increases for this business averaging 13% for the quarter.

 

·

Gross premiums written for the quarter ended March 31, 2021 decreased 19% compared to the prior year quarter ended March 31, 2020 and increased 1% compared to the previous quarter ended December 31, 2020. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the quarter ended March 31, 2021 would have decreased 11% compared to the prior year quarter ended March 31, 2020. (See “Non-GAAP” Financial Measures below).

 

·

Net catastrophe losses were $5.9 million in the first quarter, or 5.7 points of the net combined ratio. Total catastrophe losses include $5.0 million from the February winter storms, which is our maximum retention of losses per event under our catastrophe reinsurance agreement.

 

·

Net investment gains of $5.8 million during the first quarter of 2021, which included $4.4 million of unrealized gains on equity securities, as compared to net investment losses of $29.3 million, which included $35.0 million of unrealized losses on equity and other investment securities, during the same period the prior year.

 

 

First Quarter 2021 Financial Review

 

		First Quarter
($ in thousands)		2021				2020				% Change
Gross premiums written		$	163,018			$	201,589				-19	%
Net premiums written		$	93,147			$	126,505				-26	%
Net premiums earned		$	104,218			$	123,933				-16	%
Investment income, net of expenses		$	3,010			$	4,458				-32	%
Investment gains (losses), net		$	5,779			$	(29,330	)			120	%
Net income (loss)		$	9,345			$	(64,310	)			115	%
Operating income (1)		$	4,780			$	4,584				4	%
Net income (loss) per share - basic		$	0.52			$	(3.55	)			115	%
Net income (loss) per share - diluted		$	0.52			$	(3.55	)			115	%
Operating income per share - diluted (1)		$	0.27			$	0.25				8	%
Book value per share		$	9.89			$	10.39				-5	%

 

(1)

See “Non-GAAP Financial Measures” below

 

Gross Premiums Written

 

Gross premiums written were $163.0 million during the three months ended March 31, 2021, representing a decrease of 19% from the $201.6 million in gross premiums written for the same period in 2020.

 

Net Premiums Written

 

Net premiums written were $93.1 million during the three months ended March 31, 2021, representing a decrease of 26% from the $126.5 million in net premiums written for the same period of 2020.

 

Net Premiums Earned

 

Net premiums earned were $104.2 million for the three months ended March 31, 2021, representing a 16% decrease from the $123.9 million in net premiums earned for the same period in 2020.

 

Investments

 

Net investment income was $3.0 million during the three months ended March 31, 2021, as compared to $4.5 million during the same period in 2020. The decline in net investment income was primarily due to lower interest rates compared to the same period during 2020 and an increase in the proportion of short-term investments held relative to longer maturity investments.

 

Net investment gains were $5.8 million for the three months ended March 31, 2021 as compared to net investment losses of $29.3 million for the same period in 2020.

 

Fixed-income securities were $348.5 million at March 31, 2021, with a tax equivalent book yield of 2.5% compared to 2.4% as of March 31, 2020. As of March 31, 2021, the fixed-income portfolio had an average modified duration of 0.9 years and 85% of the securities had remaining time to maturity of five years or less. As of March 31, 2021, 13% of the investment portfolio was invested in equity securities.

 

 

Total investments were $402.1 million at March 31, 2021. Cash and cash equivalents, including restricted cash were $287.3 million. Total investments, cash and cash equivalents, and restricted cash were $689.4 million or $37.94 per share.

 

Pre-Tax Income

 

Pre-tax income was $11.7 million for the three months ended March 31, 2021, as compared to a pre-tax loss of $69.6 million reported during the same period in 2020. The improvement in pre-tax results for the three months ended March 31, 2021 was predominately driven by the absence of $46.0 million of impairment charges to goodwill and indefinite-lived intangible assets taken during the first quarter of 2020, net investment gains of $5.8 million during the first quarter of 2021 as compared to net investment losses of $29.3 million during the same period in 2020 and favorable prior year loss reserve development of $2.1 million during the first quarter of 2021 as compared to unfavorable prior year loss reserve development of $8.6 million during the same period the prior year.

 

Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios

 

The net combined ratio was 96.1% for the quarter ended March 31, 2021, as compared to 97.6% for the same period during 2020.

 

Losses and LAE for the quarter ended March 31, 2021 decreased $22.5 million as compared to the same period during 2020 due to improved prior year loss reserve development and lower net premiums earned, partially offset by increases in current accident year loss trends due primarily to the February winter storms. There was $2.1 million of net favorable prior year loss reserve development during the quarter ended March 31, 2021 as compared to net unfavorable prior year loss reserve development of $8.6 million during the same period in 2020. Net catastrophe losses were $5.9 million during the first quarter ended March 31, 2021 as compared to $6.0 million during 2020.

 

The net loss ratio was 68.0% for the three months ended March 31, 2021 as compared to 75.4% reported during the same period in 2020. Catastrophe losses contributed 5.7 points to the net loss ratio for the three months ended March 31, 2021, as compared to 4.9 points for the same period during 2020. Net favorable prior year loss reserve development reduced the net loss ratio by 2.0 points for the three months ended March 31, 2021, as compared to 6.9 points contributed to the net loss ratio from net unfavorable prior year loss reserve development for the same period during 2020.

 

The expense ratio was 28.1% for the three months ended March 31, 2021 as compared to 22.2% during the same period in 2020. The Company reported a net combined ratio of 96.1% for the three months ended March 31, 2021 as compared to 97.6% during the same period in 2020.

 

Net Income (Loss)

 

Net income was $9.3 million for the three months ended March 31, 2021 as compared to a net loss of $64.3 million for the same period during 2020.

 

On a diluted basis per share, net income was $0.52 per share for the three months ended March 31, 2021 as compared to a net loss of $3.55 per share for the three months ended March 31, 2020.

 

 

Book Value Per Share

 

Book value per share increased 5% to $9.89 per share as of March 31, 2021 as compared to $9.42 per share as of December 31, 2020.

 

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 goodwill and other intangible assets (“Impairments”) from GAAP net income. The 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 income and operating income 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 Reconcilation

 

														Weighted
		Income (Loss)				Less Tax				Net				Average				Diluted
($ in thousands)		Before Tax				Effect				After Tax				Shares Diluted				Per Share
First Quarter 2021
Reported GAAP measures		$	11,700			$	2,355			$	9,345				18,142			$	0.52
Excluded investment (gains)/losses		$	(5,779	)		$	(1,214	)		$	(4,565	)			18,142			$	(0.25	)
Operating income		$	5,921			$	1,141			$	4,780				18,142			$	0.27
First Quarter 2020
Reported GAAP measures		$	(69,586	)		$	(5,276	)		$	(64,310	)			18,123			$	(3.55	)
Excluded impairment of goodwill and other intangible assets		$	45,996			$	273			$	45,723				18,123			$	2.52
Excluded investment (gains)/losses		$	29,330			$	6,159			$	23,171				18,123			$	1.28
Operating income		$	5,740			$	1,156			$	4,584				18,123			$	0.25

 

In February 2020, Hallmark made the strategic decision to exit the contract binding line of the primary automobile business as a result of increasing claim severity and limited opportunity for meaningful rate increases. At that time, the Company began the process of non-renewing policies and placing in-force policies in runoff in accordance with state regulatory guidelines. Management believes that presenting gross premiums written excluding the contract binding line of the primary automobile business provides useful information to investors about the impact of this decision. A reconciliation of GAAP gross premiums written to gross premiums written excluding the contract binding line of the primary automobile business is presented below.

 

 

		First Quarter
($ in thousands)		2021				2020				% Change
Reported gross premiums written		$	163,018			$	201,589				-19	%
Less primary binding commercial auto		$	132			$	18,432				-99	%
Gross premiums written excluding primary binding commercial auto		$	162,886			$	183,157				-11	%

 

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

Chief Accounting 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)		2021				2020
		(unaudited)
ASSETS
Investments:
Debt securities, available-for-sale, at fair value (amortized cost: $344,232 in 2021 and $502,167 in 2020)		$	348,525			$	507,279
Equity securities (cost: $46,847 in 2021 and $26,988 in 2020)			53,621				29,388
Total investments			402,146				536,667
Cash and cash equivalents			281,849				102,580
Restricted cash			5,434				5,728
Ceded unearned premiums			134,206				138,926
Premiums receivable			109,799				120,332
Accounts receivable			4,625				5,967
Receivable for securities			1,382				913
Reinsurance recoverable			494,815				490,231
Deferred policy acquisition costs			16,386				17,840
Intangible assets, net			1,196				1,322
Federal income tax recoverable			23,855				25,642
Deferred federal income taxes, net			8,319				8,724
Prepaid expenses			6,679				2,648
Other assets			26,852				28,013
Total Assets		$	1,517,543			$	1,485,533
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Senior unsecured notes due 2029 (less unamortized debt issuance costs of $819 in 2021 and $844 in 2020)		$	49,180			$	49,156
Subordinated debt securities (less unamortized debt issuance costs of $782 in 2021 and $795 in 2020)			55,920				55,907
Reserves for unpaid losses and loss adjustment expenses			812,272				789,768
Unearned premiums			305,015				320,806
Reinsurance payable			51,673				46,700
Pension liability			1,749				1,859
Payable for securities			10,979				-
Accounts payable and other accrued expenses			51,003				50,415
Total Liabilities			1,337,791				1,314,611
Commitments and contingencies
Stockholders’ equity:
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2021 and 2020			3,757				3,757
Additional paid-in capital			122,725				122,893
Retained earnings			78,260				68,915
Accumulated other comprehensive income			(229	)			383
Treasury stock (2,701,799 shares in 2021 and 2,730,673 shares in 2020), at cost			(24,761	)			(25,026	)
Total Stockholders Equity			179,752				170,922
Total Liabilities & Stockholders Equity		$	1,517,543			$	1,485,533

 

 

Hallmark Financial Services, Inc. and Subsidiaries  

Consolidated Statements of Operations

 

		Three Months Ended
		March 31,
($ in thousands, except per share amounts, unaudited)		2021				2020
Gross premiums written		$	163,018			$	201,589
Ceded premiums written			(69,871	)			(75,084	)
Net premiums written			93,147				126,505
Change in unearned premiums			11,071				(2,572	)
Net premiums earned			104,218				123,933
Investment income, net of expenses			3,010				4,458
Investment gains (losses), net			5,779				(29,330	)
Finance charges			1,133				1,644
Commission and fees			260				324
Other income			19				19
Total revenues			114,419				101,048
Losses and loss adjustment expenses			70,903				93,405
Operating expenses			30,441				29,148
Interest expense			1,249				1,468
Impairment of goodwill and other intangible assets			-				45,996
Amortization of intangible assets			126				617
Total expenses			102,719				170,634
Income (loss) before tax			11,700				(69,586	)
Income tax expense (benefit)			2,355				(5,276	)
Net income (loss)		$	9,345			$	(64,310	)
Net income (loss) per share:
Basic		$	0.52			$	(3.55	)
Diluted		$	0.52			$	(3.55	)

 

 

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)		2021				2020				2021				2020				2021				2020				2021				2020				2021				2020
Gross premiums written		$	113,990			$	149,470			$	29,735			$	26,376			$	19,293			$	25,743			$	-			$	-			$	163,018			$	201,589
Ceded premiums written			(59,554	)			(63,964	)			(10,250	)			(7,463	)			(67	)			(3,657	)			-				-				(69,871	)			(75,084	)
Net premiums written			54,436				85,506				19,485				18,913				19,226				22,086				-				-				93,147				126,505
Change in unearned premiums			15,141				1,466				(2,419	)			(2,495	)			(1,651	)			(1,543	)			-				-				11,071				(2,572	)
Net premiums earned			69,577				86,972				17,066				16,418				17,575				20,543				-				-				104,218				123,933
Total revenues			71,965				92,120				17,688				17,636				18,959				22,323				5,807				(31,031	)			114,419				101,048
Losses and loss adjustment expenses			44,407				60,883				12,091				11,855				14,405				20,667				-				-				70,903				93,405
Pre-tax income (loss)			11,821				16,292				366				716				(1,623	)			(5,655	)			1,136				(80,939	)			11,700				(69,586	)
Net loss ratio (1)			63.8	%			70.0	%			70.8	%			72.2	%			82.0	%			100.6	%											68.0	%			75.4	%
Net expense ratio (1)			24.0	%			17.7	%			31.6	%			32.5	%			30.4	%			28.4	%											28.1	%			22.2	%
Net combined ratio (1)			87.8	%			87.7	%			102.4	%			104.7	%			112.4	%			129.0	%											96.1	%			97.6	%
Net Favorable (Unfavorable) Prior Year Development			1,899				(3,153	)			1,361				(125	)			(1,174	)			(5,281	)											2,086				(8,559	)

 

(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.