DALLAS, July 23, 2020 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark Financial”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2020.
| First Quarter | |||||
| 2020 | 2019 | ||||
| $ in millions: | (unaudited) | (unaudited) | |||
| Net (Loss) Income | $ | (64.3 | ) | $ | 15.0 |
| Operating Earnings (1) | $ | 4.6 | $ | 5.6 | |
| $ per diluted share: | |||||
| Net (Loss) Income | $ | (3.55 | ) | $ | 0.83 |
| Operating Earnings (1) | $ | 0.25 | $ | 0.31 | |
(1) See “Non-GAAP Financial Measures” below
First Quarter 2020 Highlights (all comparisons to same prior year period):
- Hallmark Financial reported a net combined ratio of 97.6% as compared to 96.5% for the first quarter of 2019. During the quarter, as previously announced on March 2nd, the Company decided to exit the Binding Primary Auto business. The combined ratio was negatively impacted by 7.5 points from this discontinued line of business during the quarter.
- Hallmark Financial saw continued momentum on rate increases, as rates were up 13% for all lines and 16% for the Specialty Commercial Segment.
- Gross premiums written increased 8% to $201.6 million
- Net premiums written increased 8% to $126.5 million
- Net premiums earned increased 25% to $123.9 million
- Net combined ratio of 97.6% compared to 96.5%
- Net loss of $64.3 million, or $3.55 per diluted share, compared to net income of $15.0 million, or $0.83 per diluted share
- Operating earnings of $4.6 million, or $0.25 per diluted share, compared to $5.6 million, or $0.31 per diluted share (see “Non-GAAP Financial Measures” below)
- Net investment losses of $29.3 million compared to net investment gains of $11.9 million
- In connection with its normal process for evaluating impairment triggering events, the Company determined that a significant decline in its market capitalization below its stockholders’ equity during the quarter indicated the impairment of the goodwill and indefinite-lived intangible assets included in its balance sheet. As a result, the Company took a $44.7 million charge to goodwill and a $1.3 million charge to indefinite-lived assets as of March 31, 2020.
| First Quarter | |||||||
| 2020 | 2019 | % Change | |||||
| ($ in thousands, unaudited) | |||||||
| Gross premiums written | 201,589 | 187,316 | 8 | % | |||
| Net premiums written | 126,505 | 117,403 | 8 | % | |||
| Net premiums earned | 123,933 | 99,030 | 25 | % | |||
| Investment income, net of expenses | 4,458 | 5,111 | -13 | % | |||
| Investment (losses) gains, net | (29,330 | ) | 11,937 | -346 | % | ||
| Net (loss) income | (64,310 | ) | 15,025 | -528 | % | ||
| Operating earnings (1) | 4,584 | 5,595 | -18 | % | |||
| Net (loss) income per share - basic | $ | (3.55 | ) | $ | 0.83 | -528 | % |
| Net (loss) income per share - diluted | $ | (3.55 | ) | $ | 0.83 | -528 | % |
| Operating earnings per share - diluted (1) | $ | 0.25 | $ | 0.31 | -19 | % | |
| Book value per share | $ | 10.39 | $ | 15.10 | -31 | % | |
(1) See “Non-GAAP Financial Measures” below
First Quarter 2020 Financial Review
Gross Premiums Written
During the three months ended March 31, 2020, Hallmark Financial’s gross premiums written were $201.6 million, representing an increase of 8% from the $187.3 million in gross premiums written for the same period in 2019.
Net Premiums Written
During the three months ended March 31, 2020, Hallmark Financial’s net premiums written were $126.5 million, representing an increase of 8% from the $117.4 million in net premiums written for the same period of 2019.
Net Premiums Earned
Hallmark Financial’s net premiums earned were $123.9 million for the three months ended March 31, 2020, representing a 25% increase from the $99.0 million in net premiums earned for the same period in 2019.
Investments
During the three months ended March 31, 2020, net investment income was $4.5 million as compared to $5.1 million during the same period in 2019. Net investment losses were $29.3 million for the three months ended March 31, 2020 as compared to net investment gains of $11.9 million for the same period the prior year. The total portfolio return was negative 5.4% for the three months ended March 31, 2020, primarily due to the historic first quarter market declines associated with the novel coronavirus (“COVID-19”) pandemic.
At March 31, 2020 fixed-income securities were $589.4 million, with a tax equivalent book yield of 2.4% compared to 3.7% as of March 31, 2019. As of March 31, 2020, the fixed-income portfolio had an average modified duration of 1.2 years and 89% of the securities had remaining time to maturity of five years or less. As of March 31, 2020, 2% of the investment portfolio was invested in equity securities.
At March 31, 2020, total investments were $603.7 million. Cash and cash equivalents, including restricted cash were $68.9 million. Total investments, cash and cash equivalents, and restricted cash were $672.6 million or $37.08 per share.
Pre-Tax Income
Hallmark Financial had pre-tax loss of $69.6 million for the three months ended March 31, 2020, as compared to pre-tax income of $18.9 million reported during the same period in 2019.
The decline in pre-tax results for the three months ended March 31, 2020 was predominately driven by the impairment of goodwill and other intangible assets of $46.0 million as well as net investment losses of $29.3 million as compared to net investment gains of $11.9 million reported during the same period in 2019.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios
Losses and LAE for the three months ended March 31, 2020 increased $23.3 million as compared to the prior year period due primarily to increased net premiums earned, as well as unfavorable net prior year reserve development. Hallmark Financial reported $8.6 million of net unfavorable prior year loss reserve development during the three months ended March 31, 2020 as compared to net favorable prior year loss reserve development of $0.1 million during the same period the prior year.
Hallmark Financial had a net loss ratio of 75.4% for the three months ended March 31, 2020 as compared to 70.8% reported during the same period in 2019. Catastrophe losses contributed 4.9% to the net loss ratio for the three months ended March 31, 2020, as compared to 2.1% for the same period of the prior year.
The expense ratio was 22.2% for the three months ended March 31, 2020 as compared to 25.7% reported during the same period in 2019. The Company reported a net combined ratio of 97.6% for the three months ended March 31, 2020 as compared to 96.5% during the same period in 2019.
Net Income
Hallmark Financial reported a net loss of $64.3 million for the three months ended March 31, 2020 as compared to net income of $15.0 million for the three months ended March 31, 2019.
On a diluted basis per share, the Company reported a net loss of $3.55 per share for the three months ended March 31, 2020 as compared to net income of $0.83 per share for the three months ended March 31, 2019.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating earnings and operating earnings per share are calculated by excluding net investment gains and losses and impairment of goodwill and other intangible assets from GAAP net income. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.
| Weighted | |||||||||||||
| Income | Less Tax | Net | Average | Diluted | |||||||||
| ($ in thousands) | Before Tax | Effect | After Tax | Shares Diluted | Per Share | ||||||||
| 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 earnings | $ | 5,740 | $ | 1,156 | $ | 4,584 | 18,123 | $ | 0.25 | ||||
| First Quarter 2019 | |||||||||||||
| Reported GAAP measures | $ | 18,918 | $ | 3,893 | $ | 15,025 | 18,193 | $ | 0.83 | ||||
| Excluded investment (gains)/losses | $ | (11,937 | ) | $ | (2,507 | ) | $ | (9,430 | ) | 18,193 | $ | (0.52 | ) |
| Operating earnings | $ | 6,981 | $ | 1,386 | $ | 5,595 | 18,193 | $ | 0.31 | ||||
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) | Mar. 31 | Dec. 31 | ||||
| ASSETS | 2020 | 2019 | ||||
| Investments: | (unaudited) | |||||
| Debt securities, available-for-sale, at fair value (amortized cost: $597,170 in 2020 and $569,498 in 2019) | $ | 589,383 | $ | 574,279 | ||
| Equity securities (cost: $19,783 in 2020 and $71,895 in 2019) | 14,139 | 99,215 | ||||
| Other investment (cost: $3,763 in 2020 and $3,763 in 2019) | 168 | 2,169 | ||||
| Total investments | 603,690 | 675,663 | ||||
| Cash and cash equivalents | 67,165 | 53,336 | ||||
| Restricted cash | 1,732 | 1,612 | ||||
| Ceded unearned premiums | 151,296 | 164,221 | ||||
| Premiums receivable | 140,220 | 148,288 | ||||
| Accounts receivable | 3,812 | 4,286 | ||||
| Receivable for securities | 16,282 | 12,581 | ||||
| Reinsurance recoverable | 364,470 | 315,466 | ||||
| Deferred policy acquisition costs | 25,587 | 22,994 | ||||
| Goodwill | - | 44,695 | ||||
| Intangible assets, net | 3,173 | 5,087 | ||||
| Federal income tax recoverable | 9,467 | 8,995 | ||||
| Deferred federal income taxes, net | 9,577 | 2,185 | ||||
| Prepaid expenses | 5,373 | 2,603 | ||||
| Other assets | 31,326 | 33,262 | ||||
| Total Assets | $ | 1,433,170 | $ | 1,495,274 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Liabilities: | ||||||
| Senior unsecured notes due 2029 (less unamortized debt issuance cost of $917 in 2020 and $942 in 2019) | $ | 49,083 | $ | 49,058 | ||
| Subordinated debt securities (less unamortized debt issuance cost of $834 in 2020 and $846 in 2019) | 55,868 | 55,856 | ||||
| Reserves for unpaid losses and loss adjustment expenses | 653,490 | 620,355 | ||||
| Unearned premiums | 378,573 | 388,926 | ||||
| Reinsurance balances payable | 57,953 | 59,274 | ||||
| Pension liability | 1,305 | 1,388 | ||||
| Payable for securities | 104 | 1,648 | ||||
| Accounts payable and other accrued expenses | 48,348 | 55,487 | ||||
| Total Liabilities | 1,244,724 | 1,231,992 | ||||
| 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 | 122,718 | 123,468 | ||||
| Retained earnings | 96,260 | 160,570 | ||||
| Accumulated other comprehensive (loss) income | (9,257 | ) | 688 | |||
| Treasury stock (2,731,335 shares in 2020 and 2,749,738 shares in 2019), at cost | (25,032 | ) | (25,201 | ) | ||
| Total Stockholders’ Equity | 188,446 | 263,282 | ||||
| Total Liabilities & Stockholders' Equity | $ | 1,433,170 | $ | 1,495,274 | ||
| Hallmark Financial Services, Inc. and Subsidiaries | ||||||
| Consolidated Statements of Operations | Three Months Ended | |||||
| ($ in thousands, except per share amounts) | March 31, | |||||
| 2020 | 2019 | |||||
| (unaudited) | (unaudited) | |||||
| Gross premiums written | $ | 201,589 | $ | 187,316 | ||
| Ceded premiums written | (75,084 | ) | (69,913 | ) | ||
| Net premiums written | 126,505 | 117,403 | ||||
| Change in unearned premiums | (2,572 | ) | (18,373 | ) | ||
| Net premiums earned | 123,933 | 99,030 | ||||
| Investment income, net of expenses | 4,458 | 5,111 | ||||
| Investment (losses) gains, net | (29,330 | ) | 11,937 | |||
| Finance charges | 1,644 | 1,734 | ||||
| Commission and fees | 324 | 293 | ||||
| Other income | 19 | 16 | ||||
| Total revenues | 101,048 | 118,121 | ||||
| Losses and loss adjustment expenses | 93,405 | 70,087 | ||||
| Operating expenses | 29,148 | 27,246 | ||||
| Interest expense | 1,468 | 1,253 | ||||
| Impairment of goodwill and other intangible assets | 45,996 | - | ||||
| Amortization of intangible assets | 617 | 617 | ||||
| Total expenses | 170,634 | 99,203 | ||||
| (Loss) income before tax | (69,586 | ) | 18,918 | |||
| Income tax (benefit) expense | (5,276 | ) | 3,893 | |||
| Net (loss) income | $ | (64,310 | ) | $ | 15,025 | |
| Net (loss) income per share: | ||||||
| Basic | $ | (3.55 | ) | $ | 0.83 | |
| Diluted | $ | (3.55 | ) | $ | 0.83 | |
| 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) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Gross premiums written | $ | 149,470 | $ | 134,399 | $ | 26,376 | $ | 25,528 | $ | 25,743 | $ | 27,389 | $ - | $ - | $ | 201,589 | $ | 187,316 | ||||||||
| Ceded premiums written | (63,964 | ) | (57,361 | ) | (7,463 | ) | (8,103 | ) | (3,657 | ) | (4,449 | ) | - | - | (75,084 | ) | (69,913 | ) | ||||||||
| Net premiums written | 85,506 | 77,038 | 18,913 | 17,425 | 22,086 | 22,940 | - | - | 126,505 | 117,403 | ||||||||||||||||
| Change in unearned premiums | 1,466 | (12,850 | ) | (2,495 | ) | (51 | ) | (1,543 | ) | (5,472 | ) | - | - | (2,572 | ) | (18,373 | ) | |||||||||
| Net premiums earned | 86,972 | 64,188 | 16,418 | 17,374 | 20,543 | 17,468 | - | - | 123,933 | 99,030 | ||||||||||||||||
| Total revenues | 92,120 | 67,967 | 17,636 | 18,373 | 22,323 | 19,483 | (31,031) | 12,298 | 101,048 | 118,121 | ||||||||||||||||
| Losses and loss adjustment expenses | 60,883 | 45,949 | 11,855 | 11,651 | 20,667 | 12,487 | - | - | 93,405 | 70,087 | ||||||||||||||||
| Pre-tax income (loss) | 16,292 | 7,968 | 716 | 1,507 | (5,655 | ) | 1,573 | (80,939) | 7,870 | (69,586 | ) | 18,918 | ||||||||||||||
| Net loss ratio (1) | 70.0 | % | 71.6 | % | 72.2 | % | 67.1 | % | 100.6 | % | 71.5 | % | 75.4 | % | 70.8 | % | ||||||||||
| Net expense ratio (1) | 17.7 | % | 22.3 | % | 32.5 | % | 30.4 | % | 28.4 | % | 22.2 | % | 22.2 | % | 25.7 | % | ||||||||||
| Net combined ratio (1) | 87.7 | % | 93.9 | % | 104.7 | % | 97.5 | % | 129.0 | % | 93.7 | % | 97.6 | % | 96.5 | % | ||||||||||
| Net Favorable (Unfavorable) Prior Year Development | (3,153 | ) | (1,926 | ) | (125 | ) | 1,805 | (5,281 | ) | 187 | (8,559 | ) | 66 | |||||||||||||
(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.