Hallmark Announces First Quarter 2021 Results

Rhea-AI Summary

Hallmark Financial Services (HALL) reported a net income of $9.3 million for Q1 2021, a significant recovery from a net loss of $64.3 million in Q1 2020. The net income per share rose to $0.52, compared to a loss of $3.55 per share last year. The net combined ratio improved to 96.1% from 97.6% year-over-year. However, gross premiums written fell by 19%, totaling $163 million, and net premiums written decreased by 26%. Investment gains surged to $5.8 million, contrasting with losses of $29.3 million in the previous year.

Positive

• Net income increased to $9.3 million from a loss of $64.3 million year-over-year.
• Net income per share rose to $0.52 from a loss of $3.55 per share.
• Improvement in net combined ratio to 96.1%, down from 97.6%.

Negative

• Gross premiums written declined by 19% year-over-year, totaling $163 million.
• Net premiums written decreased by 26% compared to last year.
• Net investment income fell by 32% to $3.0 million.

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

	First Quarter
	2021		2020
$ in millions:
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
	2021		2020			% Change
($ in thousands)
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.

										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
	2021		2020		% Change
($ in thousands)
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
($ in thousands, except par value)		Mar. 31			Dec. 31
ASSETS		2021			2020
Investments:		(unaudited)
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
($ in thousands, except per share amounts, unaudited)	March 31,
	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.}

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/91031801-8d9a-498c-aa90-8e5be6b3a0c6

FAQ

What were Hallmark Financial Services' financial results for Q1 2021?

Hallmark Financial Services reported a net income of $9.3 million for Q1 2021, compared to a net loss of $64.3 million in Q1 2020.

How much did Hallmark's gross premiums written change in Q1 2021?

Gross premiums written decreased by 19% year-over-year, totaling $163 million in Q1 2021.

What is the net income per share for Hallmark in Q1 2021?

The net income per share for Hallmark in Q1 2021 was $0.52, up from a loss of $3.55 per share in Q1 2020.

What was the net combined ratio for Hallmark in Q1 2021?

The net combined ratio improved to 96.1% for Q1 2021, down from 97.6% in Q1 2020.

Did Hallmark Financial Services achieve any investment gains in Q1 2021?

Yes, Hallmark reported net investment gains of $5.8 million in Q1 2021, compared to net investment losses of $29.3 million in the same quarter of 2020.