DALLAS, Aug. 14, 2023 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) ( 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 | ) | |||||||
