SSB - Hallmark Announces Second Quarter Results

August, 14 2023 04:05 PM SouthState Corporation

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

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
)
$
(17,785
)
1,818
$
(9.78
)
Excluded deferred tax valuation allowance
$
-

$
(2,441
)
$
2,441

1,818
$
1.34

Excluded write-off receivable from reinsurer
$
3,954

$
830

$
3,124

1,818
$
1.72

Excluded investment (gains)/losses
$
(248
)
$
(52
)
$
(196
)
1,818
$
(0.11
)
Operating loss
$
(14,212
)
$
(1,796
)
$
(12,416
)
1,818
$
(6.83
)






Second Quarter 2022




Reported GAAP measures
$
(54,585
)
$
12,450

$
(67,035
)
1,819
$
(36.85
)
Excluded investment (gains)/losses
$
3,994

$
839

$
3,155

1,819
$
1.73

Operating loss
$
(50,591
)
$
13,289

$
(63,880
)
1,819
$
(35.12
)






Year-to-Date 2023




Reported GAAP measures
$
(57,698
)
$
(667
)
$
(57,031
)
1,818
$
(31.37
)
Excluded deferred tax valuation allowance
$
-

$
(10,239
)
$
10,239

1,818
$
5.63

Excluded write-off receivable from reinsurer
$
36,826

$
7,733

$
29,093

1,818
$
16.00

Excluded investment (gains)/losses
$
392

$
82

$
310

1,818
$
0.17

Operating loss
$
(20,480
)
$
(3,091
)
$
(17,389
)
1,818
$
(9.56
)






Year-to-Date 2022




Reported GAAP measures
$
(69,442
)
$
9,270

$
(78,712
)
1,818
$
(43.30
)
Excluded investment (gains)/losses
$
3,943

$
828

$
3,115

1,818
$
1.71

Operating income
$
(65,499
)
$
10,098

$
(75,597
)
1,818
$
(41.58
)

Underlying combined ratio is calculated by excluding the impact of net favorable or unfavorable prior year loss development and catastrophe losses from the calculation of the net combined ratio. Management believes that the underlying combined ratio provides useful information to investors about the current performance of the Company's insurance operations absent historical developments and uncontrollable events. Combined ratio is the GAAP measure most comparable to underlying combined ratio. A reconciliation of the underlying combined ratio to the combined ratio is presented below.







2ndQ 2023
2ndQ 2022
YTD 2023
YTD 2022
Net combined ratio
157.3
%
240.9
%
185.9
%
187.3
%
Impact on net combined ratio



Net Unfavorable (Favorable) Prior Year Development
24.5
%
120.9
%
16.1
%
72.3
%
Catastrophes, net of reinsurance
2.8
%
2.3
%
3.8
%
1.4
%
Write-off receivable from reinsurer
10.7
%
0.0
%
51.1
%
0.0
%
Underlying combined ratio
119.4
%
117.7
%
114.9
%
113.6
%

A copy of our Form 10-Q is available on our website at www.hallmarkgrp.com or on the SEC website at www.sec.gov. Readers are urged to review the Form 10-Q for a more complete discussion of our financial performance.

About Hallmark

Hallmark is a 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 Executive Officer
817.348.1600
www.hallmarkgrp.com



Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets




($ in thousands, except par value)

Jun. 30

Dec. 31
ASSETS

2023


2022

Investments:



Debt securities, available-for-sale, at fair value (amortized cost: $299,544 in 2023 and $434,119 in 2022; allowance for expected credit losses of $0 in 2023)
$
295,761

$
426,597

Equity securities (cost: $24,284 in 2023 and $30,058 in 2022)

22,763


28,199

Total investments

318,524


454,796

Cash and cash equivalents

150,528


59,133

Restricted cash

14,781


29,486

Ceded unearned premiums

86,661


237,086

Premiums receivable

49,506


78,355

Accounts receivable

1,076


10,859

Receivable from reinsurer

-


58,882

Receivable for securities

476


945

Reinsurance recoverable (net of allowance for expected credit losses of $200 in 2023)

593,635


578,424

Deferred policy acquisition costs

9,858


8

Federal income tax recoverable

-


2,668

Prepaid pension assets

239


163

Prepaid expenses

1,878


1,508

Other assets

22,186


24,389

Total Assets
$
1,249,348

$
1,536,702

LIABILITIES AND STOCKHOLDERS' EQUITY




Liabilities:




Senior unsecured notes due 2029 (less unamortized debt issuance costs of $599 in 2023 and $648 in 2022)
$
49,401

$
49,352

Subordinated debt securities (less unamortized debt issuance costs of $666 in 2023 and $691 in 2022)

56,036


56,011

Reserves for unpaid losses and loss adjustment expenses

784,846


880,869

Unearned premiums

156,394


292,691

Reinsurance payable

111,176


128,950

Federal income tax payable

464


-

Accounts payable and other liabilities

78,646


68,535

Total Liabilities

1,236,963


1,476,408

Commitments and contingencies




Stockholders' equity:




Common stock, $1.00 par value, authorized 3,333,333 shares; issued 2,087,283 shares in 2023 and 2022
2,087


2,087

Additional paid-in capital

124,879


124,740

(Accumulated deficit) retained earnings

(84,458
)

(33,407
)
Accumulated other comprehensive loss

(5,489
)

(8,492
)
Treasury stock (268,801 shares in 2023 and 2022), at cost

(24,634
)

(24,634
)
Total Stockholders Equity

12,385


60,294

Total Liabilities & Stockholders Equity
$
1,249,348

$
1,536,702

Hallmark Financial Services, Inc. and Subsidiaries




Consolidated Statements of Operations
Three Months Ended

Year-to-Date
($ in thousands, except per share amounts)
June 30,

June 30,

2023

2022


2023

2022

Gross premiums written
$
54,511

$
56,004


$
111,683

$
115,337

Ceded premiums written

(10,636
)

(18,566
)


(25,427
)

(36,630
)
Net premiums written

43,875


37,438



86,256


78,707

Change in unearned premiums

(7,028
)

(401
)


(14,129
)

(2,355
)
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
)
Finance charges

732


980



1,511


1,963

Other income

64


14



134


29

Total revenues

41,910


37,157



81,741


79,380











Losses and loss adjustment expenses

36,752


72,646



66,516


112,028

Operating expenses

21,138


17,723



69,087


34,150

Interest expense

1,938


1,366



3,836


2,630

Amortization of intangible assets

0


7



0


14

Total expenses

59,828


91,742



139,439


148,822











(Loss) income from continuing operations before tax

(17,918
)

(54,585
)


(57,698
)

(69,442
)
Income tax (benefit) expense from continuing operations

(133
)

12,450



(667
)

9,270

Net (loss) income from continuing operations
$
(17,785
)
$
(67,035
)

$
(57,031
)
$
(78,712
)










Discontinued operations:









Total pretax income from discontinued operations
$
5,876

$
(2,965
)

$
5,980

$
7,773

Income tax (benefit) expense on discontinued operations

-


(583
)


-


1,697

Income (loss) from discontinued operations, net of tax
$
5,876

$
(2,382
)

$
5,980

$
6,076











Net (loss) income
$
(11,909
)
$
(69,417
)

$
(51,051
)
$
(72,636
)










Net (loss) basic income per share:









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

Basic net (loss) income per share
$
(6.55
)
$
(38.16
)

$
(28.08
)
$
(39.95
)










Net (loss) diluted income per share:









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

Diluted net (loss) income per share
$
(6.55
)
$
(38.16
)

$
(28.08
)
$
(39.95
)

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data




Three Months Ended Jun. 30








Commercial Lines Segment
Personal Lines Segment
Runoff Specialty Segment
Corporate
Consolidated
($ in thousands, unaudited)

2023


2022


2023


2022


2023


2022


2023


2022


2023


2022

Gross premiums written
$
39,292

$
37,385

$
15,073

$
15,118

$
146

$
3,501

$
-

$
-

$
54,511

$
56,004

Ceded premiums written

(10,510
)

(17,890
)

(78
)

(74
)

(48
)

(602
)

-


-


(10,636
)

(18,566
)
Net premiums written

28,782


19,495


14,995


15,044


98


2,899


-


-


43,875


37,438

Change in unearned premiums

(5,610
)

(1,305
)

(1,420
)

809


2


95


-


-


(7,028
)

(401
)
Net premiums earned

23,172


18,190


13,575


15,853


100


2,994


-


-


36,847


37,037












Total revenues

23,185


18,210


14,308


16,827


99


2,994


4,318


(874
)

41,910


37,157












Losses and loss adjustment expenses

17,796


13,002


13,474


14,094


5,482


45,550


-


-


36,752


72,646












Pre-tax (loss) income
$
(2,323
)
$
(863
)
$
(4,717
)
$
(3,040
)
$
(10,030
)
$
(44,279
)
$
(848
)
$
(6,403
)
$
(17,918
)
$
(54,585
)











Net loss ratio (1)

76.8
%

71.5
%

99.3
%

88.9
%
N/A (2)

1521.4
%



99.7
%

196.1
%
Net expense ratio (1)

31.8
%

34.4
%

33.7
%

31.6
%
N/A (2)

51.2
%



57.6
%

44.8
%
Net combined ratio (1)

108.6
%

105.9
%

133.0
%

120.5
%
N/A (2)

1572.6
%



157.3
%

240.9
%











Impact on net combined ratio










Net Unfavorable (Favorable) Prior Year Development

3.1
%

2.1
%

18.4
%

11.6
%
N/A (2)

1421.5
%



24.5
%

120.9
%
Catastrophes, net of reinsurance

3.4
%

4.3
%

1.7
%

0.4
%
N/A (2)

0.0
%



2.8
%

2.3
%
Write-off receivable from reinsurer

0.0
%

0.0
%

0.0
%

0.0
%
N/A (2)

0.0
%



10.7
%

0.0
%
Underlying combined ratio (1)

102.1
%

99.5
%

112.9
%

108.5
%
N/A (2)

151.1
%



119.4
%

117.7
%











Net Unfavorable (Favorable) Prior Year Development

715


378


2,493


1,835


5,804


42,560


-


-


9,012


44,773

(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. The underlying combined ratio is the net combined ratio excluding the impact of net prior year reserve development and catastrophes and excluding the write-off of a receivable from reinsurer.

(2)

The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data




Year-to-Date Ended Jun. 30








Commercial Lines Segment
Personal Lines Segment
Runoff Segment
Corporate
Consolidated
($ in thousands, unaudited)

2023


2022


2023


2022


2023


2022


2023


2022


2023


2022

Gross premiums written
$
82,637

$
75,456

$
28,725

$
31,950

$
321

$
7,931

$
-

$
-

$
111,683

$
115,337

Ceded premiums written

(24,999
)

(35,633
)

(211
)

(150
)

(217
)

(847
)

-


-


(25,427
)

(36,630
)
Net premiums written

57,638


39,823


28,514


31,800


104


7,084


-


-


86,256


78,707

Change in unearned premiums

(12,856
)

(3,378
)

(1,282
)

(388
)

9


1,411


-


-


(14,129
)

(2,355
)
Net premiums earned

44,782


36,445


27,232


31,412


113


8,495


-


-


72,127


76,352












Total revenues

44,811


36,490


28,744


33,359


113


8,495


8,073


1,036


81,741


79,380












Losses and loss adjustment expenses

33,413


25,914


24,643


26,673


8,460


59,441


-


-


66,516


112,028












Pre-tax (loss) income
$
(1,497
)
$
(1,499
)
$
(6,492
)
$
(4,353
)
$
(47,225
)
$
(54,317
)
$
(2,484
)
$
(9,273
)
$
(57,698
)
$
(69,442
)











Net loss ratio (1)

74.6
%

71.1
%

90.5
%

84.9
%
N/A (2)

699.7
%



92.2
%

146.7
%
Net expense ratio (1)

28.7
%

34.1
%

33.5
%

30.3
%
N/A (2)

38.5
%



93.7
%

40.6
%
Net combined ratio (1)

103.3
%

105.2
%

124.0
%

115.2
%
N/A (2)

738.2
%



185.9
%

187.3
%











Impact on net combined ratio










Net Unfavorable (Favorable) Prior Year Development

1.7
%

-0.1
%

11.0
%

10.8
%
N/A (2)

610.2
%



16.1
%

72.3
%
Catastrophes, net of reinsurance

5.3
%

2.7
%

1.5
%

0.3
%
N/A (2)

0.0
%



3.8
%

1.4
%
Write-off receivable from reinsurer

0.0
%

0.0
%

0.0
%

0.0
%
N/A (2)

0.0
%



51.1
%

0.0
%
Underlying combined ratio (1)

96.3
%

102.7
%

111.5
%

104.1
%
N/A (2)

128.0
%



114.9
%

113.6
%











Net Unfavorable (Favorable) Prior Year Development

769


(51
)

2,992


3,408


7,839


51,836




11,600


55,193

(1)

(2)

The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.

A photo accompanying this release is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/4fb87372-b7a9-47e0-969b-94291b3c6287

Company Name:	SouthState Corporation
Stock Symbol:	SSB
Market:	NASDAQ
Website:	southstatebank.com

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