# EDGAR Filing Document

**Accession Number:** 0000819913
**File Stem:** 0001558370-23-004815
**Filing Date:** 2023-3
**Character Count:** 24120
**Document Hash:** 7b1df5f55c1a0077c97f587ce8ea290d
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001558370-23-004815.hdr.sgml**: 20230328

**ACCESSION NUMBER**: 0001558370-23-004815

**CONFORMED SUBMISSION TYPE**: 8-K

**PUBLIC DOCUMENT COUNT**: 22

**CONFORMED PERIOD OF REPORT**: 20230328

**ITEM INFORMATION**: Results of Operations and Financial Condition

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230328

**DATE AS OF CHANGE**: 20230328

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** HALLMARK FINANCIAL SERVICES INC
- **CENTRAL INDEX KEY:** 0000819913
- **STANDARD INDUSTRIAL CLASSIFICATION:** INSURANCE CARRIERS, NEC [6399]
- **IRS NUMBER:** 870447375
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-11252
- **FILM NUMBER:** 23770743

**BUSINESS ADDRESS:**
- **STREET 1:** 777 MAIN STREET, SUITE 1000
- **CITY:** FORT WORTH
- **STATE:** TX
- **ZIP:** 76102
- **BUSINESS PHONE:** 8173481600

**MAIL ADDRESS:**
- **STREET 1:** 5420 LYNDON B. JOHNSON FREEWAY
- **STREET 2:** STE 1100
- **CITY:** DALLAS
- **STATE:** TX
- **ZIP:** 75240

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** ACOI INC
- **DATE OF NAME CHANGE:** 19920703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AMERICAN CREDIT OPTICAL INC /DE/
- **DATE OF NAME CHANGE:** 19910611

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** PYRAMID GROWTH INC
- **DATE OF NAME CHANGE:** 19890124

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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

**FORM 8-K**

**CURRENT REPORT PURSUANT**

**TO SECTION 13 OR 15(D) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

Date of report (Date of earliest event reported):&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **March 28, 2023**

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**HALLMARK FINANCIAL SERVICES, INC.**

(Exact Name of Registrant as Specified in Its Charter)

**Nevada**

(State or Other Jurisdiction of Incorporation)

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| | |
|:---|:---|
| **001-11252** | **87-0447375** |
| (Commission File Number) | (IRS Employer Identification No.) |

---

---

| | |
|:---|:---|
| **5420 Lyndon B. Johnson Freeway, Suite 1100, Dallas, Texas** | **75240** |
| (Address of Principal Executive Offices) | (Zip Code) |

---

**817-348-1600**

(Registrant's Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

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| | |
|:---|:---|
| **Title of each class** | **Name of each exchange on which registered** |
| Common Stock $1.00 par value<br> HALL | Nasdaq Global Market |

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (*see* General Instruction A.2. below):

&nbsp;&nbsp;&nbsp;&nbsp;☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

&nbsp;&nbsp;&nbsp;&nbsp;☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

&nbsp;&nbsp;&nbsp;&nbsp;☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

&nbsp;&nbsp;&nbsp;&nbsp;☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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#### Item 2.02 Results of Operations and Financial Condition
On March 28, 2023, the Registrant issued a press release announcing its financial results for the three and fiscal year ended December 31, 2022. A copy of the Registrant's press release is attached as Exhibit 99.1 to this Current Report

Also, on March 28, 2023, the Registrant has posted on its website at www.hallmarkgrp.com its investor presentation for the quarter and fiscal year ended December 31, 2022.

#### Item 9.01 Financial Statements and Exhibits
(c)Exhibits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;99.1 [Press release dated March 28 2023.](hall-20230328xex99d1.htm) <br> 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

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| | | | |
|:---|:---|:---|:---|
|  |  | HALLMARK FINANCIAL SERVICES, INC. | HALLMARK FINANCIAL SERVICES, INC. |
| Date: | March 28, 2023 | By: | /s/ CHRISTOPHER J. KENNEY |
|  |  |  | Christopher J. Kenney, President & Chief Financial Officer |

---

## Exhibit 99.1

**Exhibit 99.1**

![Graphic](hall-20230328xex99d1001.jpg)

**FOR IMMEDIATE RELEASE**

**HALLMARK ANNOUNCES FOURTH QUARTER AND FISCAL 2022 RESULTS** 

DALLAS, Texas, (March 28, 2023) - Hallmark Financial Services, Inc. ("Hallmark") (NASDAQ: HALL) today filed its Form 10-K and announced financial results for the fourth quarter and fiscal year ended December 31, 2022.

![Graphic](hall-20230328xex99d1002.jpg)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) See "Non-GAAP Financial Measures" below

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Per share amounts have been restated to reflect one-for-ten reverse stock split

**Highlights:**

&nbsp;&nbsp;&nbsp;&nbsp;● On October 7, 2022, Hallmark completed the sale of substantially all of its excess and surplus lines operations , for $40.0 million cash consideration, plus an estimated $19.9 million consideration for the acquisition costs associated with certain net unearned premium reserves. As a result, the results of operations for the affected lines of business are included in discontinued operations for all periods shown in its Consolidated Statement of Operations, including a $33.5 million pre-tax gain on sale during the fourth quarter of 2022.

&nbsp;&nbsp;&nbsp;&nbsp;● Net loss from continuing operations of $30.0 million, or $16.48 per share, in the fourth quarter of 2022 as compared to a net loss of $5.9 million, or $3.26 per share, for the same period of 2021. Year-to-date net loss from continuing operations of $134.9 million, or $74.22 per share, as compared to net loss from continuing operations of $9.8 million, or $5.38 per share, for the same period of 2021.

&nbsp;&nbsp;&nbsp;&nbsp;● Net income from discontinued operations of $22.7 million, or $12.46 per share, in the fourth quarter of 2022 as compared to net income from discontinued operations of $3.3 million, or $1.84 per share, for the same period of 2021. Year-to-date net income from discontinued operations of $26.8 million, or $14.75 per share, as compared to net income from discontinued operations of $18.8 million, or $10.34 per share, for the same period of 2021.

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&nbsp;&nbsp;&nbsp;&nbsp;● Net loss of $7.3 million, or $4.02 per share, in the fourth quarter of 2022 as compared to net loss of $2.6 million, or $1.42 per share, for the same period of 2021. Year-to-date net loss of $108.1 million, or $59.47 per share, as compared to net income of $9.0 million, or $4.96 per share, for the same period of 2021.

&nbsp;&nbsp;&nbsp;&nbsp;● Net loss from continuing operations and net loss included an additional valuation allowance against net deferred tax assets of $0.8 million for the fourth quarter of 2022 resulting in a full valuation allowance against net deferred tax assets of $31.2 million year-to-date primarily due to recent net losses, including the current period net loss.

&nbsp;&nbsp;&nbsp;&nbsp;● Net loss from continuing operations and net loss for the fourth quarter included an $18.3 million after-tax impact from the previously exited contract binding business driven by unfavorable prior year loss reserve development of $14.3 million during the quarter.

&nbsp;&nbsp;&nbsp;&nbsp;● Net combined ratio of 183.9% and 185.9% for the three months and fiscal year ended December 31, 2022, compared to 125.3% and 113.6% for the same periods the prior year.

&nbsp;&nbsp;&nbsp;&nbsp;● Underlying combined ratio (excluding net prior year development and catastrophe losses) of 132.0% and 120.1% for the three months and fiscal year ended December 31, 2022, compared to 112.1% and 109.2% for the same periods the prior year. See Non-GAAP Financial Measures below.

&nbsp;&nbsp;&nbsp;&nbsp;● Gross premiums written for the three months and fiscal year ended December 31, 2022 increased 4.0% and decreased 7.0%, respectively, compared to the same period the prior year.

&nbsp;&nbsp;&nbsp;&nbsp;● Net catastrophe losses were $2.6 million in the fourth quarter of 2022, or 7.3 points of the net combined ratio, as compared to $0.7 million, or 1.3 points of the net combined ratio, for the same period the prior year. Net catastrophe losses were $5.8 million for the fiscal year ended 2022, or 3.9 points of the net combined ratio, as compared to $7.3 million, or 3.6 points of the net combined ratio, for the same period the prior year.

&nbsp;&nbsp;&nbsp;&nbsp;● Net investment income was $4.8 million and $13.5 million during the three months and fiscal year ended December 31, 2022, as compared to $2.1 million and $9.7 million during the same periods in 2021.

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**Fourth Quarter and Year-to-Date 2022 Financial Review**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Per share amounts have been restated for a reverse stock split

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) See "Non-GAAP Financial Measures" below

*Gross Premiums Written*

Gross premiums written were $49.5 million and $217.4 million during the three months and fiscal year ended December 31, 2022, representing an increase of 4% and a decrease of 7% from the $47.7 million and $233.5 in gross premiums written for the same periods in 2021.

*Net Premiums Written*

Net premiums written were $35.2 million and $150.6 million during the three months and fiscal year ended December 31, 2022, representing a decrease of 16% and 10%, respectively, from the $41.9 million and $166.7 million in net premiums written for the same periods in 2021.

*Net Premiums Earned*

Net premiums earned were $35.2 million and $147.9 million for the three months and fiscal year ended December 31, 2022, representing a decrease of 31% and 27% from the $50.8 million and $202.2 million in net premiums earned for the same periods in 2021.

*Investments*

Net investment income was $4.8 million and $13.5 million during the three months and fiscal year ended December 31, 2022, as compared to $2.1 million and $9.7 million during the same periods in 2021. The 122% increase in net investment income during the fourth quarter of 2022 was due to a greater amount of income generating securities and to higher yields.

Net investment gains were $1.5 million for the fourth quarter of 2022 as compared to net investment gains of $1.1 million for the same period in 2021.

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Net investment losses were $5.3 million for the fiscal year ended December 31, 2022, as compared to net investment gains of $10.2 million for the same period in 2021. Year to date, net investment losses include $3.1 million realized gains on common stocks and $8.4 million unrealized losses on common and preferred stocks.

Fixed-income securities were $426.6 million as of December 31, 2022, with a tax equivalent book yield of 3.7% compared to 2.4% as of December 31, 2021. As of December 31, 2022, the fixed-income portfolio had an average modified duration of 0.8 years and 86% of the securities had remaining time to maturity of five years or less. As of December 31, 2022, 6% of the investment portfolio was invested in equity securities.

Total investments were $454.8 million as of December 31, 2022. Total investments, cash and cash equivalents, and restricted cash were $543.4 million or $29.89 per share. Cash and cash equivalents, restricted cash, and short-term investments in U.S. Treasury Securities were $155 million. There are no debt securities classified as held-to-maturity.

*Pre-Tax (Loss) Income from Continuing Operations*

Pre-tax loss from continuing operations was $27.4 million for the three months ended December 31, 2022, as compared to a pre-tax loss from continuing operations of $9.4 million reported during the same period in 2021. The decline in pre-tax results from continuing operations for the fourth quarter of 2022 compared to the same period of the prior year was driven by higher losses and LAE of $6.4 million, lower net premiums earned of $15.6 million, higher interest expense of $0.5 million and lower finance charges of $0.2 million, partially offset by higher net investment income of $2.7 million, higher net investment gains of $0.4 million and lower operating expenses of $1.7 million.

Pre-tax loss from continuing operations was $127.1 million for the fiscal year ended December 31, 2022, as compared to a pre-tax loss from continuing operations of $12.5 million reported for the same period the prior year. The decline in pre-tax results from continuing operations for the fiscal year ended December 31, 2022, was driven by higher losses and LAE of $56.0 million, lower net premiums earned of $54.2 million, net investment losses of $5.3 million compared to net investment gains of $10.2 million the prior year, lower finance charges of $0.6 million and higher interest expense of $0.9 million, partially offset by lower operating expenses of $8.9 million and higher net investment income of $3.7 million.

*Loss and Loss Adjustment Expenses ("LAE") from Continuing Operations*

Losses and LAE increased by $10.4 million to $48.0 million for the three months ended December 31, 2022, as compared to the same period of the previous year. The increase in losses and LAE during the fourth quarter of 2022 was primarily due to $15.7 million of adverse prior year loss reserve development, $14.3 million of which was from the exited contract binding line of the primary commercial automobile business, as compared to $6.0 million of unfavorable prior year loss reserve development for the same period the prior year, as well as higher catastrophe loss. Losses and LAE for the fourth quarter of 2022 included $2.6 million of net catastrophe losses as compared to $0.7 million during the same period of the prior year.

Losses and LAE increased by $56.0 million to $209.2 million for the fiscal year ended December 31, 2022, as compared to the same period of the previous year. The increase in losses and LAE for the fiscal year ended 2022 was primarily due to $91.5 million of unfavorable prior year loss reserve development, $72.6 million of which was from the exited contract binding line of the primary commercial automobile business,

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as compared to $1.6 million of unfavorable prior year loss reserve development for the prior year period, partially offset by lower net catastrophe losses. Losses and LAE for the year ended December 31, 2022, included $5.8 million of net catastrophe losses as compared to $7.3 million during the same period of the prior year.

*Net (Loss) Income* 

Net loss from continuing operations was $30.0 million and $134.9 million for the three months and fiscal year ended December 31, 2022, as compared to net loss from continuing operations of $5.9 million and $9.8 million for the same periods during 2021. On a diluted basis per share, net loss from continuing operations was $16.48 per share and $74.22 per share for the three months and fiscal year ended December 31, 2022, as compared to a net loss from continuing operations of $3.26 per share and $5.38 per share for the three months and fiscal year ended December 31, 2021.

Net income from discontinued operations was $22.7 million and $26.8 million for the three months and fiscal year ended December 31, 2022, as compared to net income from discontinued operations of $3.3 million and $18.8 million for the same periods during 2021. On a diluted basis per share, net income from discontinued operations was $12.46 per share and $14.75 per share for the three months and fiscal year ended December 31, 2022 as compared to a net income from discontinued operations of $1.84 per share and $10.34 per share for the three months and fiscal year ended December 31, 2021.

Total net loss was $7.3 million and $108.1 million for the three months and fiscal year ended December 31, 2022, as compared to total net loss of $2.6 million and total net income of $9.0 million for the same periods during 2021. On a diluted basis per share, total net loss was $4.02 per share and $59.47 per share for the three months and fiscal year ended December 31, 2022, as compared to total net loss of $1.42 per share and total net income of $4.96 per share for the three months and fiscal year ended December 31, 2021.

The effective tax rate was -11.2% for the year ended December 31, 2022, as compared to 21.7% for the same period in 2021. During the fiscal year ended December 31, 2022, we recorded a full valuation allowance of $31.2 million against our net deferred tax assets primarily due to recent net losses, including the current period net loss. The effective rate for the twelve months ended December 31, 2021, varied from the statutory tax rates primarily due to tax exempt interest income.

*Net Loss, Expense and Combined Ratios*

The net loss ratio for continuing operations was 136.4% and 141.4% for the three months and fiscal year ended December 31, 2022, as compared to 81.9% and 75.8% reported during the same periods in 2021. Net unfavorable prior year loss reserve development contributed 44.6 points and 61.9 points to the net loss ratio for the three months and fiscal year ended December 31, 2022, respectively, as compared to net unfavorable prior year loss reserve development increasing the net loss ratio 11.8 points and 0.8 points for the same periods during 2021. Catastrophe losses contributed 7.3 points and 3.9 points to the net loss ratio for the three months and fiscal year ended December 31, 2022, respectively, as compared to 1.3 points and 3.6 points for the same periods during 2021.

The expense ratio was 47.5% and 44.5% for the three months and fiscal year ended December 31, 2022, as compared to 43.4% and 37.8% during the same periods in 2021. The net combined ratio was 183.9% and 185.9% for the three months and fiscal year ended December 31, 2022, as compared to 125.3% and 113.6% for the same periods during 2021. The exited contract binding business adversely impacted the

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net combined ratio by 52.3 points and 51.5 points during the three months and fiscal year ended December 31, 2022.

*Book Value Per Share*

Book value per share decreased 65% to $33.16 per share as of December 31, 2022, as compared to $96.59 per share as of December 31, 2021.

**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.

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![Graphic](hall-20230328xex99d1004.jpg)

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.

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**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.*

&nbsp;&nbsp;&nbsp;&nbsp;For further information, please contact:

Chris Kenney

Chief Executive Officer

817.348.1600 <u>www.hallmarkgrp.com</u>

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![Graphic](hall-20230328xex99d1008.jpg)

 <sup>(1)</sup>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.

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<sup>(1)</sup> 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.

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