Hallmark Financial Services, Inc. Announces Third Quarter 2012 Results

FORT WORTH, Texas, Nov. 7, 2012 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported third quarter 2012 net income of $3.4 million, or $0.18 per share, compared to net income of $0.1 million, or $0.01 per share reported for third quarter 2011. Year to date, Hallmark reported net income of $1.7 million, or $0.09 per share, compared to a net loss of $11.2 million, or $0.57 per share reported for the same period the prior year. Total revenues were $85.6 million for the third quarter 2012 as compared to $83.7 million for the third quarter of 2011. Year to date total revenues for 2012 were $253.2 million, up 6% from the $239.7 million reported for the same period the prior year.

Mark J. Morrison, President and Chief Executive Officer, said, "I am pleased to report that the decisive actions taken over the past year to improve underwriting profitability, including a continuation of meaningful rate increases across most all business units and exiting unprofitable states and product lines in our Personal Segment, have produced earnings for the quarter commensurate with Hallmark's long term track record. Our third quarter combined ratio of 95.8% and earnings of $0.18 per share evidence this improvement and reflect the favorable underlying trends within our business. We recognize there is still work to do in order to produce the results we expect over the long term. However, we are encouraged by the progress we have made and remain optimistic about how our business is positioned for the future."

Mr. Morrison continued, "The year-over-year increase in revenue has been largely driven by organic growth from the operating units that comprise our Specialty Commercial Segment. We have seen an increase in premium production generated from favorable rate trends, as well as from added insured exposure units on accounts that suggests improving economic conditions in the markets in which we operate. We continue to see middle single-digit to low double-digit rate increases across all operations with the exception of General Aviation, which continues to be impacted by overly aggressive competitors in a contracting market."

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $11.37 at the end of the third quarter, an increase of 4% year over year and an increase of 2% year to date. Cash flow from operations was $11.0 million in the third quarter and $28.2 million year to date. Total cash and investments increased 7% year to date to $542 million, or $28.13 per share. Hallmark continues to have significant cash of $116 million as of September 30, 2012."

(1) Net income (loss) is net income (loss) attributable to Hallmark Financial Services, Inc. as reported in the consolidated statements of operations as determined in accordance with GAAP.

During the three and nine months ended September 30, 2012, total revenues were $85.6 million and $253.2 million, representing a 2% and 6% increase, respectively, from the $83.7 million and $239.7 million in total revenues for the same period of 2011. The growth in revenue was primarily attributable to increased premium production and resulting earned premium driven largely from the E&S Commercial business unit and from the acquisition of the Workers Compensation business unit during the third quarter of 2011. The increase in revenue was partially offset by an adverse profit share commission revenue adjustment in the Standard Commercial P&C business unit, combined with lower finance charges and earned premium in the Personal Segment due mostly to the impact of a reduction of premium written in underperforming states and products exited over the past twelve months. Further offsetting the increase in revenue was lower net realized gains for the nine months ended September 30, 2012.

The increase in revenue for the three months and nine months ended September 30, 2012 was complemented by decreased loss and loss adjustment expenses ("LAE") due primarily to improved current accident year loss trends in the Standard Commercial P&C business unit for the year-to-date and the Personal Lines business unit for both the quarter and year-to-date as well as significant adverse reserve development recognized during the prior year. During the three months and nine months ended September 30, 2012 Hallmark recorded $2.2 million and $3.6 million of favorable prior year loss reserve development. During the three and nine months ended September 30, 2011 Hallmark recorded $2.3 million and $18.1 million, respectively, of unfavorable prior year loss reserve development. Of the $18.1 million unfavorable development recognized for the nine months ended September 30, 2011, $10.1 million was a result of adverse prior year loss reserve development in the Personal Segment in Florida. In addition, the results for the nine months ended September 30, 2012 and 2011 included $11.6 million and $10.0 million, respectively, in net losses from weather related claims.

The Company reported $3.4 million net income attributable to Hallmark for the three months ended September 30, 2012 as compared to $98 thousand net income attributable to Hallmark for the same period during 2011. The Company reported a net income attributable to Hallmark of $1.7 million for the nine months ended September 30, 2012, which was $12.9 million higher than the $11.2 million net loss attributable to Hallmark reported for the nine months ended September 30, 2011. On a diluted basis per share, Hallmark reported net income of $0.18 per share for the three months ended September 30, 2012, as compared to net income of $0.01 per share for the same period in 2011.   On a diluted basis per share, net income per share was $0.09 for the nine months ended September 30, 2012 as compared to net loss per share of $0.57 for the same period during 2011. 

Hallmark's consolidated net loss ratio was 65.7% and 71.6% for the three and nine months ended September 30, 2012 as compared to 74.8% and 83.9% for the same periods in 2011. Hallmark's net expense ratio was 30.1% and 30.4% for the three and nine months ended September 30, 2012 as compared to 31.6% and 31.3% for the same periods in 2011. Hallmark's net combined ratio was 95.8% and 102.0% for the three and nine months ended September 30, 2012 as compared to 106.4% and 115.2% for the same periods in 2011. 

Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark's business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."

The Hallmark Financial Services, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4395

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 substantially 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.

¹ The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP.    The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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.

¹ The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP.    The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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.