Hallmark Financial Services, Inc. Announces First Quarter 2009 Earnings Results

• Press Release
• Source: Hallmark Financial Services, Inc.
• On 2:35 pm EDT, Friday May 15, 2009

FORT WORTH, Texas, May 15, 2009 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL - News; "Hallmark") today reported first quarter 2009 net earnings of $6.8 million compared to $7.3 million reported for first quarter 2008. On a fully diluted basis, first quarter 2009 net earnings were $0.33 per share as compared to $0.35 per share for the first quarter of 2008. Total revenues were $70.9 million for the first quarter 2009 as compared to $71.5 million for the first quarter of 2008.

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Related Quotes

Symbol	Price	Change
HALL	7.73	-0.20

{"s" : "hall","k" : "c10,l10,p20,t10","o" : "","j" : ""}

Mark J. Morrison, President and Chief Executive Officer, said, "Our premium production increased 3.6% this quarter compared to a year ago due to our acquisition of Heath XS last August and the geographic and product expansion in our Personal Segment. However, our consistent underwriting discipline despite the soft market conditions experienced this quarter contributed to a decrease in premium production in our Standard Commercial Segment and the other lines of business in our Specialty Commercial Segment."

Mr. Morrison continued, "Underwriting profits have been and will remain the key component of our strategy. We can only achieve this goal by remaining disciplined in soft market conditions. Thus, our primary focus will continue to be on underwriting profitability, as opposed to premium growth or market share as evidenced by our 91.5% combined ratio for the quarter."

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Year-to-date book value per share increased 6% due to a combination of solid underwriting profits and strong investment performance. During the first quarter, annualized return on average equity was 15%, investment income increased 18%, and cash flow from operations was $9 million."

                                               Three Months Ended
                                                   March 31,
                                          ----------------------------
                                                                  %
                                             2009     2008      Change
                                          ---------  ---------  ------
                                                ($ in thousands)


 Gross premiums written                   $ 71,479   $ 64,237      11%
 Net premiums written                       69,247     62,233      11%
 Net premiums earned                        59,430     59,244       0%
 Commission and fee income                   6,189      6,484      -5%
 Investment income, net of expenses          4,269      3,625      18%
 Gain (loss) on investments                   (348)       859    -141%
 Total revenues                             70,910     71,521      -1%
 Net earnings (1)                            6,790      7,265      -7%
 Net earnings per share - basic           $   0.33   $   0.35      -6%
 Net earnings per share - diluted         $   0.33   $   0.35      -6%
 Annualized return on average equity          14.7%      15.9%     -8%
 Book value per share                     $   9.13   $   8.96       2%
 Cash flow from operations                $  8,851   $ 12,388     -29%


 (1) Net earnings is defined in this document as net income
     attributable to Hallmark Financial Services, Inc. as reported in
     our consolidated statements of operations.

The decrease in total revenue for the three months ended March 31, 2009 was primarily due to lower gains on investments from our investment portfolio and lower commission income partially offset by higher investment income and earned premium.

Standard Commercial Segment revenues decreased $2.0 million, or 9%, during the three months ended March 31, 2009 as compared to the same period during 2008, due primarily to lower earned premium as a result of increased competition, rate pressure and deterioration of the economic environment in our major markets. The acquisition of our Heath XS Operating Unit in 2008 drove the $0.6 million increase in revenue by our Specialty Commercial Segment during the three months ended March 31, 2009 as compared to the same period of 2008. Revenues from the Personal Segment increased $1.8 million, or 12%, during the three months ended March 31, 2009 as compared to the same periods during 2008, due largely to geographic expansion into new states. Corporate revenue decreased $1.0 million primarily due to losses recognized on our investment portfolio of $0.3 million during the three months ended March 31, 2009 as compared to recognized gains on our investment portfolio of $0.9 million during the same period in 2008.

On a diluted basis per share, net earnings were $0.33 per share for the three months ended March 31, 2009 as compared to $0.35 per share for the same period in 2008. The decrease in net earnings for the three months ended March 31, 2009 was primarily attributable to decreased revenue and recognized losses on investments discussed above and higher loss and loss adjustment expenses due to $1.6 million of favorable prior year loss reserve development recognized during the first quarter of 2008, partially offset by a lower effective tax rate driven primarily by a $0.8 million reduction in the deferred tax asset valuation allowance during the first three months of 2009.

Hallmark's net loss ratio was 62.0% for the first quarter of 2009 as compared to 59.9% for the first quarter of 2008. Hallmark's net expense ratio was 29.5% for the first quarter of 2009 as compared to 28.9% for the first quarter of 2008. Hallmark maintained a profitable net combined ratio of 91.5% for the first quarter of 2009 as compared to 88.8% for the same period in the prior year.

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.

               Hallmark Financial Services, Inc. and Subsidiaries
                            Consolidated Balance Sheets
                                  ($ in thousands)

                                              March 31     December 31
         ASSETS                                 2009           2008
         ------                                 ----           ----
                                            (unaudited)
 Investments:
  Debt securities, available-for-sale,
   at fair value                             $ 279,895      $ 268,513
  Equity securities, available-for-sale,
   at fair value                                25,983         25,003
                                            -----------    -----------

    Total investments                          305,878        293,516

 Cash and cash equivalents                      56,317         59,134
 Restricted cash and cash equivalents            6,220          8,033
 Premiums receivable                            48,932         44,032
 Accounts receivable                             3,937          4,531
 Receivable for securities                       1,064          1,031
 Prepaid reinsurance premiums                    1,671          1,349
 Reinsurance recoverable                         7,478          8,218
 Deferred policy acquisition costs              21,002         19,524
 Excess of cost over fair value of net
  assets acquired                               41,080         41,080
 Intangible assets, net                         28,255         28,969
 Current federal income tax recoverable             --            696
 Deferred federal income taxes                   5,680          6,696
 Prepaid expenses                                1,044          1,007
 Other assets                                   22,721         20,582
                                            -----------    -----------

                                             $ 551,279      $ 538,398
                                            ===========    ===========

    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------

 Liabilities:
  Notes payable                               $ 59,650       $ 60,919
  Reserves for unpaid losses and loss
   adjustment expenses                         164,839        156,363
  Unearned premiums                            112,183        102,192
  Unearned revenue                               1,170          2,037
  Accrued agent profit sharing                     751          2,151
  Accrued ceding commission payable              8,592          8,605
  Pension liability                              4,348          4,309
  Current federal income tax                     1,649             --
  Payable for securities                         1,115          3,606
  Accounts payable and other accrued
   expenses                                      5,603         18,067
                                            -----------    -----------

                                               359,900        358,249
                                            -----------    -----------

 Commitments and Contingencies

 Redeemable non-controlling interest               824            737

 Stockholders' equity:
  Common stock, $.18 par value
   (authorized 33,333,333 shares in
   2009 and 2008; issued 20,871,498
   shares in 2009 and 20,841,782
   shares in 2008)                               3,757          3,751
  Capital in excess of par value               120,200        119,928
  Retained earnings                             79,032         72,242
  Accumulated other comprehensive loss         (12,357)       (16,432)
  Treasury stock, at cost (7,828
   shares in 2009 and 2008)                        (77)           (77)
                                            -----------    -----------

    Total stockholders' equity                 190,555        179,412
                                            -----------    -----------

                                             $ 551,279      $ 538,398
                                            ===========    ===========



        Hallmark Financial Services, Inc. and Subsidiaries
                 Consolidated Statements of Operations
                              (Unaudited)
            ($ in thousands, except per share amounts)

                                                 Three Months Ended
                                                      March 31
                                            --------------------------

                                               2009            2008
                                            -----------    -----------

 Gross premiums written                       $ 71,479       $ 64,237
 Ceded premiums written                         (2,232)        (2,004)
                                            -----------    -----------
   Net premiums written                         69,247         62,233
   Change in unearned premiums                  (9,817)        (2,989)
                                            -----------    -----------
   Net premiums earned                          59,430         59,244

 Investment income, net of expenses              4,269          3,625
 Net realized gains (impairments and
   realized losses)                               (348)           859
 Finance charges                                 1,350          1,264
 Commission and fees                             6,189          6,484
 Processing and service fees                        15             42
 Other income                                        5              3
                                            -----------    -----------

    Total revenues                              70,910         71,521

 Losses and loss adjustment expenses            36,842         35,504
 Other operating expenses                       23,750         23,465
 Interest expense                                1,159          1,185
 Amortization of intangible assets                 714            573
                                            -----------    -----------
    Total expenses                              62,465         60,727

 Income before tax                               8,445         10,794
 Income tax expense                              1,662          3,529
                                            -----------    -----------
 Net income                                      6,783          7,265
 Less: Net loss attributable to
  non-controlling  interest                         (7)            --
                                            -----------    -----------

 Net income attributable to Hallmark
  Financial Services, Inc.                    $  6,790       $  7,265
                                            ===========    ===========

 Net income per share attributable to
  Hallmark Financial Services, Inc.
  common stockholders:
   Basic                                      $   0.33       $   0.35
                                            ===========    ===========
   Diluted                                    $   0.33       $   0.35
                                            ===========    ===========


                   Hallmark Financial Services, Inc.
                       Consolidated Segment Data


                          Three Months Ended March 31, 2009
                 -----------------------------------------------------
                  Standard  Specialty
                 Commercial Commercial Personal
                  Segment    Segment   Segment  Corporate Consolidated
                 -----------------------------------------------------

 Produced
  premium (1)    $ 19,147   $ 34,282   $ 20,626  $     --   $ 74,055
                 --------   --------   --------  --------   --------

 Gross
  premiums
  written          19,147     31,706     20,626        --     71,479
 Ceded
  premiums
  written          (1,103)    (1,129)        --        --     (2,232)
                 --------   --------   --------  --------   --------
 Net
  premiums
  written          18,044     30,577     20,626        --     69,247
 Change in
  unearned
  premiums            406     (5,626)    (4,597)       --     (9,817)
                 --------   --------   --------  --------   --------
 Net premiums
  earned           18,450     24,951     16,029        --     59,430

 Total
  revenues         20,020     32,825     17,535       530     70,910

 Losses and
  loss
  adjustment
  expenses         11,346     14,933     10,563        --     36,842

 Pre-tax
  income
  (loss),
  net of
  non-
  con-
  trolling
  interest          2,576      5,682      2,619    (2,425)     8,452

 Net loss
  ratio (2)          61.5%      59.8%      65.9%                62.0%
 Net expense
  ratio (2)          27.3%      30.6%      23.1%                29.5%
                 --------   --------   --------             --------
 Net combined
  ratio (2)          88.8%      90.4%      89.0%                91.5%
                 ========   ========   ========             ========


                           Three Months Ended March 31, 2008
                 -----------------------------------------------------
                  Standard  Specialty
                 Commercial Commercial Personal
                  Segment    Segment   Segment  Corporate Consolidated
                 -----------------------------------------------------

 Produced
  premium (1)    $ 21,749   $ 32,020   $ 17,727  $     --   $ 71,496
                 --------   --------   --------  --------   --------

 Gross
  premiums
  written          21,749     24,761     17,727        --     64,237
 Ceded
  premiums
  written          (1,187)      (817)        --        --     (2,004)
                 --------   --------   --------  --------   --------
 Net premiums
  written          20,562     23,944     17,727        --     62,233
 Change in
  unearned
  premiums            404       (155)    (3,238)       --     (2,989)
                 --------   --------   --------  --------   --------
 Net premiums
  earned           20,966     23,789     14,489        --     59,244

 Total
  revenues         22,006     32,238     15,726     1,551     71,521

 Losses and
  loss
  adjustment
  expenses         11,310     15,003      9,191        --     35,504

 Pre-tax
  income (loss)     4,058      5,444      2,590    (1,298)    10,794

 Net loss
  ratio (2)          53.9%      63.1%      63.4%                59.9%
 Net expense
  ratio (2)          27.2%      30.5%      22.5%                28.9%
                 --------   --------   --------             --------
 Net combined
  ratio (2)          81.1%      93.6%      85.9%                88.8%
                 ========   ========   ========             ========


 1.  Produced premium is a non-GAAP measurement that management uses
     to track total controlled premium produced by our operations. We
     believe this is a useful tool for users of our financial
     statements to measure our premium production whether retained by
     our insurance company subsidiaries or assumed by third party
     insurance carriers who pay us commission revenue.

 2.  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 underwriting expenses of our insurance company
     subsidiaries (which include provisional ceding commissions,
     direct agent commissions, premium taxes and assessments,
     professional fees, other general underwriting expenses and
     allocated overhead expenses) and offset by agency fee income,
     divided by net premiums earned, each determined in accordance
     with GAAP. Net combined ratio is calculated as the sum of the net
     loss ratio and the net expense ratio.

Hallmark Financial Services, Inc.
Mark J. Morrison, President and Chief Executive Officer
817.348.1600
www.hallmarkgrp.com