updated 3/14/2011 6:31:51 PM ET 2011-03-14T22:31:51

FORT WORTH, Texas, March 14, 2011 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) ("Hallmark") today reported fourth quarter 2010 net earnings of $0.4 million compared to $9.3 million reported for the fourth quarter of 2009. Hallmark reported net earnings of $7.3 million for fiscal year 2010, compared to $24.6 million reported for fiscal year 2009. On a fully diluted basis, net earnings were $0.02 per share and $0.36 per share, respectively, for the fourth quarter and fiscal year 2010, as compared to net earnings of $0.46 per share and $1.19 per share, respectively, for the fourth quarter and fiscal year 2009. Total revenues were $79.3 million and $307.1 million for the fourth quarter and fiscal year 2010, up 8% and 7%, respectively, from the $73.5 million and $287.0 million reported for the fourth quarter and fiscal year 2009. 





Mark J. Morrison, President and Chief Executive Officer, said, "Fiscal 2010 proved to be a year of challenges and opportunities for Hallmark. We missed our combined ratio target for the year due to a combination of factors affecting incurred losses in each of our three largest business units. Increased volatility of large losses and weather related claims negatively affected the results of our Standard Commercial and E&S Commercial business units. We also experienced uncharacteristically poor results in our Personal Lines business unit, as higher than expected growth from geographic and product expansion drove a greater proportion of less seasoned business into the total mix of policies in force. Compounding this situation was an extraordinary level of fraudulent claims from business written in the recent expansion state of Florida. In order to bring Personal Lines results back to acceptable levels, we are actively managing our exposure in less seasoned states through rate increases and aggressive agency plant management. We expect these efforts to bring our Personal Lines results back in line with our expectations by the end of 2011."

Mr. Morrison continued, "During the first week of February this year, most of the country was impacted by severe winter storms. We presently estimate our losses from these storms to be approximately $3 million, net of approximately $1 million in reinsurance. These events will be reflected in our first quarter 2011 results. Despite these challenges, Hallmark is continuing to build opportunities for the future. With the close of our acquisition of Hallmark National Insurance Company at the end of 2010 and the renewal rights to its non-standard personal automobile business, we have a pipeline of seasoned business to fuel growth in our Personal Lines business unit for 2011 and beyond. Additionally in 2010, our E&S Commercial business unit launched a nationwide non-standard medical malpractice insurance program with the hiring of an experienced Chicago-based underwriting team. This program produced $1.6 million of written premium during 2010." 

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share grew 4% during fiscal 2010 to $11.72. Total cash, cash equivalents and investments grew $53 million, or 12%, during fiscal 2010 to $498 million, or approximately $25 per share. Total investment securities increased 32% during the year to $432 million, contributing to growth in investment income and helping to offset the effect of lower market yields. Fourth quarter 2010 investment income increased 16% to $4 million compared to the prior year quarter. Cash flow from operations was $36 million for the year. As of year-end, Hallmark continued to have significant cash and cash equivalents of $66 million."

  Three Months Ended
  December 31,
  2010 2009 % Change
  ($ in thousands, unaudited)
Produced premium (1)  $ 72,152  $ 66,003 9%
Gross premiums written   73,735  67,013 10%
Net premiums written   63,666  57,909 10%
Net premiums earned   70,902  65,085 9%
Investment income, net of expenses  4,336  3,744 16%
Net realized gain on investments  2,645  1,916 38%
Total revenues   79,333  73,482 8%
Net earnings (2)  420  9,296 -95%
Net earnings per share - basic  $ 0.02  $ 0.46 -96%
Net earnings per share - diluted  $ 0.02  $ 0.46 -96%
Annualized return on average equity  0.7% 16.8% -96%
Book value per share  $ 11.72  $ 11.26 4%
Cash flow from operations  $ 7,426  $ 16,003 -54%
       
  Fiscal Year Ended
  December 31,
  2010 2009 % Change
  ($ in thousands, unaudited)
Produced premium (1)  $ 314,857  $ 288,450 9%
Gross premiums written   320,973  287,558 12%
Net premiums written   281,641  261,740 8%
Net premiums earned   278,271  251,072 11%
Investment income, net of expenses  14,849  14,947 -1%
Net realized gain on investments  8,402  3,032 177%
Total revenues   307,060  287,039 7%
Net earnings (2)  7,334  24,575 -70%
Net earnings per share - basic  $ 0.36  $ 1.19 -70%
Net earnings per share - diluted  $ 0.36  $ 1.19 -70%
Return on average equity  3.2% 12.1% -74%
Book value per share  $ 11.72  $ 11.26 4%
Cash flow from operations  $ 36,360  $ 61,698 -41%
       
 (1) Produced premium is a non-GAAP measurement that management uses to track total premium produced by

Hallmark's operations. Hallmark believes it is a useful tool for users of its financial statements to measure premium

production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance

carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its

Hallmark County Mutual Insurance Company subsidiary. 
       
(2) Net earnings is net income attributable to Hallmark Financial Services, Inc. as reported in the consolidated

statements of operations as determined in accordance with GAAP.

During the three months and year ended December 31, 2010, Hallmark's total revenues were $79.3 million and $307.1 million, representing an 8% and 7% increase, respectively, from the $73.5 million and $287.0 million in total revenues for the same periods of 2009. The increase in revenue for the three months ended December 31, 2010 was primarily attributable to increased production in its Personal Segment due to geographic expansion. The increase in revenue for the year ended December 31, 2010 was also attributable to increased production in the Personal Segment due to geographic expansion, as well as increased retention of business in the Specialty Commercial Segment and gains realized on the investment portfolio. These increases in revenue were partially offset by reduced earned premium in the Standard Commercial Segment due to reduced premium production as a result of continued deterioration of the general economic environment in its major markets. Also partially offsetting the increase in revenue were lower commission and fees in our Specialty Commercial Segment due primarily to the shift from a third party agency structure to an insurance underwriting structure. 

Hallmark reported net earnings of $0.4 million and $7.3 million for the three months and year ended December 31, 2010, respectively, which were $8.9 million and $17.3 million lower than the $9.3 million and $24.6 million net earnings reported for the same periods of 2009. On a fully diluted basis, net earnings were $0.02 and $0.36 per share for the three months and year ended December 31, 2010, respectively, as compared to net earnings of $0.46 and $1.19 per share for the same periods in 2009. The decrease in net income for the three months and year ending December 31, 2010 was primarily due to increased current accident year loss and loss adjustment expenses primarily caused by increased volatility of large losses, greater than anticipated Personal Segment expansion into Florida and weather related losses.  Unfavorable prior year loss development of $2.1 million and $9.2 million recognized during the three months and year ended December 31, 2010, respectively, as compared to favorable development of $1.8 million and unfavorable development of $1.6 million recognized for the three months and year ended December 31, 2009 also contributed to the decrease in net income.  Partially offsetting the increased loss and loss adjustment expenses was the increase in revenue for the three months and year ending December 31, 2010, as well as lower operating expenses due to lower production related expenses in the Standard Commercial Segment and Specialty Commercial Segment and lower general and administrative costs in the Standard Commercial Segment as a result of ongoing cost reduction initiatives. 

Hallmark's net loss ratio was 79.1% and 72.8% for the three months and year ended December 31, 2010, respectively, as compared to 58.5% and 61.2% for the same periods in 2009.  Hallmark's net expense ratio was 29.9% and 29.6% for the three months and year ended December 31, 2010, respectively, as compared to 29.7% and 30.5% for the same periods in 2009. Hallmark's net combined ratio was 109.0% and 102.4% for the three months and year ended December 31, 2010, respectively, as compared to 88.2% and 91.7% for the same periods in 2009. 

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, medical malpractice 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
December 31, 2010 and 2009
($ in thousands)
     
ASSETS 2010 2009
Investments:    
 Debt securities, available-for-sale, at fair value (cost; $383,530 in 2010 and $287,108 in 2009) $ 388,399 $ 291,876
 Equity securities, available-for-sale, at fair value  (cost; $32,469 in 2010 and $27,251 in 2009) 44,042 35,801
     
 Total investments 432,441 327,677
     
Cash and cash equivalents 60,519 112,270
Restricted cash  5,277 5,458
Ceded unearned premiums 25,504 12,997
Premiums receivable 47,337 46,635
Accounts receivable 7,051 3,377
Receivable for securities 2,215 --
Reinsurance recoverable 39,505 10,008
Deferred policy acquisition costs 21,679 20,792
Goodwill  43,564 41,080
Intangible assets, net 30,241 28,873
Federal income tax recoverable 4,093 --
Prepaid expenses 1,987 923
Other assets  15,207 18,779
     
  $ 736,620 $ 628,869
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities:    
 Note payable $ 2,800 $ 2,800
 Subordinated debt securities 56,702 56,702
 Reserves for unpaid losses and loss adjustment expenses 251,677 184,662
 Unearned premiums 140,965 125,089
 Unearned revenue 116 191
 Reinsurance balances payable 3,122 3,281
 Accrued agent profit sharing 1,301 1,790
 Accrued ceding commission payable 4,231 8,600
 Pension liability 2,833 2,628
 Payable for securities 2,493 19
 Payable for acquisition 14,000 --
 Deferred federal income taxes, net 3,471 942
 Federal income tax payable -- 1,266
 Accounts payable and other accrued expenses 15,786 13,258
     
  499,497 401,228
Commitments and contingencies     
     
Redeemable non-controlling interest 1,360 1,124
     
     
Stockholders' equity:    
 Common stock, $.18 par value, authorized 33,333,333 shares in 2010 and 2009;    
 issued 20,872,831 shares in 2010 and 2009 3,757 3,757
 Additional paid-in capital  121,815 121,016
 Retained earnings  105,816 98,482
 Accumulated other comprehensive income  9,637  8,589
 Treasury stock, (748,662 shares in 2010 and 757,828 in 2009), at cost (5,262) (5,327)
     
 Total stockholders' equity 235,763 226,517
     
  $ 736,620 $ 628,869
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share amounts)
         
  Three Months Ended

December 31
Fiscal Year Ended

December 31
  2010 2009 2010 2009
         
Gross premiums written  $ 73,735  $ 67,013  $ 320,973  $ 287,558
Ceded premiums written  (10,069) (9,104)  (39,332) (25,818)
Net premiums written  63,666 57,909  281,641 261,740
Change in unearned premiums  7,236 7,176  (3,370) (10,668)
Net premiums earned  70,902 65,085  278,271 251,072
         
Investment income, net of expenses  4,336 3,744  14,849 14,947
Net realized gains   2,645 1,916  8,402 3,032
Finance charges  1,807 1,550  7,054 5,874
Commission and fees  (371) 1,177  (1,575) 12,011
Other income  14 10  59 103
         
Total revenues  79,333 73,482  307,060 287,039
         
Losses and loss adjustment expenses  56,095 38,067  202,544 153,619
Operating expenses   22,033 21,177  87,989 92,233
Interest expense  1,151 1,146  4,598 4,602
Amortization of intangible assets  916 916  3,665 3,328
         
Total expenses  80,195 61,306  298,796 253,782
         
Income before tax  (862)  12,176  8,264  33,257
Income tax expense  (1,317)  2,864  825  8,630
Net income   455  9,312  7,439  24,627
Less: Net income attributable to 

non-controlling interest
 35  16  105  52
         
Net income attributable to Hallmark Financial Services, Inc.  $ 420  $ 9,296  $ 7,334  $ 24,575
         
Net income per share attributable to Hallmark Financial        
Services, Inc. common stockholders:        
 Basic  $ 0.02  $ 0.46  $ 0.36  $ 1.19
 Diluted  $ 0.02  $ 0.46  $ 0.36  $ 1.19
 
Hallmark Financial Services, Inc.
Consolidated Segment Data
($ in thousands)
  Three Months Ended December 31, 2010
  Standard Specialty      
  Commercial Commercial Personal    
  Segment Segment Segment Corporate Consolidated
           
Produced premium (1)  $ 15,357  $ 36,435  $ 20,360  $ --   $ 72,152
           
Gross premiums written  15,357  38,018  20,360  --   73,735
Ceded premiums written  (1,168)  (8,814)  (87)  --   (10,069)
Net premiums written  14,189  29,204  20,273  --   63,666
Change in unearned premiums  1,799  2,413  3,024  --   7,236
Net premiums earned  15,988  31,617  23,297  --   70,902
           
Total revenues  17,160  33,573  25,355  3,245  79,333
           
Losses and loss adjustment expenses  12,017  20,496  23,582  --   56,095
           
Pre-tax income (loss), net of           
non-controlling interest  727  3,486  (5,230)  120  (897)
           
Net loss ratio (2) 75.2% 64.8% 101.2%   79.1%
Net expense ratio (2) 27.0% 30.9% 24.3%   29.9%
Net combined ratio (2) 102.2% 95.7% 125.5%   109.0%
           
  Three Months Ended December 31, 2009    
  Standard Specialty      
  Commercial Commercial Personal    
  Segment Segment Segment Corporate Consolidated
           
Produced premium (1)  $ 15,631  $ 33,632  $ 16,740  $ --   $ 66,003
           
Gross premiums written  15,631  34,642  16,740  --   67,013
Ceded premiums written  (1,099)  (8,005)  --   --   (9,104)
Net premiums written  14,532  26,637  16,740  --   57,909
Change in unearned premiums  2,789  4,012  375  --   7,176
Net premiums earned  17,321  30,649  17,115  --   65,085
           
Total revenues  18,713  33,903  18,814  2,052  73,482
           
Losses and loss adjustment expenses  10,482  17,031  10,554  --   38,067
           
Pre-tax income (loss), net of           
non-controlling interest  3,279  6,603  3,262  (984)  12,160
           
Net loss ratio (2) 60.5% 55.6% 61.7%   58.5%
Net expense ratio (2) 27.8% 30.4% 22.1%   29.7%
Net combined ratio (2) 88.3% 86.0% 83.8%   88.2%

1  Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark's operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary.

2 The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. During the second quarter of 2009 Hallmark changed the method in which the net expense ratio is calculated. The net expense ratio is now 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. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. 

Hallmark Financial Services, Inc.
Consolidated Segment Data
($ in thousands)
  Fiscal Year Ended December 31, 2010
  Standard Specialty      
  Commercial Commercial Personal    
  Segment Segment Segment Corporate Consolidated
           
Produced premium (1)  $ 67,844  $ 151,721  $ 95,292  $ --   $ 314,857
           
Gross premiums written  67,832  157,849  95,292  --   320,973
Ceded premiums written  (4,260)  (34,876)  (196)  --   (39,332)
Net premiums written  63,572  122,973  95,096  --   281,641
Change in unearned premiums  1,999  1,125  (6,494)  --   (3,370)
Net premiums earned  65,571  124,098  88,602  --   278,271
           
Total revenues  69,670  131,076  96,741  9,573  307,060
           
Losses and loss adjustment expenses  51,468  78,911  72,165  --   202,544
           
Pre-tax income (loss), net of           
non-controlling interest  (2,316)  13,315  (705)  (2,135)  8,159
           
Net loss ratio (2) 78.5% 63.6% 81.4%   72.8%
Net expense ratio (2) 30.7% 29.7% 22.4%   29.6%
Net combined ratio (2) 109.2% 93.3% 103.8%   102.4%
           
  Fiscal Year Ended December 31, 2009
  Standard Specialty      
  Commercial Commercial Personal    
  Segment Segment Segment Corporate Consolidated
           
Produced premium (1)  $ 72,512  $ 144,230  $ 71,708  $ --   $ 288,450
           
Gross premiums written  72,512  143,338  71,708  --   287,558
Ceded premiums written  (4,430)  (21,388)  --   --   (25,818)
Net premiums written  68,082  121,950  71,708  --   261,740
Change in unearned premiums  3,208  (9,680)  (4,196)  --   (10,668)
Net premiums earned  71,290  112,270  67,512  --   251,072
           
Total revenues  76,496  131,504  73,785  5,254  287,039
           
Losses and loss adjustment expenses  44,372  65,453  43,794  --   153,619
           
Pre-tax income (loss), net of           
non-controlling interest  9,266  20,883  11,000  (7,944)  33,205
           
Net loss ratio (2) 62.2% 58.3% 64.9%   61.2%
Net expense ratio (2) 31.3% 30.1% 21.6%   30.5%
Net combined ratio (2) 93.5% 88.4% 86.5%   91.7%

1 Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark's operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark's insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company subsidiary.

2 The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. During the second quarter of 2009 Hallmark changed the method in which the net expense ratio is calculated. The net expense ratio is now 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. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. 

CONTACT:  Mark J. Morrison, President and Chief Executive Officer
          817.348.1600
          www.hallmarkgrp.com

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