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Hallmark Financial Services, Inc. Announces Fourth Quarter 2014 Earnings Results

FORT WORTH, Texas, March 12, 2015 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today reported fourth quarter 2014 net income of $3.8 million, or $0.19 per diluted share, compared to net income of $3.4 million, or $0.18 per diluted share, reported for fourth quarter 2013. Hallmark reported net income of $13.4 million, or $0.69 per diluted share, for fiscal 2014 as compared to net income of $8.2 million, or $0.43 per diluted share, for fiscal 2013. Total revenues were $88.0 million for the fourth quarter of 2014 as compared to $88.4 million for the fourth quarter of 2013. Fiscal 2014 total revenues were $337.4 million as compared to $389.4 million reported for fiscal 2013.

"I am pleased to report a solid finish to our 2014 fiscal year with improved quarterly underwriting results evidenced by our combined ratio of 95.9% for the fourth quarter and 95.9% for fiscal 2014 as compared to 96.6% for the fourth quarter the prior year and 101.7% for fiscal 2013," said Naveen Anand, President and Chief Executive Officer. "The results for fiscal 2014 show marked improvement in each of our reporting segments driven by underwriting actions taken across most lines of business and continued push for rate increases in our key segments."

Mr. Anand continued, "Hallmark is well positioned with a good platform, talented employees and a strong balance sheet to profitably grow into a consistently high-performing specialty insurance group."

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share was $13.11 at the end of fiscal 2014, an increase of 6% from the end of fiscal 2013. Total cash and investments have increased 6% during fiscal 2014 to $650.1 million, or $33.83 per share, due predominately to cash flow from operations of $33.7 million. Hallmark's cash balances totaled $142.9 million as of December 31, 2014."

Fourth Quarter
2014 2013 % Change
($ in thousands, unaudited)
Gross premiums written 109,973 108,749 1%
Net premiums written 83,703 64,435 30%
Net premiums earned 83,447 83,757 0%
Investment income, net of expenses 3,244 3,013 8%
Net realized gains 256 817 -69%
Total revenues 88,004 88,375 0%
Net income 3,767 3,428 10%
Net income per share - basic $ 0.20 $ 0.18 11%
Net income per share - diluted $ 0.19 $ 0.18 6%
Book value per share $ 13.11 $ 12.36 6%
Cash flow from operations 11,974 14,818 -19%
Fiscal Year
2014 2013 % Change
($ in thousands, unaudited)
Gross premiums written 473,218 460,027 3%
Net premiums written 324,352 360,765 -10%
Net premiums earned 321,217 360,541 -11%
Investment income, net of expenses 12,383 12,884 -4%
Net realized gains 134 10,540 -99%
Total revenues 337,366 389,428 -13%
Net income 13,429 8,245 63%
Net income per share - basic $ 0.70 $ 0.43 63%
Net income per share - diluted $ 0.69 $ 0.43 60%
Book value per share $ 13.11 $ 12.36 6%
Cash flow from operations 33,684 68,338 -51%

Fiscal 2014 Commentary

Hallmark reported net income of $13.4 million for fiscal 2014 as compared to net income of $8.2 million for fiscal 2013. On a diluted basis per share, the Company reported net income of $0.69 per share for fiscal 2014, as compared to net income of $0.43 per share for fiscal 2013.

Hallmark's consolidated net loss ratio was 65.4% for fiscal 2014, as compared to 72.5% for fiscal 2013. Hallmark's net expense ratio was 30.5% for fiscal 2014 as compared to 29.2% for fiscal 2013. Hallmark's net combined ratio was 95.9% for fiscal 2014 as compared to 101.7% for fiscal 2013.

During fiscal 2014, Hallmark's total revenues were $337.4 million, representing an approximately 13% decrease over the $389.4 million in total revenues for fiscal 2013. The decrease in revenue was primarily attributable to lower net earned premiums in the Personal Segment due to a new quota share reinsurance contract entered into during the fourth quarter of 2013 on the non-standard automobile risk produced in certain states. Further contributing to the decrease in revenue were significant realized gains recognized in Hallmark's investment portfolio for the year ended December 21, 2013, lower net investment income and adverse profit share commission revenue adjustments in the Standard Commercial Segment for the year ended December 31, 2014.

The decrease in revenue for the year ended December 31, 2014 was offset by decreased loss and LAE of $51.3 million as compared to the same period of 2013. During the fiscal year ended December 31, 2014, the Company recorded $5.2 million of favorable prior year loss development. During the fiscal year ended December 31, 2013, the Company recorded $10.0 million of unfavorable prior year loss development. The decrease in loss and LAE occurred despite a $4.8 million increase in net catastrophe losses to $15.0 million during the year ended December 31, 2014 from $10.2 million reported for the same period of 2013. Other operating expenses also decreased due mostly to decreased production related expenses in the Specialty Commercial Segment and the Personal Segment, partially offset by $3.0 million of costs related to higher salary and related expenses due mostly to increased incentive compensation accruals compared to the prior period, $0.7 million of CEO transition costs and $0.2 million of costs related to a previously announced public debt offering.

About Hallmark Financial Services, Inc.

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 and personal lines of property/casualty insurance products, as well as providing other insurance related services. Hallmark 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, except share amounts) Dec. 31 Dec. 31
ASSETS 2014 2013
Investments:
Debt securities, available-for-sale, at fair value (cost: $450,770 in 2014 and $408,627 in 2013) $ 450,785 $ 410,095
Equity securities, available-for-sale, at fair value (cost: $25,360 in 2014 and $24,902 in 2013) 56,444 51,230
Total investments 507,229 461,325
Cash and cash equivalents 130,985 141,666
Restricted cash 11,914 12,190
Ceded unearned premiums 53,376 44,988
Premiums receivable 71,003 71,157
Accounts receivable 3,141 2,382
Receivable for securities 932 1,320
Reinsurance recoverable 109,719 76,818
Deferred policy acquisition costs 20,746 22,586
Goodwill 44,695 44,695
Intangible assets, net 17,427 19,953
Prepaid expenses 1,823 1,531
Other assets 7,879 8,412
Total Assets $ 980,869 $ 909,023
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Revolving credit facility payable $ -- $ 1,473
Subordinated debt securities 56,702 56,702
Reserves for unpaid losses and loss adjustment expenses 415,135 382,640
Unearned premiums 196,826 185,303
Reinsurance balances payable 26,403 20,598
Pension liability 2,619 1,433
Payable for securities 1,321 206
Deferred federal income taxes, net 3,092 2,825
Federal income tax payable 968 719
Accounts payable and other accrued expenses 25,766 19,006
Total Liabilities 728,832 670,905
Commitments and contingencies
Stockholders' equity:
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2014 and 2013 3,757 3,757
Additional paid-in capital 123,194 122,827
Retained earnings 119,638 106,209
Accumulated other comprehensive income 17,801 16,883
Treasury stock (1,655,306 shares in 2014 and 1,609,374 shares in 2013), at cost (12,353) (11,558)
Total Stockholders' Equity 252,037 238,118
Total Liabilities & Stockholders' Equity $ 980,869 $ 909,023
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations Three Months Ended Fiscal Year Ended
($ in thousands, except share amounts) December 31 December 31
2014 2013 2014 2013
Gross premiums written $ 109,973 $ 108,749 $ 473,218 $ 460,027
Ceded premiums written (26,270) (44,314) (148,866) (99,262)
Net premiums written 83,703 64,435 324,352 360,765
Change in unearned premiums (256) 19,322 (3,135) (224)
Net premiums earned 83,447 83,757 321,217 360,541
Investment income, net of expenses 3,244 3,013 12,383 12,884
Net realized gains 256 817 134 10,540
Finance charges 1,212 1,434 5,279 5,830
Commission and fees (166) (656) (1,694) (487)
Other income 11 10 47 120
Total revenues 88,004 88,375 337,366 389,428
Losses and loss adjustment expenses 54,274 56,390 210,055 261,345
Operating expenses 26,372 25,378 101,427 109,289
Interest expense 1,141 1,150 4,576 4,599
Amortization of intangible assets 617 695 2,526 3,115
Total expenses 82,404 83,613 318,584 378,348
Income before tax 5,600 4,762 18,782 11,080
Income tax expense 1,833 1,334 5,353 2,835
Net income $ 3,767 $ 3,428 $ 13,429 $ 8,245
Net income (loss) per share:
Basic $ 0.20 $ 0.18 $ 0.70 $ 0.43
Diluted $ 0.19 $ 0.18 $ 0.69 $ 0.43
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Dec. 31 (unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal Segment Corporate Consolidated
($ in thousands) 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Gross premiums written $ 20,202 $ 20,374 $ 75,932 $ 70,988 $ 13,839 $ 17,387 $ -- $ -- $ 109,973 $ 108,749
Ceded premiums written (1,897) (1,747) (18,649) (15,221) (5,724) (27,346) -- -- (26,270) (44,314)
Net premiums written 18,305 18,627 57,283 55,767 8,115 (9,959) -- -- 83,703 64,435
Change in unearned premiums 1,343 1,473 2,251 3,212 (3,850) 14,637 -- -- (256) 19,322
Net premiums earned 19,648 20,100 59,534 58,979 4,265 4,678 -- -- 83,447 83,757
Total revenues 20,797 21,146 62,753 61,607 5,705 6,460 (1,251) (838) 88,004 88,375
Losses and loss adjustment expenses 9,633 13,576 40,934 39,243 3,707 3,571 -- -- 54,274 56,390
Pre-tax income (loss) 4,277 1,339 7,195 7,699 (690) (85) (5,182) (4,191) 5,600 4,762
Net loss ratio (1) 49.0% 67.5% 68.8% 66.5% 86.9% 76.3% 65.0% 67.3%
Net expense ratio (1) 35.3% 31.1% 25.0% 25.5% 39.5% 39.4% 30.9% 29.3%
Net combined ratio (1) 84.3% 98.6% 93.8% 92.0% 126.4% 115.7% 95.9% 96.6%
Favorable (Unfavorable) Prior Year Development 1,186 1,605 (1,121) (3,319) (221) (277) -- -- (156) (1,991)
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.
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Fiscal Year Ended Dec. 31 (unaudited)
Standard
Commercial
Segment
Specialty
Commercial
Segment
Personal Segment Corporate Consolidated
($ in thousands) 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Gross premiums written $ 84,679 $87,147 $324,547 $296,108 $63,992 $76,772 $ -- $ -- $473,218 $460,027
Ceded premiums written (7,767) (7,681) (93,909) (60,453) (47,190) (31,128) -- -- (148,866) (99,262)
Net premiums written 76,912 79,466 230,638 235,655 16,802 45,644 -- -- 324,352 360,765
Change in unearned premiums 1,399 (1,290) (1,815) (17,090) (2,719) 18,156 -- -- (3,135) (224)
Net premiums earned 78,311 78,176 228,823 218,565 14,083 63,800 -- -- 321,217 360,541
Total revenues 81,464 83,306 241,920 229,734 20,404 71,081 (6,422) 5,307 337,366 389,428
Losses and loss adjustment expenses 51,130 56,143 149,961 152,546 8,964 52,656 -- -- 210,055 261,345
Pre-tax income (loss) 4,595 1,980 34,237 19,527 1,226 (3,416) (21,276) (7,011) 18,782 11,080
Net loss ratio (1) 65.3% 71.8% 65.5% 69.8% 63.7% 82.5% 65.4% 72.5%
Net expense ratio (1) 33.3% 32.2% 25.6% 26.6% 43.3% 26.7% 30.5% 29.2%
Net combined ratio (1) 98.6% 104.0% 91.1% 96.4% 107.0% 109.2% 95.9% 101.7%
Favorable (Unfavorable) Prior Year Development 6,033 5,235 (3,721) (13,381) 2,891 (1,808) -- -- 5,203 (9,954)
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.

CONTACT: Mr. Naveen Anand President and Chief Executive Officer 817.348.1600 www.hallmarkgrp.com

Source:Hallmark Financial Services, Inc.