Mark J. Morrison
Chief Financial Officer
817-348-1600
FORT WORTH, Texas -- November 11, 2004 -- Hallmark Financial Services,
Inc. today reported operating results for the third quarter of fiscal 2004.
Net income for the quarter ended September 30, 2004 increased 601% to $1.5
million, or $0.04 per diluted share, as compared to net income of $0.2 million,
or $0.01 per diluted share, for the same period in 2003. Net income before
extraordinary gain for the nine months ended September 30, 2004 increased
320% to $4.4 million, or $0.12 per diluted share, as compared to net income
before extraordinary gain of $1.1 million, or $0.08 per diluted share, for
the same period in 2003. Total net income for the nine months ended September
30, 2004 was $4.4 million, or $0.12 per diluted share, as compared to $9.2
million, or $0.71 per diluted share for the same period in 2003.
The extraordinary gain of $8.1 million in fiscal 2003 related to the acquisition
of Phoenix Indemnity Insurance Company ("Phoenix"). Hallmark's weighted
average shares outstanding increased to 36.6 million diluted shares during
the first nine months of fiscal 2004, compared to 12.8 million diluted shares
during the first nine months of fiscal 2003, primarily as a result of a successful
shareholder rights offering completed in the third quarter of fiscal 2003.
"For the third
consecutive quarter, we are pleased to report the highest operating earnings
in the Company's history for the quarter and year to date periods. The continued
improvement in financial results for the third quarter is indicative of the
quality of our core books of business. The Company's record third quarter 2004
earnings were driven by continued bottom line improvement across both of our
reporting segments and demonstrate that our on-going strategic initiatives are
working to create greater shareholder value," stated Mark E. Schwarz, Chief
Executive Officer. "These results continue to reflect benefits achieved
through ongoing initiatives directed at improving performance, as well as sustained
favorable market conditions. As we go forward, we will continue to execute our
strategy of disciplined underwriting and expense controls, while focusing on
selectively expanding the business in areas that offer the best opportunities
to increase profitability."
"Our strong
financial results reflect improved underwriting performances in both of our
business segments," stated Mark J. Morrison, Executive Vice- President
& Chief Financial Officer. "In our personal lines segment, the actions
commenced in 2003 to restructure the existing book of business have resulted
in significantly improved underwriting results and increased statutory surplus.
The loss and loss adjustment expense ratio for this segment for the nine months
ended September 30, 2004, was 60% compared to 68% for the same period of 2003,
resulting in an increase in income before tax and extraordinary gain of more
than 86% for the period. These results have allowed us to decrease our use of
outside reinsurance and to leverage our increasing statutory surplus base, thus
providing additional margin on business produced going forward. In the commercial
segment, revenue for the nine month period ended September 30, 2004, increased
by more than 22% over the same period in 2003. This improvement is a result
of increased premium production arising mostly from premium rate increases on
renewal business and increased commission rates as a result of improved underwriting
performance on policies produced on behalf of the outside insurance carrier.
We anticipate that these favorable trends will continue at moderating levels
for the balance of 2004."
Hallmark Financial
Services, Inc. engages primarily in sale of property and casualty insurance
products. The Company's business involves marketing, underwriting and premium
financing of non-standard personal automobile insurance primarily in Texas,
Arizona and New Mexico, marketing commercial insurance primarily in Texas, New
Mexico, Idaho, Oregon and Washington, third party claims administration, and
other insurance related services. The Company is headquartered in Fort Worth,
Texas and its common stock is listed on the American Stock Exchange under the
symbol "HAF.EC".
Forward-looking
statements in this Release are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation 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, the availability of
financing, underwriting loss experience and other risks detailed from time to
time in the Company's periodic report filings with the Securities and Exchange
Commission.
For further information, please contact:
Mark J. Morrison, Chief Financial Officer at 817.348.1600
http://www.hallmarkgrp.com
HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
Gross premiums written $ 7,410 $ 6,640 $ 23,174 $ 36,404
Ceded premiums written --- 246 25 (6,934)
Net premiums written 7,410 6,886 23,199 29,470
Change in net
unearned premiums 54 2,509 473 3,855
Net premiums earned 7,464 9,395 23,672 33,325
Investment income,
net of expenses 371 360 994 822
Realized gain (loss) (57) (305) (57) (313)
Finance charges 561 856 1,644 2,936
Commission and fees 5,745 4,709 16,235 12,406
Processing and service fees 1,556 1,224 4,560 3,509
Other income 6 127 21 446
Total revenues 15,646 16,366 47,069 53,131
Losses and loss
adjustment expenses 4,451 6,155 14,100 22,596
Other operating costs
and expenses 8,903 9,559 26,346 27,724
Interest expense 16 359 61 1,234
Amortization of
intangible asset 7 7 21 21
Total expenses 13,377 16,080 40,528 51,575
Income before income tax
and extraordinary gain 2,269 286 6,541 1,556
Income tax expense 726 66 2,093 498
Income before
extraordinary gain $ 1,543 $ 220 $ 4,448 $ 1,058
Extraordinary gain --- --- --- 8,116
Net income $ 1,543 $ 220 $ 4,448 $ 9,174
Basic earnings per share:
Income before
extraordinary gain $ 0.04 $ 0.01 $ 0.12 $ 0.08
Extraordinary gain --- --- --- 0.65
Net income $ 0.04 $ 0.01 $ 0.12 $ 0.73
Diluted earnings per share:
Income before
extraordinary gain $ 0.04 $ 0.01 $ 0.12 $ 0.08
Extraordinary gain --- --- --- 0.63
Net income $ 0.04 $ 0.01 $ 0.12 $ 0.71
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