Hallmark Financial Services, Inc. Fourth Quarter and Year 2004 Earnings Results

Hallmark Financial Services, Inc. Fourth Quarter and Year 2004
Earnings Results 


FORT WORTH, Texas, March 30  /PRNewswire-FirstCall/ -- Hallmark Financial
Services, Inc. (AMEX:HAF.EC) today reported operating results for the fourth
quarter and year ended December 31, 2004.  Net income for the quarter ended
December 31, 2004 was $1.4 million as compared to a net loss of $0.4 million
for the same period in 2003.  Income before extraordinary gain for the year
ended December 31, 2004 increased 785% to $5.8 million, or $0.16 per diluted
share, as compared to Income before extraordinary gain of $0.7 million, or
$0.03 per diluted share, for the same period in 2003.

Total net income for the year ended December 31, 2004 was $5.8 million, or
$0.16 per diluted share, as compared to $8.7 million, or $0.46 per diluted
share for the same period in 2003.  Fiscal 2003 included an extraordinary gain
of $8.1 million related to the acquisition of Phoenix Indemnity Insurance
Company.  Hallmark's weighted average shares outstanding also increased to 36.7
million diluted shares during fiscal 2004, compared to 18.8 million diluted
shares during fiscal 2003, primarily as a result of a successful shareholder
rights offering completed in the third quarter of fiscal 2003.

"With these fourth quarter results, we concluded the year with the highest
operating earnings in the Company's history.  The fourth quarter reflects solid
financial results and is indicative of the quality of our core books of
business.  The Company's record 2004 operating earnings were driven by
continued strength across both of our reporting segments," stated Mark E.
Schwarz, Chief Executive Officer.  "These results continue to reflect sustained
favorable market conditions and ongoing initiatives directed at improving
profitability through disciplined underwriting and policy pricing, improved
agency relations and expense management.  As we go forward, we intend to
continue to focus on these initiatives, while selectively expanding the
business in areas that offer the best opportunities to increase profitability,"
Mr. Schwarz continued.

"Our strong financial results in 2004 reflect improved underwriting performance
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
year ended December 31, 2004, was 59% compared to 72% for 2003, resulting in an
increase in income before tax and extraordinary gain of more than 315% year
over year.  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 year ended December 31, 2004, increased by
more than 18% over 2003.  This improvement is a result of increased premium
production arising largely from premium rate increases on renewal business,
increased commission rates because of improved underwriting performance on
policies produced, and enhanced compensation provisions agreed to with our
outside insurance carrier effective on July 1, 2004.  Despite flattening rate
increases in 2005, we anticipate that these favorable trends will continue at
moderating levels," Mr. Morrison concluded.

Hallmark Financial Services, Inc. engages primarily in the sale of property and
casualty insurance products.  The Company's business involves marketing and
underwriting 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
                (In thousands, except earnings per share)

                              Three Months Ended    Twelve Months Ended
                                  December 31           December 31

                                2004       2003       2004        2003

  Gross premiums written      $10,215     $6,934    $33,389     $43,338
  Ceded premiums written         (347)       165       (322)     (6,769)
    Net premiums written        9,868      7,099     33,067      36,569
    Change in net unearned
     premiums                  (1,095)     1,551       (622)      5,406
    Net premiums earned         8,773      8,650     32,445      41,975

  Investment income, net of
   expenses                       392        376      1,386       1,198
  Realized gain (loss)             30        225        (27)        (88)
  Finance charges                 539        608      2,183       3,544
  Commission and fees           4,865      5,138     21,100      17,544
  Processing and service fees   1,443      1,391      6,003       4,900
  Other income                     10         40         31         486

    Total revenues             16,052     16,428     63,121      69,559

  Losses and loss adjustment
   expenses                     5,037      7,592     19,137      30,188
  Other operating costs and
   expenses                     8,944      9,662     35,290      37,386
  Interest expense                  3         37         64       1,271
  Amortization of intangible
   asset                            7          7         28          28

    Total expenses             13,991     17,298     54,519      68,873

  Income before income tax
   expense (benefit) and
   extraordinary gain           2,061       (870)     8,602         686

  Income tax expense (benefit)    660       (473)     2,753          25

  Income (loss) before
   extraordinary gain (loss)   $1,401      $(397)    $5,849        $661

  Extraordinary gain (loss)       ---        (32)       ---       8,084

  Net income (loss)            $1,401      $(429)    $5,849      $8,745
  Basic earnings per share:
    Income (loss) before
     extraordinary gain         $0.04     $(0.01)     $0.16       $0.03
      Extraordinary gain          ---        ---        ---        0.44
      Net income (loss)         $0.04     $(0.01)     $0.16       $0.47
  Diluted earnings per share:
    Income (loss) before
     extraordinary gain         $0.04     $(0.01)     $0.16       $0.03
      Extraordinary gain          ---        ---        ---        0.43
      Net income (loss)         $0.04     $(0.01)     $0.16       $0.46


DATASOURCE: Hallmark Financial Services, Inc.



CONTACT:  Mark J. Morrison, Chief Financial Officer of Hallmark Financial

Services, Inc., [phone]



Web site:  http://www.hallmarkgrp.com/ 

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