Hallmark Financial Services, Inc. Second Quarter 2005 Earnings Results

FORT WORTH, Texas, Aug. 4  /PRNewswire-FirstCall/ -- Hallmark Financial Services, Inc. (AMEX:HAF.EC) today reported operating results for the second quarter ended June 30, 2005.  During the second quarter of fiscal 2005, total revenues of the Company were $17.8 million, representing a 13.6% increase over the $15.7 million in total revenues for the comparable period of fiscal 2004. For the first six months of fiscal 2005, total revenues of the Company were $35.2 million, representing a 12.1% increase over the $31.4 million in total revenues for the comparable period in fiscal 2004.  For the three months ended June 30, 2005, the Company reported net income of $2.0 million, representing a 34.2% increase over the $1.5 million reported in the second quarter of 2004. For the first six months of fiscal 2005, the Company reported net income of $3.8 million, representing a 31.5% increase over the $2.9 million reported in the comparable period in fiscal 2004.  On a diluted per share basis, net income was $0.03 and $0.07 for the three and six months ended June 30, 2005, respectively, as compared to $0.04 and $0.07 for the same period in the prior year.  During the second quarter of 2005 the Company issued 50.0 million shares in a shareholder rights offering, which diluted the per share results in 2005 as compared to 2004.

"The record earnings for the second quarter of 2005 reflect the continued success of initiatives implemented in fiscal 2003 and 2004," stated Mark E. Schwarz, Chief Executive Officer.  "We expect future operations to be further enhanced by recent infusions of capital, which have strengthened the financial condition and underwriting capacity of the Company, as well as by the current restructuring of our insurance subsidiaries under each of our operating units," Mr. Schwarz continued.

"The increase in total revenues for the quarter ended June 30, 2005, as compared to the second quarter of fiscal 2004, was primarily attributable to increased premium retention by the Personal Lines Group as a result of changes in reinsurance arrangements and to the combined impact of increased premium volume and improved commission terms in the Commercial Lines Group," stated Mark J. Morrison, Chief Operating Officer & Chief Financial Officer.  "The increase in net income for the second quarter of 2005 versus the same period in 2004 reflects continuing favorable loss development as a result of ongoing initiatives to improve underwriting performance in both operating units, increased premium retention by the Personal Lines Group and additional commission revenue in the Commercial Lines Group," Mr. Morrison concluded.

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 Operating Officer at 817.348.1600
                        http://www.hallmarkgrp.com/



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

                                Three Months Ended        Six Months Ended
                                     June 30                   June 30
                                 2005         2004         2005         2004

  Gross premiums written      $ 8,839      $ 7,011      $19,473      $15,764
  Ceded premiums written          ---            1          ---           25
    Net premiums written        8,839        7,012       19,473       15,789
    Change in unearned premiums   824          932          230          419
    Net premiums earned         9,663        7,944       19,703       16,208

  Investment income,
   net of expenses                451          344          862          623
  Realized loss                   (41)         ---          (41)         ---
  Finance charges                 509          536        1,049        1,083
  Commission and fees           5,628        5,295       10,440       10,490
  Processing and
   service fees                 1,570        1,524        3,204        3,004
  Other income                      5            7           13           15

    Total revenues             17,785       15,650       35,230       31,423

  Losses and loss
   adjustment expenses          5,515        4,422       11,541        9,649
  Other operating costs
   and expenses                 9,150        9,004       17,855       17,443
  Interest expense                102           21          105           45
  Amortization of
   intangible asset                 7            7           14           14

    Total expenses             14,774       13,454       29,515       27,151

  Income before tax             3,011        2,196        5,715        4,272

  Income tax expense            1,007          703        1,896        1,367

  Net income                  $ 2,004      $ 1,493      $ 3,819      $ 2,905

  Net income per share:
    Basic                     $  0.03      $  0.04      $  0.08      $  0.07

    Diluted                   $  0.03      $  0.04      $  0.07      $  0.07


DATASOURCE: Hallmark Financial Services, Inc.



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

Services, Inc., [phone]



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

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