Hallmark Financial Services, Inc. Second Quarter 2004 Earnings Results

Hallmark Financial Services, Inc. Second Quarter 2004 Earnings
Results 


FORT WORTH, Texas, Aug. 12  /PRNewswire-FirstCall/ -- Hallmark Financial
Services, Inc. (AMEX:HAF.EC) today reported operating results for the second
quarter of fiscal 2004.  Income for the quarter ended June 30, 2004 increased
274% to $1.5 million, or $0.04 per diluted share, as compared to net income of
$0.4 million, or $0.03 per diluted share, for the same period in 2003.  Income
before extraordinary gain for the six months ended June 30, 2004 increased 247%
to $2.9 million, or $0.08 per diluted share, as compared to income before
extraordinary gain of $0.8 million, or $0.07 per diluted share, for the same
period in 2003.  Total net income for the six months ended June 30, 2004 was
$2.9 million, or $0.08 per diluted share, as compared to $9.0 million, or $0.77
per diluted share for the same period in 2003.

The extraordinary gain of $8.1 million in fiscal 2003 is 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 six months of fiscal 2004, compared to 11.5 million diluted
shares during the first six months of fiscal 2003, primarily as a result of a
successful shareholder rights offering completed in the third quarter of fiscal
2003.

"We are again pleased to report the highest operating earnings in the Company's
history for the quarter and six month periods.  The Company's record second
quarter 2004 earnings, which eclipsed the first quarter 2004 record earnings,
are as a result of the continuing bottom line improvement across both of our
reporting segments.  Our results continue to reflect benefits achieved through
ongoing initiatives directed at improving performance as well as sustained
favorable market conditions," stated Mark E. Schwarz, Chief Executive Officer. 
"We are very encouraged by what we've seen through the second quarter.  The
decisive actions that we undertook in our personal lines segment starting in
2003 have resulted in significantly improved underwriting results.  The loss
and loss adjustment expense ratio for this segment for the six months ended
June 30, 2004, was 60% compared to 69% for the same period of 2003, resulting
in an increase in income before extraordinary gain of 72% for the segment for
the period.  In the commercial segment, commission revenue for the six month
period ended June 30, 2004, has increased by more than 20% over the same period
in 2003 as a result of increased premium production arising mostly from premium
rate increases on renewal business.  We anticipate that premium rate increases
will continue at a moderating level throughout 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      Six Months Ended
                                       June 30                June 30
                                   2004       2003        2004       2003

  Gross premiums written          $7,011     $7,849     $15,764    $29,764
  Ceded premiums written               1      1,218          25     (7,180)
     Net premiums written          7,012      9,067      15,789     22,584
     Change in unearned premiums     932      2,361         419      1,346
     Net premiums earned           7,944     11,428      16,208     23,930

  Investment income, net
   of expenses                       344        260         623        454
  Finance charges                    536        991       1,083      2,080
  Commission and fees              5,295      4,347      10,490      7,697
  Processing and service fees      1,524        977       3,004      2,285
  Other income                         7         42          15        319

      Total revenues              15,650     18,045      31,423     36,765

  Losses and loss adjustment
   expenses                        4,422      7,551       9,649     16,441
  Other operating costs and
   expenses                        9,004      9,395      17,443     18,165
  Interest expense                    21        432          45        875
  Amortization of intangible asset     7          7          14         14

     Total expenses               13,454     17,385      27,151     35,495

  Income before income tax
   and extraordinary gain          2,196        660       4,272      1,270

  Income tax expense                 703        225       1,367        432

  Income before extraordinary
   gain                           $1,493       $435      $2,905       $838

  Extraordinary gain                 ---        (36)        ---      8,116

  Net income                      $1,493       $399      $2,905     $8,954

  Basic earnings per share:
    Income before extraordinary
     gain                          $0.04      $0.04       $0.08      $0.07
         Extraordinary gain          ---        ---         ---       0.73
         Net income                $0.04      $0.04       $0.08      $0.80
  Diluted earnings per share:
    Income before extraordinary
     gain                          $0.04      $0.04       $0.08      $0.07
         Extraordinary gain          ---      (0.01)        ---       0.70
         Net income                $0.04      $0.03       $0.08      $0.77


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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