Hallmark Financial Services, Inc. Third Quarter 2004 Earnings Results

Hallmark Financial Services, Inc. Third Quarter 2004 Earnings
Results 


FORT WORTH, Texas, Nov. 11  /PRNewswire-FirstCall/ -- Hallmark Financial
Services, Inc. (AMEX:HAF.EC) 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


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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