Hallmark Financial Services, Inc. Third Quarter 2005 Earnings Results

FORT WORTH, Texas, Nov. 7  /PRNewswire-FirstCall/ -- Hallmark Financial Services, Inc. (AMEX:HAF) today reported operating results for the third quarter ended September 30, 2005.  During the third quarter of fiscal 2005, total revenues of the Company were $25.2 million, representing a 60.9% increase over the $15.6 million in total revenues for the comparable period of fiscal 2004.  For the first nine months of fiscal 2005, total revenues of the Company were $60.4 million, representing a 28.3% increase over the $47.1 million in total revenues for the comparable period in fiscal 2004.  For the three months ended September 30, 2005, the Company reported net income of $2.5 million, representing a 60.3% increase over the $1.5 million reported in the third quarter of 2004.  For the first nine months of fiscal 2005, the Company reported net income of $6.3 million, representing a 41.5% increase over the $4.4 million reported in the comparable period in fiscal 2004.  On a diluted per share basis, net income was $0.03 and $0.10 for the three and nine months ended September 30, 2005, respectively, as compared to $0.04 and $0.10 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 third quarter of 2005 reflect the continued success of various initiatives implemented in the past two and a half years," stated Mark E. Schwarz, Chief Executive Officer.

"The increase in total revenues for the quarter ended September 30, 2005, as compared to the third quarter of fiscal 2004, was mostly attributable to the retention of the commercial insurance premium on American Hallmark Insurance Company that was previously produced for a third party insurer," stated Mark J. Morrison, Chief Operating Officer & Chief Financial Officer. "The increase in net income for the third 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 and additional investment income from the successful completion of our capital plan at the end of the second quarter," Mr. Morrison concluded.

Hallmark Financial Services, Inc. engages primarily in 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 and underwriting commercial insurance primarily in Texas, New Mexico, Idaho, Oregon, Montana 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".

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         Nine Months Ended
                                 September 30              September 30
                              2005         2004         2005         2004

  Gross premiums written    $43,512       $7,410      $62,985      $23,174
  Ceded premiums written       (552)         ---         (552)          25
    Net premiums written     42,960        7,410       62,433       23,199
    Change in unearned
     premiums               (23,936)          54      (23,706)         473
    Net premiums earned      19,024        7,464       38,727       23,672

  Investment income, net
   of expenses                1,412          371        2,274          994
  Realized gain (loss)           93          (57)          52          (57)
  Finance charges               487          561        1,536        1,644
  Commission and fees         3,094        5,745       13,534       16,235
  Processing and service
   fees                       1,048        1,556        4,252        4,560
  Other income                    9            6           22           21

    Total revenues           25,167       15,646       60,397       47,069

  Losses and loss
   adjustment expenses       11,043        4,451       22,584       14,100
  Other operating costs
   and expenses               9,897        8,903       27,752       26,346
  Interest expense              559           16          664           61
  Amortization of
   intangible asset              17            7           31           21

    Total expenses           21,516       13,377       51,031       40,528

  Income before tax           3,651        2,269        9,366        6,541

  Income tax expense          1,178          726        3,074        2,093

  Net income                 $2,473       $1,543       $6,292       $4,448

  Net income per share:
    Basic                     $0.03        $0.04        $0.10        $0.10
    Diluted                   $0.03        $0.04        $0.10        $0.10


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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