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., +1-817-348-1600 Web site: http://www.hallmarkgrp.com/

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