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

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