Hallmark Financial Services, Inc. Fourth Quarter and Year 2005 Earnings Results

FORT WORTH, Texas, March 22 -- Hallmark Financial Services, Inc. (AMEX:HAF) today reported operating results for the quarter and year ended December 31, 2005. Net income for the quarter ended December 31, 2005, was $2.9 million as compared to $1.4 million for the same period in 2004. Net income for the year ended December 31, 2005, increased 57.1% to $9.2 million, or $0.13 per diluted share, as compared to net income of $5.8 million, or $0.14 per diluted share, for the same period in 2004. The decrease in net income per diluted share was primarily attributable to an increase in the weighted average shares outstanding as the result of a successful stockholder rights offering completed in the second quarter of 2005.

Total revenues for the quarter and year ended December 31, 2005, also increased as compared to the same periods of 2004. Total revenue for the fourth quarter increased 65.9% to $26.6 million in 2005 as compared to $16.1 million in 2004. Total revenue of $87.0 million for the 2005 fiscal year was $23.9 million greater than the $63.1 million in total revenue for fiscal 2004.

"I am pleased to report that the operating results for fiscal 2005 were the best in the Company's history," stated Mark E. Schwarz, Chief Executive Officer. "We look forward to building on our success with the recently completed acquisitions of Texas General Agency and Aerospace Insurance Managers," Mr. Schwarz continued.

"The increase in total revenues for the quarter and year ended December 31, 2005, as compared to the same periods in fiscal 2004, were mostly attributable to American Hallmark Insurance Company retaining the commercial business previously produced for a third party insurer," stated Mark J. Morrison, Chief Operating Officer and Chief Financial Officer. "The increase in net income for the quarter and year ended December 31, 2005, versus the same periods in fiscal 2004 reflects continued favorable loss development in both operating units, increased premium retention and additional investment income from the successful completion of our capital plan in the second quarter of fiscal 2005," 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 commercial insurance in Texas, New Mexico, Idaho, Oregon, Montana and Washington; marketing and underwriting non-standard personal automobile insurance in Texas, New Mexico and Arizona; marketing of general aviation insurance in 44 states; 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. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                               (Unaudited)
                              (In thousands)

                              Three Months Ended        Twelve Months Ended
                                  December 31               December 31

                               2005         2004         2005         2004

  Gross premiums written     $26,482      $10,215      $89,467      $33,389
  Ceded premiums written        (663)        (347)      (1,215)        (322)
    Net premiums written      25,819        9,868       88,252       33,067
    Change in net unearned
     premiums                 (5,362)      (1,095)     (29,068)        (622)
    Net premiums earned       20,457        8,773       59,184       32,445

  Investment income,
   net of expenses             1,562          392        3,836        1,386
  Realized gain (loss)             6           30           58          (27)
  Finance charges                508          539        2,044        2,183
  Commission and fees          3,169        4,865       16,703       21,100
  Processing and service fees
 931        1,443        5,183        6,003
  Other income                     5           10           27           31

    Total revenues            26,638       16,052       87,035       63,121

  Losses and loss adjustment
   expenses                   11,200        5,037       33,784       19,137
  Other operating costs
   and expenses               10,740        8,944       38,492       35,290
  Interest expense               600            3        1,264           64

  Amortization of intangible
   asset                          (4)           7           27           28

    Total expenses            22,536       13,991       73,567       54,519

  Income before income
   tax expense                 4,102        2,061       13,468        8,602

  Income tax expense           1,208          660        4,282        2,753

  Net income                  $2,894       $1,401       $9,186       $5,849

  Basic earnings per share     $0.03        $0.03        $0.13        $0.14

  Diluted earnings per share   $0.03        $0.03        $0.13        $0.14