Highlights    --  Net income for the first quarter of 2009 was $1.0 million, compared to       $3.5 million for the comparable quarter in 2008;   --  EPS of $0.06 compared to $0.22 one year ago;   --  Gross written premiums of $29.0 million for the first quarter of 2009,       compared to $24.1 million for the first quarter of 2008;   --  Earned premiums of $34.8 million for the first quarter 2009, compared       to $35.8 million for the comparable quarter in 2008;    --  Book value per share was $8.73 as of March 31, 2009, compared to $8.62       as of December 31, 2008.    

Courtney Smith, president and chief executive officer, stated, "To start, our 2009 annual meeting of stockholders was held on Tuesday of this week. We are awaiting certification of results by IVS Associates, the Inspector of Elections.

"Regarding our business operations, although the insurance marketplace continues to be competitive, we see some signs of hardening as demonstrated by the reinsurance rate increases for renewals this year. Despite difficult overall economic and industry conditions affecting our results, we were able to grow our comparable quarterly premiums by over 20% due mainly to the writing of several new large alternative staffing program accounts and a significant number of new e-comp. accounts.

"In our alternative staffing workers' compensation segment, we have previously commented on the significant rate decreases that have occurred in California and Florida. We are encouraged with the most recent workers' compensation rate increase in Florida of 6.4%, the suggested rate increase by the California Department of Insurance of 5.0% and a future rate increase recommendation by the Workers Compensation Insurance Rating Bureau California of 23.7%. Also, recent proposed legislation in Florida to reverse the effect of a recent ruling by the Florida courts relating to legal fees is quite promising. We are pleased that we have been able to retain most of our accounts at adequate rates, attract new large accounts and grow other programs such as temporary staffing to help offset these decreases.

"We have also expanded our e-comp. program parameters in the midwestern and southeastern states and anticipate increased quoting and new business opportunities. Our writings with our Partner Agent who represent these geographic areas, AUI, have grown by over 200% since the first quarter of 2008.

"For our trucking business, we have increased premium by approximately 30% from the prior comparable quarter. Despite recent pressure due to new entrants, we believe additional opportunities to expand exist as well.

"Finally, reflecting the weak construction markets, our contractors' business continues to decline. However, this book remains quite profitable and we are poised to write more of this business when market conditions improve.

"Our book is much more diversified than it was a year ago. The concentration of our biggest three agents has been reduced by over 20% and our two biggest states by over 36%.

"While overall market conditions deteriorated in the first quarter, our conservative approach to managing our investment portfolio continues to provide a strong balance sheet. Our conservative strategy is centered on a mix of short term investments and investments in highly rated, fixed income securities with an average duration of approximately 3.5 years.

"We have built ourselves as an underwriting company with the supporting infrastructure that allows us to deeply understand our market segments and dynamically take advantage of opportunities as they arise. We have shown our ability to take such action in the past and will continue to due so as conditions warrant. As our loss ratios demonstrate, we have maintained our underwriting and pricing discipline and continue to look to grow our top line but not at the expense of healthy bottom line results. We will continue to look for ways to optimize stockholder value through either organic growth or alternative strategic opportunities."

Financial Results

Gross written premiums were $29.0 million for the three months ended March 31, 2009, versus $24.1 million in the first quarter of 2008. Earned premiums were $34.8 million for the first quarter of 2008 compared to $35.8 million for the first quarter of 2008.

Total expenses for the three months ended March 31, 2009, were $36.1 million, consisting of loss and loss adjustment expenses of $20.9 million, acquisition expenses of $8.6 million and other operating expenses of $6.6 million. Total expenses for the three months ended March 31, 2008, were $35.7 million, consisting of loss and loss adjustment expenses of $21.1 million, acquisition expenses of $8.7 million and other operating expenses of $5.9 million. The increase in other operating expenses was mainly attributable to a one-time expense relating to the proxy contest waged by Hallmark Financial Services, Inc.

For the first quarter of 2009, net loss and loss adjustment expense ratio was 60.1% versus 58.9% for the comparable quarter in 2008. This increase was primarily driven by higher loss ratios in our workers' compensation book of business due to lower state mandated rates in Florida. This was partially offset by favorable prior year loss development for the first quarter of 2009 of $0.8 million primarily attributable to improved loss development in our workers' compensation line of business.

Net investment income for the three months ended March 31, 2009, was $2.8 million, compared to $2.7 million for the prior year period. While investments decreased $1.9 million from $263.4 million to $261.5 million at March 31, 2009, investment income increased $0.1 million. Total revenues were $37.5 million for the first quarter of 2009, compared to $38.5 million for the first quarter of 2008.

Net income for the quarter ended March 31, 2009, was $1.0 million, compared to $3.5 million for the comparable period in 2008. The decrease in our net income was due to a decrease in our pre-tax income and an increase in our taxes resulting from our change of status to a full taxpayer which occurred in the second quarter of 2008. The decrease in the company's pre-tax income was primarily due to a decrease in earned premium resulting from reductions in workers' compensation rates and weak economic conditions.