PAULA Financial Reports Net Income for 2Q 2004

August 13, 2004

Pasadena-based PAULA Financial announced net income for the second quarter of 2004 of $215,000, a 90 percent increase over net income of $113,000 for the 2003 period. Net income for the six months ended June 30, 2004 also increased almost 90 percent to $773,000 compared to $409,000 for the 2003 period.

Earnings per share for the second quarter of 2004 were $0.03 per share compared to $0.02 per share in the 2003 period. Earnings per share for the first six months of 2004 were $0.11 per share compared to $0.06 per share in the 2003 period.

Total revenue for the second quarter of 2004 was $4.7 million compared to $4.3 million for the 2003 period. Total revenue for the first six months of 2004 was $9.8 million compared to $8.9 million for the 2003 period. Revenues in the first six months of 2004 are up 10 percent from 2003 levels. This increase is primarily related to organic growth.

Jeff Snider, chairman and CEO, commented, “As we have previously discussed, beginning in mid-2002, the Company made two acquisitions, both strategic, geared toward diversifying our revenues while reinforcing our longstanding commitment to our core agribusiness customer base. As a result, workers’ compensation remains a key component of our business model, and we now have a significant presence in the California crop insurance space. Additionally, we have seen growth in the fee for services and package lines of business – further strengthening our mix of revenue.

“The Company has thus far successfully absorbed the impact of the softening of the California workers’ compensation market. As this sector continues to normalize recently enacted California reform legislation, we expect current downward pricing trends to continue through 2005. While the pressure this places on commissions derived from workers’ compensation sales is unwelcome, we are also seeing several high quality new marketplace entrants with appetite, Berkshire Hathaway to name one; commission rates appear to be rising and more market capacity should reinvigorate new sales opportunities – countering the impact of recent pricing patterns in a good way.

“Expenses are well controlled–and even after some significant new hiring in 2003 and early 2004, payroll as a percentage of total revenue through the second quarter of 2004 is 53 percent compared to 54 percent a year ago. The Company is quite optimistic about its prospects even as analysts begin to opine about the return of the industry’s historic soft cycle. Our Vice President of Finance, Debbie Maddocks, also reports the Company’s ability to accumulate cash is better now than any period in the past several years,” concluded Snider.

On Aug. 12, 2004, the Company’s Board of Directors declared a quarterly cash dividend in the amount of $0.015 per common share. The dividend will be paid to holders of record as of Sept. 8, 2004 and will be distributed on Sept. 28, 2004.

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