FOR IMMEDIATE RELEASE

HALLMARK FINANCIAL SERVICES, INC.

ANNOUNCES THIRD QUARTER 2007 EARNINGS RESULTS

FORT WORTH, Texas, (November 7, 2007) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported quarterly net income of $6.6 million for the third quarter ended September 30, 2007 as compared to $4.9 million reported for the third quarter of 2006. On a diluted basis, net income per share was $0.32 for the three months ended September 30, 2007 as compared to $0.27 per share for the same period in 2006. During the quarter ended September 30, 2007, Hallmark reported total revenues of $72.2 million, representing a 28% increase over the $56.4 million in total revenues for the third quarter of 2006.

Mark J. Morrison, President and Chief Executive Officer, said, “Our strong quarterly earnings are the expected result of the continued execution of our plan to increase the retention of the business we produce. Even with softening market conditions across the property/casualty insurance industry, our overall production growth and policy rates for the year have been in line with our expectations. For the nine months ended September 30, 2007, gross premiums produced by our operating units have collectively grown by 6% over the same period last year. This growth is largely a result of our strategy of controlled geographic expansion into states where business is less price sensitive and we can achieve adequate pricing for our policies. Our underwriting margins continue to be strong in each of our operating units as we have maintained favorable policy retention levels without the need to give significant rate concessions.”

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Profitable underwriting continues to be our focus and is reflected in a combined ratio of 87.8% and an annualized return on average equity of 17% for the year to date. Year-over-year growth in book value per share was 21% at quarter end.” 

	Three Months Ended
	September 30,
	2007			2006			% Change
	($ in thousands)
Gross premiums written	$	62,304		$	58,107			7	%
Net premiums written		61,525			55,005			12	%
Net premiums earned		59,425			42,194			41	%
Commission and fee income		7,280			9,943			-27	%
Investment income, net of expenses		3,774			2,912			30	%
Gain (loss) on investments		418			(135	)		NM
Total revenues		72,218			56,365			28	%
Net income		6,582			4,877			35	%
Common EPS - basic	$	0.32		$	0.27			19	%
Common EPS - diluted	$	0.32		$	0.27			19	%
Annualized return on average equity		15.7	%		16.5	%		-5	%
Book value per share	$	8.29		$	6.83			21	%
Cash flow from operations	$	17,173		$	15,823			9	%

	Nine Months Ended
	September 30,
	2007			2006			% Change
	($ in thousands)
Gross premiums written	$	193,539		$	153,718			26	%
Net premiums written		184,592			146,176			26	%
Net premiums earned		166,383			104,887			59	%
Commission and fee income		23,344			32,223			-28	%
Investment income, net of expenses		9,811			7,505			31	%
Gain (loss) on investments		1,299			(1,501	)		NM
Total revenues		204,912			148,072			38	%
Net income		20,367			4,461			357	%
Common EPS - basic	$	0.98		$	0.28			250	%
Common EPS - diluted	$	0.98		$	0.28			250	%
Annualized return on average equity		16.8	%		5.8	%		190	%
Book value per share	$	8.29		$	6.83			21	%
Cash flow from operations	$	61,767		$	45,496			36	%

The increase in net income for both the quarter and year-to-date was largely due to the improved results of the Specialty Commercial Segment and additional investment income from a larger investment portfolio, in both cases primarily as the result of increased retention of premiums. In addition, the first nine months of 2006 was adversely impacted by $9.6 million of interest expense from amortization attributable to the deemed discount on convertible promissory notes issued in January, 2006 and subsequently converted to common stock during the second quarter of 2006. These increases in net income were partially offset by lower results from the Standard Commercial and Personal Segments during the third quarter and year-to-date 2007.

Increased retention of business produced by the Specialty Commercial Segment and increased production by the Personal Segment were the primary causes of the increase in revenue. Specialty Commercial Segment revenues increased $9.9 million and $37.8 million, or 43% and 68%, during the three months and nine months ended September 30, 2007, respectively, as compared to the same periods of 2006. Revenues from the Personal Segment increased $2.9 million and $8.7 million, or 24% and 25%, during the three and nine months ended September 30, 2007, respectively, due largely to geographic expansion into new states. Increased retention of business was also the primary reason for the Standard Commercial Segment’s $2.6 million and $7.5 million increases in revenue for the three months and nine months ended September 30, 2007, respectively. Gains on investments of $0.4 million and $1.3 million for the three months and nine months ended September 30, 2007, respectively, as compared to losses on investments of $0.1 million and $1.5 million recognized for the same periods the prior year, were the primary reason for the increase in revenue for Corporate.

Net investment income for the three months ended September 30, 2007 was $3.8 million as compared to $2.9 million for the same period in 2006. Net investment income for the nine months ended September 30, 2007 was $9.8 million as compared to $7.5 million for the same period in 2006. The increase reflected higher yields and greater average cash and invested assets attributable to increased retention of premiums, positive cash flow from operations and reinvestment of strong earnings for the past four quarters. Hallmark has no exposure in its investment portfolio to sub-prime mortgages and $4 thousand total exposure in mortgage backed securities.

Hallmark's net losses and loss adjustment expenses and its net loss ratio for the three months ended September 30, 2007 were $36.7 million and 61.8%, respectively, compared to $23.6 million and 55.9%, respectively, for the same period in 2006. Hallmark's net losses and loss adjustment expenses and its net loss ratio for the nine months ended September 30, 2007 were $99.6 million and 59.9%, respectively, compared to $60.5 million and 57.7%, respectively, for the same period in 2006. Hallmark recognized $0.8 million of favorable development on prior years’ loss reserve estimates during the third quarter of 2007 as compared to $1.2 million of favorable development recognized during the same period in 2006. Hallmark recognized $2.9 million of favorable development on prior years’ loss reserve estimates during the first nine months of 2007 as compared to $2.0 million of favorable development recognized during the same period in 2006. Hallmark's other operating expenses and its expense ratio for the three months ended September 30, 2007 were $24.1 million and 27.7%, respectively, compared to $23.0 million and 27.8%, respectively, for the same period in 2006. Hallmark's other operating expenses and its expense ratio for the nine months ended September 30, 2007 were $70.5 million and 27.9%, respectively, compared to $64.1 million and 27.8%, respectively, for the same period in 2006.

Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Our business involves marketing, distributing, underwriting and servicing commercial insurance, non-standard personal automobile insurance and general aviation insurance, as well as providing other insurance related services. Our business is geographically concentrated in the south central and northwest regions of the United States, except for our general aviation business which is written on a national basis. The Company is headquartered in Fort Worth, Texas and its common stock is presently listed on NASDAQ under the symbol "HALL."

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, President and Chief Executive Officer at 817.348.1600

www.hallmarkgrp.com

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Balance Sheets

($ in thousands)

	September 30 2007			December 31 2006
	(unaudited)			(audited)
ASSETS
Investments:
Debt securities, available-for-sale, at market value	$	163,054		$	133,030
Equity securities, available-for-sale, at market value		41,988			4,580
Short-term investments, available-for-sale, at market value		56,311			25,275
Total investments		261,353			162,885
Cash and cash equivalents		61,681			81,474
Restricted cash and cash equivalents		15,646			24,569
Premiums receivable		53,136			44,644
Accounts receivable		18,503			13,223
Prepaid reinsurance premium		1,154			1,629
Reinsurance recoverable		5,781			5,930
Deferred policy acquisition costs		20,776			17,145
Excess of cost over fair value of net assets acquired		30,025			31,427
Intangible assets		24,354			26,074
Prepaid expenses		1,094			1,769
Other assets		12,131			5,184
Total assets	$	505,634		$	415,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable	$	60,681		$	35,763
Structured settlements		9,897			24,587
Unpaid losses and loss adjustment expenses		116,136			77,564
Unearned premiums		108,365			91,606
Unearned revenue		3,356			5,734
Reinsurance balances payable		-			1,060
Accrued agent profit sharing		1,990			1,784
Accrued ceding commission payable		7,052			3,956
Pension liability		2,884			3,126
Deferred federal income taxes		115			2,310
Current federal income tax payable		336			2,132
Accounts payable and other accrued expenses		22,736			15,600
Total liabilities		333,548			265,222
Commitments and Contingencies
Stockholders' equity:
Common stock, $.18 par value (authorized 33,333,333 shares in 2007 and 2006; issued 20,776,080 shares in 2007 and 2006)		3,740			3,740
Additional paid in capital		118,283			117,932
Retained earnings		51,847			31,480
Accumulated other comprehensive loss		(1,707	)		(2,344	)
Treasury stock, at cost (7,828 shares in 2007 and 2006)		(77	)		(77	)
Total stockholders' equity		172,086			150,731
	$	505,634		$	415,953

Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share amounts) 

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2007			2006			2007			2006
Gross premiums written	$	62,304		$	58,107		$	193,539		$	153,718
Ceded premiums written		(779	)		(3,102	)		(8,947	)		(7,542	)
Net premiums written		61,525			55,005			184,592			146,176
Change in unearned premiums		(2,100	)		(12,811	)		(18,209	)		(41,289	)
Net premiums earned		59,425			42,194			166,383			104,887
Investment income, net of expenses		3,774			2,912			9,811			7,505
Gain (loss) on investments		418			(135	)		1,299			(1,501	)
Finance charges		1,206			1,037			3,477			2,940
Commission and fees		7,280			9,943			23,344			32,223
Processing and service fees		111			410			586			1,994
Other income		4			4			12			24
Total revenues		72,218			56,365			204,912			148,072
Losses and loss adjustment expenses		36,723			23,589			99,620			60,478
Other operating expenses		24,087			23,044			70,511			64,097
Interest expense		1,026			1,527			2,608			4,774
Interest expense from amortization of discount on convertible notes		-			-			-			9,625
Amortization of intangible asset		573			573			1,719			1,719
Total expenses		62,409			48,733			174,458			140,693
Income before tax		9,809			7,632			30,454			7,379
Income tax expense		3,227			2,755			10,087			2,918
Net income	$	6,582		$	4,877		$	20,367		$	4,461
Common stockholders net income per share:
Basic	$	0.32		$	0.27		$	0.98		$	0.28
Diluted	$	0.32		$	0.27		$	0.98		$	0.28

	Three Months Ended September 30, 2007
	Standard			Specialty
	Commercial			Commercial			Personal
	Segment			Segment			Segment			Corporate			Consolidated
Produced premium		21,945			37,919			14,854			-			74,718
Gross premiums written		21,918			25,531			14,855			-			62,304
Ceded premiums written		198			(977	)		-			-			(779	)
Net premiums written		22,116			24,554			14,855			-			61,525
Change in unearned premiums		(311	)		(870	)		(919	)		-			(2,100	)
Net premiums earned		21,805			23,684			13,936			-			59,425
Total revenues		23,530			32,760			15,185			743			72,218
Losses and loss adjustment expenses		13,513			13,682			9,532			(4	)		36,723
Pre-tax income (loss)		3,514			6,350			1,854			(1,909	)		9,809
Net loss ratio (1)		62.0	%		57.8	%		68.4	%					61.8	%
Net expense ratio (1)		27.3	%		30.8	%		22.9	%					27.7	%
Net combined ratio (1)		89.3	%		88.6	%		91.3	%					89.5	%

	Three Months Ended September 30, 2006
	Standard			Specialty
	Commercial			Commercial			Personal
	Segment			Segment			Segment			Corporate			Consolidated
Produced premium		22,206			41,320			12,278			-			75,804
Gross premiums written		21,967			23,862			12,278			-			58,107
Ceded premiums written		(2,270	)		(832	)		-			-			(3,102	)
Net premiums written		19,697			23,030			12,278			-			55,005
Change in unearned premiums		(497	)		(11,256	)		(1,058	)		-			(12,811	)
Net premiums earned		19,200			11,774			11,220			-			42,194
Total revenues		20,964			22,889			12,257			255			56,365
Losses and loss adjustment expenses		9,347			7,450			6,800			(8	)		23,589
Pre-tax income (loss)		5,112			2,867			2,316			(2,663	)		7,632
Net loss ratio (1)		48.7	%		63.3	%		60.6	%					55.9	%
Net expense ratio (1)		28.1	%		30.7	%		24.3	%					27.8	%
Net combined ratio (1)		76.8	%		94.0	%		84.9	%					83.7	%

¹ Net loss ratio is calculated as total net losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. Net expense ratio is calculated as total underwriting expenses of our insurance company subsidiaries, including allocated overhead expenses and offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.

	Nine Months Ended September 30, 2007
	Standard			Specialty
	Commercial			Commercial			Personal
	Segment			Segment			Segment			Corporate			Consolidated
Produced premium		70,246			118,232			43,228			-			231,706
Gross premiums written		70,139			80,172			43,228			-			193,539
Ceded premiums written		(5,241	)		(3,706	)		-			-			(8,947	)
Net premiums written		64,898			76,466			43,228			-			184,592
Change in unearned premiums		(2,966	)		(12,100	)		(3,143	)		-			(18,209	)
Net premiums earned		61,932			64,366			40,085			-			166,383
Total revenues		65,300			93,836			43,654			2,122			204,912
Losses and loss adjustment expenses		37,621			35,398			26,612			(11	)		99,620
Pre-tax income (loss)		8,937			20,477			6,148			(5,108	)		30,454
Net loss ratio (1)		60.7	%		55.0	%		66.4	%					59.9	%
Net expense ratio (1)		27.4	%		31.4	%		23.1	%					27.9	%
Net combined ratio (1)		88.1	%		86.4	%		89.5	%					87.8	%

	Nine Months Ended September 30, 2006
	Standard			Specialty
	Commercial			Commercial			Personal
	Segment			Segment			Segment			Corporate			Consolidated
Produced premium		69,357			115,610			34,116			-			219,083
Gross premiums written		68,884			50,718			34,116			-			153,718
Ceded premiums written		(6,122	)		(1,420	)		-			-			(7,542	)
Net premiums written		62,762			49,298			34,116			-			146,176
Change in unearned premiums		(12,396	)		(26,136	)		(2,757	)		-			(41,289	)
Net premiums earned		50,366			23,162			31,359			-			104,887
Total revenues		57,768			56,003			34,944			(643	)		148,072
Losses and loss adjustment expenses		27,165			13,969			19,369			(25	)		60,478
Pre-tax income (loss)		11,245			7,925			6,760			(18,551	)		7,379
Net loss ratio (1)		53.9	%		60.3	%		61.8	%					57.7	%
Net expense ratio (1)		29.1	%		27.6	%		25.7	%					27.8	%
Net combined ratio (1)		83.0	%		87.9	%		87.5	%					85.5	%

¹ Net loss ratio is calculated as total net losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. Net expense ratio is calculated as total underwriting expenses of our insurance company subsidiaries, including allocated overhead expenses and offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.