FOR IMMEDIATE RELEASE

HALLMARK FINANCIAL SERVICES, INC. ANNOUNCES FIRST QUARTER 2008 RESULTS HIGHLIGHTED BY A 42 PERCENT INCREASE IN NET INCOME AND REVENUE GROWTH OF 11 PERCENT OVER PRIOR YEAR FIRST QUARTER

FORT WORTH, Texas, (May 15, 2008) - Hallmark Financial Services, Inc. (NASDAQ: HALL) today reported net income of $7.1 million for the first quarter of 2008, a 42% increase over the $5.0 million reported for the first quarter of 2007. On a fully diluted basis, net income was $0.34 per share for the first quarter of 2008 as compared to $0.24 per share for the first quarter of 2007. Total revenues for the first quarter of 2008 were $71.2 million, representing an 11% increase from the $64.0 million reported for the first quarter of 2007.

Mark J. Morrison, President and Chief Executive Officer, said, “Our results for the quarter were strong despite the continued impact from the general economic slow-down on premium renewals from our smaller commercial construction accounts and ongoing rate competition on our larger accounts. However, premium production from our Personal Segment has seen a significant 40% increase from the fourth quarter of 2007 due to our continued focus on geographic expansion into markets with less competitive pricing. We believe that our underwriting discipline in this soft rate environment will enable us to deliver superior results to the average of our peers in our specialty and niche markets of the property/casualty segment.”

Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Our quarterly net combined ratio of 89%, an annualized return on average equity of 16% and cash flow from operations of over $12 million generated for the quarter reflect our continued underwriting discipline and focus on bottom-line results. Our solid investment performance contributed to a 19% increase in book value per share since the end of the first quarter of 2007.”

		Three Months Ended March 31,
		2008			2007		% Change
		($ in thousands)
Gross premiums written	$	64,237		$	64,658		-1	%
Net premiums written		61,905			60,771		2	%
Net premiums earned		58,916			51,648		14	%
Commission and fees		6,484			7,905		-18	%
Investment income, net of expenses		3,625			2,990		21	%
Gain on investments		859			53		NM
Total revenues		71,193			63,958		11	%
Net income		7,052			4,970		42	%
Common EPS - basic	$	0.34		$	0.24		42	%
Common EPS - diluted	$	0.34		$	0.24		42	%
Annualized return on average equity		15.5	%		13.0	%	19	%
Book value per share	$	8.93		$	7.52		19	%
Cash flow from operations	$	12,388		$	18,962		-35	%

The increase in net income for the quarter was favorably impacted by increased retention of business produced by our Specialty Commercial Segment, increased production from our Personal Segment, increased investment income from a larger investment portfolio and favorable prior year loss reserve development of $1.6 million during the first quarter of 2008. We did not recognize any prior year development during the first quarter of 2007. Specialty Commercial Segment revenues increased $4.0 million, or 14%, during the quarter as compared to the first quarter of 2007. Revenues from the Personal Segment increased $1.9 million, or 14%, during the quarter due largely to geographic expansion into new states. An increased recognized gain on our investment portfolio was the primary reason for the increase in revenue for Corporate.

Hallmark's net loss ratio was 60.3% for the first quarter of 2008 as compared to 62.3% for the first quarter of 2007. Hallmark's net expense ratio was 29.0% for the first quarter of 2008 as compared to 28.2% for the first quarter of 2007. As a result, Hallmark maintained a strong net combined ratio of 89.3% for the first quarter of 2008 as compared to 90.5% for the first quarter of 2007.

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, personal 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)

		March 31 2008			December 31 2007
ASSETS		(unaudited)
Investments:
Debt securities, available-for-sale, at fair value	$	167,108		$	248,069
Equity securities, available-for-sale, at fair value		35,566			15,166
Short-term investments, available-for-sale, at fair value		95,060			2,625
Total investments		297,734			265,860
Cash and cash equivalents		61,303			145,884
Restricted cash and cash equivalents		4,682			16,043
Premiums receivable		47,740			46,026
Accounts receivable		5,344			5,219
Receivable for securities		-			27,395
Prepaid reinsurance premiums		2,197			274
Reinsurance recoverable		4,469			4,952
Deferred policy acquisition costs		20,416			19,757
Excess of cost over fair value of net assets acquired		30,025			30,025
Intangible assets		23,208			23,781
Deferred federal income taxes		1,075			275
Prepaid expenses		1,319			1,240
Other assets		19,541			19,583
Total assets	$	519,053		$	606,314
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable	$	60,921		$	60,814
Structured settlements		-			10,000
Reserves for unpaid losses and loss adjustment expenses		133,748			125,338
Unearned premiums		106,009			102,998
Unearned revenue		2,447			2,949
Accrued agent profit sharing		667			2,844
Accrued ceding commission payable		12,185			12,099
Pension liability		1,584			1,669
Current federal income tax payable		3,418			630
Payable for securities		-			91,401
Accounts payable and other accrued expenses		12,410			16,385
Total liabilities		333,389			427,127
Commitments and Contingencies
Stockholders' equity:
Common stock, $.18 par value (authorized 33,333,333 shares in 2008 and 2007;
issued 20,809,415 and 20,776,080 shares in 2008 and 2007)		3,746			3,740
Capital in excess of par value		119,120			118,459
Retained earnings		65,961			58,909
Accumulated other comprehensive loss		(3,086	)		(1,844	)
Treasury stock, at cost (7,828 shares in 2008 and 2007)		(77	)		(77	)
Total stockholders' equity		185,664			179,187
	$	519,053		$	606,314

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

($ in thousands, except per share amounts)

		Three Months Ended March 31
		2008			2007
Gross premiums written	$	64,237		$	64,658
Ceded premiums written		(2,332	)		(3,887	)
Net premiums written		61,905			60,771
Change in unearned premiums		(2,989	)		(9,123	)
Net premiums earned		58,916			51,648
Investment income, net of expenses		3,625			2,990
Gain on investments		859			53
Finance charges		1,264			1,086
Commission and fees		6,484			7,905
Processing and service fees		42			272
Other income		3			4
Total revenues		71,193			63,958
Losses and loss adjustment expenses		35,504			32,185
Other operating expenses		23,465			22,701
Interest expense		1,185			786
Amortization of intangible asset		573			573
Total expenses		60,727			56,245
Income before tax		10,466			7,713
Income tax expense		3,414			2,743
Net income	$	7,052		$	4,970
Net income per share:
Basic	$	0.34		$	0.24
Diluted	$	0.34		$	0.24

Hallmark Financial Services, Inc.

Consolidated Segment Data

		Three Months Ended March 31, 2008
		Standard Commercial Segment			Specialty Commercial Segment			Personal Segment			Corporate			Consolidated
Produced premium	$	21,749		$	32,020		$	17,727		$	-		$	71,496
Gross premiums written		21,749			24,761			17,727			-			64,237
Ceded premiums written		(1,364	)		(968	)		-			-			(2,332	)
Net premiums written		20,385			23,793			17,727			-			61,905
Change in unearned premiums		404			(155	)		(3,238	)		-			(2,989	)
Net premiums earned		20,789			23,638			14,489			-			58,916
Total revenues		21,829			32,087			15,726			1,551			71,193
Losses and loss adjustment expenses		11,310			15,003			9,191			-			35,504
Pre-tax income (loss)		3,881			5,293			2,590			(1,298	)		10,466
Net loss ratio (1)		54.4	%		63.5	%		63.4	%					60.3	%
Net expense ratio (1)		27.4	%		30.7	%		22.5	%					29.0	%
Net combined ratio (1)		81.8	%		94.2	%		85.9	%					89.3	%

		Three Months Ended March 31, 2007
		Standard Commercial Segment			Specialty Commercial Segment			Personal Segment			Corporate			Consolidated
Produced premium	$	23,550		$	39,357		$	15,076		$	-		$	77,983
Gross premiums written		23,481			26,101			15,076			-			64,658
Ceded premiums written		(2,635	)		(1,252	)		-			-			(3,887	)
Net premiums written		20,846			24,849			15,076			-			60,771
Change in unearned premiums		(924	)		(5,756	)		(2,443	)		-			(9,123	)
Net premiums earned		19,922			19,093			12,633			-			51,648
Total revenues		21,767			28,098			13,773			320			63,958
Losses and loss adjustment expenses		12,841			11,081			8,267			(4	)		32,185
Pre-tax income (loss)		2,759			4,686			2,118			(1,850	)		7,713
Net loss ratio (1)		64.5	%		58.0	%		65.4	%					62.3	%
Net expense ratio (1)		28.0	%		31.5	%		23.6	%					28.2	%
Net combined ratio (1)		92.5	%		89.5	%		89.0	%					90.5	%

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.