Hallmark Financial Services, Inc.

Hallmark Completes Acquisition of Aerospace Holdings, LLC

01/03/2006

CONTACT:
Mark J. Morrison
Chief Operating Officer
Hallmark Financial Services, Inc.
(817) 348-1600
http://www.hallmarkgrp.com

DALLAS, Texas -- January 3, 2006 -- Hallmark Financial Services, Inc. (Amex: HAF) today announced the completion of its previously disclosed acquisition of Aerospace Holdings, LLC. Aerospace Holdings, through Aerospace Insurance Managers, Inc. and other wholly-owned subsidiaries, markets and services general aviation property and casualty insurance products, with a particular emphasis on private and small commercial aircraft. Curtis Donnell, the founder and principal officer of Aerospace Holdings, has been retained to continue managing the operations of the acquired enterprise.

Hallmark funded the acquisition of Aerospace Holdings through a $12.5 million interim financing facility from Newcastle Partners, L.P., an affiliate of Hallmark's Chairman and Chief Executive Officer, Mark E. Schwarz. Hallmark presently intends to retire the bridge loan with the proceeds from a rights offering to its shareholders later this year.

Hallmark Financial Services, Inc. engages primarily in the sale of property and casualty insurance products. The Company's business involves marketing and underwriting of non-standard personal automobile insurance primarily in Texas, Arizona and New Mexico; marketing and underwriting of commercial insurance primarily in Texas, New Mexico, Idaho, Oregon, Montana and Washington; third party 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.

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