Hallmark Financial Sets Record Date For Rights Offering

June 18, 2003

Fort Worth, Texas-based property/casualty insurer, Hallmark Financial Services Inc., reported that the record date for its previously announced rights offering has been set for the close of business on June 27, 2003.

Upon the effectiveness of the registration statement, the company will distribute to its shareholders of record as of the record date a fixed amount of non-transferable rights to subscribe for shares of its common stock. It is anticipated that each right will entitle the holder to purchase one share of the company’s common stock at a subscription price to be determined.

Hallmark expects the rights offering to begin promptly following the effectiveness of the registration statement filed with the Securities and Exchange Commission.

The proceeds of the rights offering will be used to repay an $8.6 million loan, plus accrued interest on the loan, made to Hallmark in 2002 by Newcastle Partners, L.P., with any additional proceeds used for working capital purposes. The proceeds of the loan from Newcastle Partners, L.P., were utilized to finance the purchase of a note receivable from a major bank and the acquisition of the Commercial Lines Group from Millers Insurance Company. A portion of the note receivable purchased from the bank was later exchanged for one-hundred percent of the capital stock of Phoenix Indemnity Insurance Company.

Newcastle Partners, L.P. is an affiliate of Mark E. Schwarz, the Chairman and CEO of Hallmark.

Hallmark Financial Services’ business involves marketing, underwriting and premium financing of non-standard personal automobile insurance primarily in Texas, Arizona and New Mexico, commercial insurance in Texas, New Mexico, Idaho, Oregon and Washington, third party claims administration, and other insurance related services.

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