Exhibit 99.1


                            FOR IMMEDIATE RELEASE

                      HALLMARK FINANCIAL SERVICES, INC.
            ANNOUNCES CONVERSION OF CONVERTIBLE PROMISSORY NOTES

 FORT WORTH, Texas, (May 31, 2006) - Hallmark Financial Services, Inc.  today
 announced that  Newcastle Special  Opportunity Fund I,  L.P.  and  Newcastle
 Special Opportunity Fund II, L.P. have  fully converted to common  stock the
 outstanding principal  and  accrued  interest  on  subordinated  convertible
 promissory notes  issued to  them during  the first  quarter  of  2006.  The
 holders of these convertible notes delivered notice of conversion on May 25,
 2006, immediately following  shareholder approval  of the convertibility  of
 the notes at  Hallmark's  Annual  Meeting of Shareholders.  Accordingly,  an
 aggregate of 19,648,972 shares of Hallmark common stock are being  issued in
 satisfaction of the aggregate of $25,150,685  in principal  and  accrued but
 unpaid interest outstanding on the convertible notes.

 Hallmark  privately  placed  the  convertible  notes  in  January, 2006,  in
 connection with its acquisition  of Texas General Agency, Inc.  and  certain
 affiliates.  The $25.0 million in proceeds from issuance  of the convertible
 notes was used to establish a trust account to secure future payments due to
 the TGA sellers in January 2007 and 2008.  The purchasers of the convertible
 notes were newly formed investment partnerships managed by Newcastle Capital
 Management, L.P.,  which  is  controlled  by  Mark  E.  Schwarz,  Hallmark's
 Chairman  and  Chief Executive Officer.  Consequently, convertibility of the
 notes was in all events subject to approval by the shareholders of Hallmark.

 In accordance  with  applicable  accounting requirements,  at  the  time  of
 issuance Hallmark booked a $9.6  million deemed discount to  the convertible
 notes attributable to  the conversion  feature.  Prior  to conversion,  this
 deemed discount  was amortized  as interest  expense over  the  term of  the
 notes,  resulting  in Hallmark  recording a $1.1  million non-cash  interest
 expense during the first quarter of 2006.  As a result of  the conversion of
 the convertible notes, the $8.5 million balance of the deemed  discount will
 be written  off as  a non-cash  interest expense  during Hallmark's  quarter
 ending June 30, 2006.  Neither the deemed discount on the  convertible notes
 nor the resulting interest expense have any ultimate impact on the cash flow
 or book value of the Company.

 "We are pleased that the holders of these convertible notes have elected  to
 convert at their earliest opportunity," stated Mark J. Morrison,  Hallmark's
 President,  Chief Operating Officer  and  Chief  Financial  Officer.  "As  a
 result  of this prompt  conversion  of the  convertible notes,  the  Company
 avoids future  interest  payments  and  strengthens  its  balance  sheet  by
 replacing debt with equity," Mr. Morrison continued.

 Hallmark Financial Services, Inc. engages primarily in sale of  property and
 casualty insurance products.  The Company's business involves  marketing and
 underwriting commercial  insurance  in Texas,  New  Mexico,  Idaho,  Oregon,
 Montana and  Washington; marketing  and  underwriting  non-standard personal
 automobile insurance in Texas, New Mexico and Arizona; marketing  of general
 aviation insurance in 44 states; 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.

                For further information, please contact:
               Mark J. Morrison, President at 817.348.1600
                           www.hallmarkgrp.com