SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C. 20549

                                 FORM 10-Q

          Quarterly report pursuant to Section 13 or 15(d) of the

                      Securities Exchange Act of 1934


               For the quarterly period ended March 31, 2004

                       Commission file number 0-16090

                      Hallmark Financial Services, Inc.
                      ---------------------------------
           (Exact name of registrant as specified in its charter)



                 Nevada                                 87-0447375
     -------------------------------               -------------------
     (State or other jurisdiction of                (I.R.S. Employer
     Incorporation or organization)                Identification No.)


  777 Main Street, Suite 1000, Fort Worth, Texas           76102
  ----------------------------------------------        ----------
     (Address of principal executive offices)           (Zip Code)


    Registrant's telephone number, including area code:  (817) 348-1600


 Indicate  by check mark  whether the registrant  (1) has filed  all reports
 required to be filed by Section 13 or  15(d) of the Securities Exchange Act
 of 1934  during the preceding  12 months (or  for such shorter  period that
 the  registrant  was required  to  file such  reports),  and (2)  has  been
 subject to such filing requirements for the past 90 days.  Yes  X   No ____

 Indicate  by check  mark whether the registrant is an accelerated filer (as
 defined in Rule 12b-2 of the  Exchange Act).  Yes ____   No  X


                    APPLICABLE ONLY TO CORPORATE ISSUERS

  Indicate  the number  of  shares outstanding  of  each of  the  issuer's
  classes  of common  stock, as  of the  latest  practicable date:  Common
  Stock, par  value $.03 per share  -  36,447,291 shares outstanding as of
  April 30, 2004.

<PAGE>

                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements.


                   INDEX TO FINANCIAL STATEMENTS

                                                           Page Number
                                                           -----------


 Consolidated Balance Sheets at March 31, 2004                   3
 (unaudited) and December 31, 2003

 Consolidated Statements of Operations (unaudited) for           4
 the three months ended March 31, 2004 and March 31, 2003

 Consolidated Statements of Cash Flows (unaudited) for           5
 the three months ended March 31, 2004 and March 31, 2003

 Notes to Consolidated Financial Statements (unaudited)          6

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)

                                                      March 31    December 31
                    ASSETS                              2004          2003
                    ------                           ----------    ----------
                                                     (unaudited)    (audited)

 Investments:
   Debt securities, available-for-sale,
     at market value                                $    27,615   $    25,947
   Equity securities, available-for-sale,
     at market value                                      3,695         3,573
   Short-term investments, available-for-sale,
     at market value                                        445           335
                                                     ----------    ----------
            Total investments                            31,755        29,855

 Cash and cash equivalents                                8,452        10,520
 Restricted cash and investments                          5,275         5,366
 Prepaid reinsurance premiums                                10           291
 Premiums receivable encumbered by premium financing
   activity (net of allowance for doubtful accounts
   of $2 in 2004 and of $3 in 2003)                         111            43
 Premiums receivable                                      4,168         4,033
 Accounts receivable                                      3,486         3,395
 Reinsurance recoverable                                  7,435        10,516
 Deferred policy acquisition costs                        7,655         7,146
 Excess of cost over fair value
   of net assets acquired                                 4,836         4,836
 Intangible assets                                          506           513
 Current federal income tax recoverable                       -           625
 Deferred federal income taxes                            3,784         3,961
 Other assets                                             2,816         2,753
                                                     ----------    ----------
                                                    $    80,289   $    83,853
                                                     ==========    ==========
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
 Liabilities:
   Notes payable                                    $       809   $       991
   Unpaid losses and loss adjustment expenses            23,762        28,456
   Unearned premiums                                      6,094         5,862
   Unearned revenue                                      10,878        10,190
   Accrued agent profit sharing                             365         1,511
   Accrued ceding commission payable                      1,165         1,164
   Pension liability                                      1,237         1,237
   Current federal income tax payable                        39             -
   Accounts payable and other accrued expenses            6,791         7,045
                                                     ----------    ----------
                                                         51,140        56,456

 Stockholders' equity:
   Common stock, $.03 par value, authorized
     100,000,000 shares Issued 36,856,610 shares
     in 2004 and 2003                                     1,106         1,106
    Capital in excess of par value                       19,641        19,693
    Retained earnings                                     8,666         7,254
    Accumulated other comprehensive income                  212           (93)
    Treasury stock, 409,319 shares in 2004 and
      484,319 in 2003, at cost                             (476)         (563)
                                                     ----------    ----------
            Total stockholders' equity                   29,149        27,397
                                                     ----------    ----------
                                                    $    80,289   $    83,853
                                                     ==========    ==========

                 The accompanying notes are an integral part
                  of the consolidated financial statements

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                   (In thousands, except per share amount)

                                                        Three Months Ended
                                                             March 31
                                                     ------------------------
                                                        2004          2003
                                                     ----------    ----------
 Gross premiums written                             $     8,753   $    21,915
 Ceded premiums written                                      24        (8,398)
                                                     ----------    ----------
   Net premiums written                                   8,777        13,517
   Change in unearned premiums                             (513)       (1,015)
                                                     ----------    ----------
   Net premiums earned                                    8,264        12,502

 Investment income, net of expenses                         279           194
 Finance charges                                            547         1,089
 Commission and fees                                      5,195         3,350
 Processing and service fees                              1,480         1,308
 Other income                                                 8           277
                                                     ----------    ----------
    Total revenues                                       15,773        18,720

 Losses and loss adjustment expenses                      5,227         8,890
 Other operating costs and expenses                       8,439         8,770
 Interest expense                                            24           443
 Amortization of intangible asset                             7             7
                                                     ----------    ----------
   Total expenses                                        13,697        18,110

 Income before income tax and extraordinary gain          2,076           610

 Income tax expense                                         664           207
                                                     ----------    ----------
 Income before extraordinary gain                   $     1,412   $       403
 Extraordinary gain                                           -         8,152
                                                     ----------    ----------
 Net income                                         $     1,412   $     8,555
                                                     ==========    ==========

 Basic earnings per share:
   Income before extraordinary gain                 $      0.04   $      0.04
     Extraordinary gain                                       -          0.73
                                                     ----------    ----------
     Net income                                     $      0.04   $      0.77
                                                     ==========    ==========
 Diluted earnings per share:
   Income before extraordinary gain                 $      0.04   $      0.04
     Extraordinary gain                                       -          0.71
                                                     ----------    ----------
     Net income                                     $      0.04   $      0.75
                                                     ==========    ==========

                The accompanying notes are an integral part
                 of the consolidated financial statements

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)

                                                        Three Months Ended
                                                              March 31
                                                     ------------------------
                                                        2004          2003
                                                     ----------    ----------
 Cash flows from operating activities:
   Net income                                       $     1,412   $     8,555

 Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
    Extraordinary gain on acquisition of subsidiary           -        (8,152)
    Depreciation and amortization expense                   112           159
    Change in prepaid reinsurance premiums                  281          (175)
    Change in premiums receivable                          (135)           (8)
    Change in accounts receivable                           (91)         (740)
    Change in deferred policy acquisition costs            (509)         (251)
    Change in unpaid losses and loss
      adjustment expenses                                (4,694)        1,132
    Change in unearned premiums                             232           690
    Change in unearned revenue                              688           843
    Change in accrued agent profit sharing               (1,146)         (393)
    Change in reinsurance recoverable                     3,081         4,655
    Change in reinsurance balances payable                    -           959
    Change in excess of cost over
      net assets acquired                                     -           288
    Change in current federal income tax
      payable/recoverable                                   664           516
    Change in accrued ceding commission refund                1          (124)
    Change in all other liabilities                        (254)          642
    Change in all other assets                               31           331
                                                     ----------    ----------
     Net cash (used in) provided by
       operating activities                                (327)        8,927
                                                     ----------    ----------
 Cash flows from investing activities:
   Purchases of property and equipment                      (46)         (203)
   Acquisition of subsidiary                                  -         6,944
   Premium finance notes originated,
     net of finance notes repaid                            (68)         (971)
   Change in restricted cash and investments             (2,335)          (16)
   Maturities and redemptions of investment
     securities                                           1,000           114
   Net redemptions (purchases) of short-term
     investments                                           (110)        4,434
                                                     ----------    ----------
     Net cash (used in) provided by
       investing activities                              (1,559)       10,302
                                                     ----------    ----------
 Cash flows from financing activities:
   Net advances from lender                                   -          (670)
   Repayment of borrowings                                 (182)         (238)
                                                     ----------    ----------
     Net cash used in financing activities                 (182)         (908)
                                                     ----------    ----------
 Increase (decrease) in cash and cash equivalents        (2,068)       18,321
 Cash and cash equivalents at beginning of period        10,520         8,453
                                                     ----------    ----------
 Cash and cash equivalents at end of period         $     8,452   $    26,774
                                                     ==========    ==========


  In the first quarter of 2004, the Company transferred $2.4 million of
  fixed maturity investments from restricted investments to debt securities,
  available-for-sale.


                The accompanying notes are an integral part
                 of the consolidated financial statements


<PAGE>

 Item 1.  Notes to Consolidated Financial Statements (Unaudited)


 Note 1 - Summary of Accounting Policies

     In the  opinion of management,  the accompanying consolidated  financial
 statements contain  all adjustments,  consisting  only of  normal  recurring
 adjustments, necessary for  a fair statement  of the  financial position  of
 Hallmark Financial Services,  Inc. ("HFS")  and subsidiaries  (collectively,
 the "Company")  as  of  March  31, 2004  and  the  consolidated  results  of
 operations and cash  flows for the  periods presented.   The preparation  of
 financial  statements  requires  the  use  of  management's  estimates.  The
 accompanying financial statements have been prepared by the Company  without
 audit.

     Certain  information  and disclosures  normally  included  in  financial
 statements prepared  in  accordance  with  accounting  principles  generally
 accepted in the  United States of  America ("GAAP") have  been condensed  or
 omitted.  Reference is made to  the Company's annual consolidated  financial
 statements for  the  year ended  December  31,  2003 for  a  description  of
 accounting policies and  certain other  disclosures.  Certain  items in  the
 2003 financial  statements have  been reclassified  to conform  to the  2004
 presentation.

     The results of  operations for the period ended  March 31, 2004 are  not
 necessarily indicative of the operating results to be expected for the  full
 year.

 Recently Adopted Accounting Pronouncements

     In  December 2002,  the Financial  Accounting Standards  Board  ("FASB")
 issued Statement of Financial Accounting Standards No. 148, "Accounting  for
 Stock-Based Compensation  -  Transition and Disclosure" ("SFAS  148").   The
 Statement amends SFAS 123 to provide  alternative methods of transition  for
 voluntary change to  the fair value  based method of  accounting for  stock-
 based employee compensation.  In addition,  SFAS 148  amends the  disclosure
 requirements of SFAS 123 to require prominent disclosures in both annual and
 interim financial statements about the method of accounting for  stock-based
 employee compensation and the effect of the method used on reported results.
 SFAS 148  is  effective  for financial  statements for  fiscal years  ending
 after December 15, 2002.  Effective January 1, 2003, the Company adopted the
 prospective method provisions of SFAS 148.

     At March 31, 2004,  the Company had a stock-based employee  compensation
 plan for key employees and a non-qualified plan for non-employee  directors,
 which are described more fully in Note  13 to the Company's Form 10-KSB  for
 December 31, 2003.  Prior to 2003,  the  Company accounted for  those  plans
 under the  recognition and  measurement provisions  of APB  Opinion No.  25,
 "Accounting for  Stock Issued  to Employees",  and related  Interpretations.
 Effective January 1, 2003,  the Company adopted  the fair value  recognition
 provisions  of  FASB   Statement  No.  123,   "Accounting  for   Stock-Based
 Compensation"  ("SFAS  123").  Under  the  prospective  method  of  adoption
 selected by the Company under the provisions of SFAS 148, compensation  cost
 is recognized for all  employee awards granted,  modified, or settled  after
 the beginning of  the fiscal year  in which the  recognition provisions  are
 first applied. Results for prior years have not been restated.

 The following table illustrates  the effect on net  income and earnings  per
 share if the fair value based method had been applied to all outstanding and
 unvested awards in each period.

                                                          Three Months Ended
                                                               March 31
        (in thousands)                                     2004        2003
                                                          ------      ------
        Net income as reported                           $ 1,412     $ 8,555

        Add: Stock-based employee compensation
        expenses included in reported net income,
        net of related tax effects                             5           -

        Deduct: Total stock-based employee
        compensation expense determined under
        fair value based method for all awards,
        net of related tax effects                            (8)         (9)
                                                          ------      ------
        Pro forma net income                             $ 1,409     $ 8,546
                                                          ======      ======
        Earnings per share:
          Basic-as reported                              $  0.04     $  0.77
                                                          ======      ======
          Basic-pro forma                                $  0.04     $  0.77
                                                          ======      ======
          Diluted-as reported                            $  0.04     $  0.75
                                                          ======      ======
          Diluted-pro forma                              $  0.04     $  0.75
                                                          ======      ======

 Note 2 - Reinsurance

     The Company  is involved in  the assumption and  cession of  reinsurance
 from/to other companies.  The Company remains obligated to its policyholders
 in the event  that the reinsurers  do not meet  their obligations under  the
 reinsurance agreements.

     Under   its  reinsurance   arrangements,   the  Company   earns   ceding
 commissions based on  loss ratio experience  on the portion  of policies  it
 cedes.   The  Company receives  a  provisional commission  as  policies  are
 produced as an  advance against the  later determination  of the  commission
 actually earned.  The provisional commission  is adjusted periodically on  a
 sliding scale based on expected loss ratios.

     The following  table shows earned  premiums ceded  and reinsurance  loss
 recoveries by period (in thousands):
                                           Three Months Ended
                                                March 31,
                                            2004        2003
                                           ------      ------
                Ceded earned premiums     $   257     $ 8,015

                Reinsurance recoveries    $  (326)    $ 5,170


 Note 3 - Segment Information

     The  Company   pursues  its  business   activities  through   integrated
 insurance groups managing  non-standard personal  automobile insurance  (the
 "Personal Lines  Group") and  commercial  insurance (the  "Commercial  Lines
 Group").  The  members of  the Personal  Lines Group  are American  Hallmark
 Insurance Company of  Texas ("Hallmark"), an  authorized Texas property  and
 casualty insurance company; Phoenix Indemnity Insurance Company ("Phoenix"),
 an authorized  Arizona property  and  casualty insurance  company;  American
 Hallmark General Agency, Inc. ("AHGA"), a managing general agency;  Hallmark
 Finance Corporation ("HFC"), a premium finance company; and Hallmark  Claims
 Services,  Inc.  ("HCS"),  a  claims  administrator.  The  members  of   the
 Commercial Lines Group are Hallmark General Agency, Inc. ("HGA"), a managing
 general agency; and Effective Claims Management, Inc. ("ECM"), a third party
 claims administrator.

     The following is additional  business segment information for the  three
 months ended March 31, 2004 and 2003 (in thousands):

                                            Three Months Ended
                                                 March 31,
                                             2004        2003
                                            ------      ------
          Revenues
          --------
            Personal Lines Group           $10,259     $14,033
            Commercial Lines Group           5,513       4,687
            Corporate                            1           -
                                            ------      ------
             Consolidated                  $15,773     $18,720
                                            ======      ======
          Pre-tax income
          --------------
            Personal Lines Group           $ 1,636     $   948
            Commercial Lines Group             670         300
            Corporate                         (230)       (638)
                                            ------      ------
             Consolidated                  $ 2,076     $   610
                                            ======      ======

     The  following is  additional business  segment  information as  of  the
 following dates (in thousands):

                                           Mar. 31,    Dec. 31,
                                             2004        2003
                                            ------      ------
                 Assets
                 ------
        Personal Lines Group               $65,339    $ 68,247
        Commercial Lines Group              14,238      13,365
        Corporate                              712       2,241
                                            ------      ------
             Consolidated                  $80,289     $83,853
                                            ======      ======


 Note 4 - Deferred Policy Acquisition Costs

 Total deferred and amortized acquisition costs  for the three months  ending
 March 31, 2004 and 2003 (in thousands) were as follows:

                                            Three Months Ended
                                                 March 31,
                                             2004        2003
                                            ------      ------
            Deferred                       $(6,148)    $(3,326)
            Amortized                        5,639       3,075
                                            ------      ------
            Net Deferred                   $  (509)    $  (251)
                                            ======      ======


 Note 5 - Earnings per Share

 The Company has adopted the provisions of Statement of Financial  Accounting
 Standards No.  128   ("  SFAS No.  128"),  "Earnings Per  Share,"  requiring
 presentation of both basic and diluted earnings per share.

 The following table  sets forth basic  and diluted  weighted average  shares
 outstanding for the periods indicated (in thousands):

                                                    Three Months Ended
                                                         March 31,
                                                     2004        2003
                                                    ------      ------
     Weighted average shares - basic                36,443      11,167
     Effect of dilutive securities                     127         278
                                                    ------      ------
     Weighted average shares - assuming dilution    36,570      11,445
                                                    ======      ======

 Options to purchase an additional 771,000  shares of common stock at  prices
 ranging from $0.65 to $1.00 were outstanding at March 31, 2004 and 2003, but
 were not included in the computation  of diluted earnings per share  because
 the inclusion would result in an  anti-dilutive effect in periods where  the
 option exercise price exceeded  the average market price  per share for  the
 period.


 Note 6 - Comprehensive Income

 The  following  table  sets  forth  comprehensive  income  for  the  periods
 indicated (in thousands):
                                                    Three Months Ended
                                                         March 31,
                                                     2004        2003
                                                    ------      ------
        Net Income                                 $ 1,412     $ 8,555
        Unrealized gain on available
          for sale securities, net of tax              305          35
                                                    ------      ------
        Other comprehensive income                     305          35
                                                    ------      ------
        Comprehensive income                       $ 1,717     $ 8,590
                                                    ======      ======

 Item 2.   Management's Discussion and Analysis of Financial Condition and
           Results of Operations

     Introduction.  Hallmark Financial Services, Inc. ("HFS") and its  wholly
 owned subsidiaries  (collectively,  the "Company")  engage  in the  sale  of
 property and casualty insurance products.   The Company's business  involves
 marketing and underwriting of non-standard automobile insurance primarily in
 Texas, Arizona, and New Mexico; marketing of commercial insurance in  Texas,
 New Mexico, Idaho, Oregon  and Washington;  and providing third party claims
 administration and other insurance related services.

     The  Company   pursues  its  business   activities  through   integrated
 insurance groups managing  non-standard personal  automobile insurance  (the
 "Personal Lines  Group") and  commercial  insurance (the  "Commercial  Lines
 Group").  The  members of  the Personal  Lines Group  are American  Hallmark
 Insurance Company of  Texas ("Hallmark"), an  authorized Texas property  and
 casualty insurance company; Phoenix Indemnity Insurance Company ("Phoenix"),
 an authorized  Arizona property  and  casualty insurance  company;  American
 Hallmark General Agency, Inc. ("AHGA"), a managing general agency;  Hallmark
 Finance Corporation ("HFC"), a premium finance company; and Hallmark  Claims
 Services,  Inc.  ("HCS"),  a  claims  administrator.  The  members  of   the
 Commercial Lines Group are Hallmark General Agency, Inc. ("HGA"), a managing
 general agency; and Effective Claims Management, Inc. ("ECM"), a third party
 claims administrator

     The Personal Lines Group provides non-standard automobile liability  and
 physical damage insurance through  Hallmark and Phoenix  for drivers who  do
 not qualify for or cannot obtain standard-rate insurance. Prior to April  1,
 2003, Hallmark assumed  the reinsurance of  100% of  the Texas  non-standard
 automobile policies  produced by  AHGA and underwritten by  State  &  County
 Mutual  Fire  Insurance  Company ("State  &  County") and retroceded 55%  of
 the  business  to  Dorinco  Reinsurance  Company  ("Dorinco").   Under  this
 arrangement, Hallmark  remained  obligated  to policyholders  in  the  event
 Dorinco  did  not meet  its  obligations  under the  retrocession agreement.
 Effective April 1,  2003, Hallmark  assumes the  reinsurance of  45% of  the
 Texas non-standard  automobile policies  produced by  AHGA and  underwritten
 either by State &  County (for policies written  from April 1, 2003  through
 September 30, 2003)  or Old American  County Mutual  Fire Insurance  Company
 ("OACM") (for policies written after September 30, 2003).  The remaining 55%
 of each policy is directly assumed by Dorinco.  Under these new  reinsurance
 arrangements, Hallmark is obligated to policyholders only for the portion of
 risk assumed by Hallmark.   Phoenix underwrites non-standard auto  insurance
 produced by independent agents  and retains 100% of  the premium and  losses
 for the business it  writes.  Effective July  1, 2003, HFC discontinued  its
 premium finance program and the Company shifted focus to a six month  direct
 bill program.  HCS provides claims adjustment, salvage, subrogation recovery
 and litigation services to Hallmark.

     The Commercial  Lines Group, through  HGA, markets commercial  insurance
 policies through independent  agents.  HGA  produces policies  on behalf  of
 Clarendon  National  Insurance  Company  ("CNIC")  under  a  general  agency
 agreement where it receives a commission  based on the premium written  with
 CNIC. ECM  provides fee-based  claims  adjustment, salvage  and  subrogation
 recovery, and litigation services on behalf of CNIC and another unaffiliated
 third party.


 Liquidity and Capital Resources

     The Company's  sources of funds are  principally derived from  insurance
 related operations.  Major sources of funds from operations include premiums
 collected  (net  of  policy   cancellations  and  premiums  ceded),   ceding
 commissions, and processing and  service fees.  Other  sources of funds  are
 from financing and investment activities.  On  a  consolidated  basis,   the
 Company's cash and investments  (excluding restricted cash and  investments)
 at March 31, 2004 were $40.2  million compared to $40.4 million at  December
 31, 2003.

     Net cash  used by the  Company's operating activities  was $0.3  million
 for the  first  three  months of  2004  compared  to net  cash  provided  by
 operating activities of $8.9  million for the first  three months of 2003.
 The decrease  in  operating cash  flow  was due  mostly  to a  reduction  in
 Personal Lines  Group premium  volume causing  a $5.9  million reduction  in
 premiums collected.  Also  contributing to the decrease  was a $2.3  million
 Phoenix bad faith claim settlement paid in 2004 and a $0.8 million reduction
 in collected finance  charges due primarily  to the  discontinuation of  the
 Personal Lines Group premium finance program in July 2003.

     Cash used by investing activities during the first three months of  2004
 was $1.6 million  as compared to  cash provided by  investing activities  of
 $10.3 million for the same  period in 2003.   The acquisition of Phoenix  in
 2003 produced  a  net cash  increase  of $6.9  million.   The  decrease  was
 additionally attributable  to redemption  of short-term  investments in  the
 first quarter of 2003  of $4.4 million compared  to purchases of  short-term
 investments in 2004 of $0.1 million.

     Cash  used in  financing activities  decreased by  $0.7 million  in  the
 first three months of 2004 as compared to the same period of 2003 due to the
 discontinuation of the premium  finance program in July  2003. As a  result,
 the Company did not  receive any advances in  2004 from the premium  finance
 lender.

     HFS  is dependent  on dividend  payments and  management fees  from  its
 insurance subsidiaries and free cash flow of its non-insurance  subsidiaries
 to meet operating expenses and debt obligations.  As of March 31, 2004, cash
 and invested assets of HFS were $0.7  million.  Cash and invested assets  of
 non-insurance subsidiaries were $5.0 million as of March 31, 2004.  Property
 and casualty insurance companies domiciled in the State of Texas are limited
 in the  payment  of dividends  to  their shareholders  in  any  twelve-month
 period, without the prior written consent of the Commission of Insurance, to
 the greater of statutory net  income for the prior  calendar year or 10%  of
 statutory policyholders' surplus as  of the  prior year  end. Dividends  may
 only  be  paid  from  unassigned  surplus  funds.  During  2004,  Hallmark's
 ordinary dividend capacity is $2.2 million.  Phoenix, domiciled in  Arizona,
 is limited in the payment of  dividends to the lesser  of 10% of prior  year
 policyholder's surplus or prior year's net investment income, without  prior
 written approval from the Arizona Department of Insurance ("AZDOI").  During
 2004,  Phoenix's  ordinary  dividend  capacity  is  $0.6  million.   Neither
 Hallmark nor Phoenix  paid a  dividend to HFS  during the  first quarter  of
 2004.

     The   Texas  Department   of  Insurance   ("TDI")  regulates   financial
 transactions between  Hallmark, HFS  and affiliated  companies.   Applicable
 regulations  require  TDI's  approval  of  management  and  expense  sharing
 contracts and similar  transactions.  Although  TDI has approved  Hallmark's
 payment of management fees to HFS and commissions to AHGA, since the  second
 half of  2000  management  has  elected  not to  pay  all  of  the  approved
 commissions or management  fees. AHGA paid  HFS $0.2  million in  management
 fees in  the  first  quarter of  2004  and  HFC paid  HFS  $0.2  million  in
 management fees in the first quarter of 2003.

     The  AZDOI   regulates  financial  transactions   between  Phoenix   and
 affiliated companies.   Applicable regulations require  AZDOI's approval  of
 management and expense sharing contracts and similar transactions.  Although
 AZDOI has  approved  payments of  management  fees to  HFS,  management  has
 elected to not pay a management  fee to HFS in  the first quarter of  either
 2003 or 2004 in order to strengthen Phoenix's statutory surplus.


 Results of Operations

 Three Months Ending March 30, 2004 as compared to Three Months Ending
 March 30, 2003

     Income  before tax  and  extraordinary gain  was  $2.1 million  for  the
 quarter ended March 31, 2004, compared  to $0.6 million for the same  period
 in 2003.   The improvement in  operating earnings for  the first quarter  of
 2004 compared to the first quarter of 2003 reflects the reversal of bad debt
 allowances in the Personal Lines Group, additional commission revenue in the
 Commercial Lines Group and overall reduced interest expenses.

     The following is additional  business segment information for the  three
 months ended March 31 (in thousands):

                                     2004         2003
                                   --------     --------
                Revenues
                --------
        Personal Lines Group      $  10,259    $  14,033
        Commercial Lines Group        5,513        4,687
        Corporate                         1            -
                                   --------     --------
             Consolidated         $  15,773    $  18,720
                                   ========     ========

             Pre-tax Income
             --------------
        Personal Lines Group      $   1,636    $     948
        Commercial Lines Group          670          300
        Corporate                      (230)        (638)
                                   --------     --------
             Consolidated         $   2,076    $     610
                                   ========     ========


 Personal Lines Group

     Net premiums written decreased $4.7 million during the first quarter  of
 2004 to $8.8 million compared to $13.5 million in the first quarter of 2003.
 The  decrease in net premiums written  is impacted by the following  actions
 taken in 2003:  (i) cancellation  of unprofitable  agents; (ii)  a shift  in
 marketing focus from annual term premium financed policies to six month term
 direct bill  policies;  and  (iii) reduction  in  policy  counts  caused  by
 increased rates.

     Revenue  for  the Personal  Lines  Group  decreased 27%  for  the  first
 quarter of 2004 to $10.3 million from  $14.0 million for the same period  in
 2003.  The  decrease is  mainly caused by  less net  premium volume  causing
 earned premium for the  quarter  to be $4.2 million less  than in the  first
 quarter of 2003.  Also contributing to the decline is the discontinuation of
 the premium  finance  program,  which caused  a $0.6  million  reduction  in
 finance charge  revenue.   Partially offsetting  these  reductions  is  AHGA
 commission revenue  of  $1.0 million from  business ceded  to  Dorinco  for
 policies  effective  after  March  31,  2003  due  to  the  new  reinsurance
 structure.  Prior  to  April 1,  2003,  under  the  terms  of  the  previous
 reinsurance structure, this commission was classified as a ceding commission
 and a reduction to commission expense.

     Even  though revenue  for the  Personal  Lines Group  declined,  pre-tax
 income  increased  $0.7 million,  or  73%,  for  the  first  quarter of 2004
 compared  to the first quarter  of  2003.  Despite the  decrease in  premium
 volume, underwriting results for the  first quarter of 2004  were comparable
 to  the first quarter  of 2003  due largely  to improved loss experience  as
 shown by a loss ratio (defined as loss and loss adjustment expenses  divided
 by  net premiums earned)  of 63.6% for the first quarter of 2004 as compared
 to 71.7% in the first quarter  of 2003.  Also  contributing to the increased
 pre-tax income for the  quarter was bad debt expense which  was $0.4 million
 lower than the same period in 2003.  This reduction reflects the reversal of
 allowances deemed no  longer necessary due  to  cash  collections.  Interest
 expense was $0.2 million less for the  first quarter of 2004 as compared  to
 the same period in  2003 due to the  discontinuation of the premium  finance
 program in July 2003.  Also,  additional investment income contributed  $0.1
 million to the increased pre-tax income for the quarter.

 Commercial Lines Group

     Total revenue  for the Commercial  Lines Group of  $5.5 million for  the
 first quarter of 2004 was $0.8  million more than the $4.7 million  reported
 in  the  first  quarter  of  2003.  This  was primarily  due  to  additional
 commission revenue of $0.8 million in the first quarter of 2004 as  compared
 to the same  period in 2003.   Increased commercial  premium volume was  the
 primary cause of the increased commission revenue for the quarter.

     Pre-tax income for  the Commercial Lines Group  of $0.7 million for  the
 first quarter of 2004 increased $0.4 million over the $0.3 million  reported
 for the first quarter  of 2003.  Increased  revenue, as discussed above,  is
 the primary reason for the increase  in pre-tax income, partially offset  by
 additional agent commissions of  $0.5 million due  to the increased  premium
 volume.  Also contributing to the  increased pre-tax income is rent  savings
 of $0.1 million from renegotiating the lease for the Commercial Lines  Group
 office space in Fort Worth, Texas.

 Corporate

      Corporate pre-tax loss was $0.2 million  for the first quarter of  2004
 as compared to $0.6 million for the same period in 2003.  The Company  saved
 $0.3 million in interest expense for  the first quarter of 2004 as  compared
 to the same  period in 2003  due to the  repayment of a  related party  note
 payable in September  2003.  Also  contributing to the  decrease in  pre-tax
 loss were additional  management fees  collected from  the Commercial  Lines
 Group of $0.1  million in  the first  quarter of  2004.   Corporate did  not
 collect any management  fees from the  Commercial Lines Group  in the  first
 quarter of 2003.


 Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

      Information required under Item 305 of  Regulation S-K is not  required
 in this Form 10-Q.


 Item 4.  Controls and Procedures.

     The Chief Executive Officer  and Chief Financial Officer of the  Company
 have evaluated the  Company's disclosure  controls and  procedures and  have
 concluded that such controls and procedures  are effective as of the end  of
 the period covered by this report.   During the most recent fiscal  quarter,
 there have been no changes in the Company's internal controls over financial
 reporting that  have  materially  affected,  or  are  reasonably  likely  to
 materially affect, the Company's internal control over financial reporting.

 Risks Associated with Forward-Looking Statements Included in this Form 10-Q

     This Form  10-Q contains certain  forward-looking statements within  the
 meaning of Section 27A of the Securities Act of 1933 and Section 21E  of the
 Securities Exchange Act  of 1934, which  are intended to  be covered by  the
 safe  harbors  created  thereby.   These  statements include  the  plans and
 objectives  of  management  for  future  operations,  including  plans   and
 objectives relating to  future growth of  the Company's business  activities
 and availability of funds.   The forward-looking statements included  herein
 are  based  on  current  expectations   that  involve  numerous  risks   and
 uncertainties.  Assumptions relating to the foregoing involve judgments with
 respect to,  among other  things, future  economic, competitive  and  market
 conditions, regulatory framework, weather-related events and future business
 decisions, all of which  are difficult or  impossible to predict  accurately
 and many of  which are  beyond the  control of  the Company.   Although  the
 Company  believes  that  the  assumptions  underlying  the   forward-looking
 statements are reasonable, any of the  assumptions could be inaccurate  and,
 therefore, there can  be no  assurance that  the forward-looking  statements
 included in this  Form 10-Q  will prove to  be accurate.   In  light of  the
 significant  uncertainties  inherent   in  the  forward-looking   statements
 included herein, the inclusion of such information should not be regarded as
 a representation by the Company or any other person that the objectives  and
 plans of the Company will be achieved.


                                   PART II
                              OTHER INFORMATION


   Item 1. Legal Proceedings.

           The  Company is engaged in legal proceedings in the ordinary
           course of business, none of which, either individually or in
           the  aggregate,  are  believed  likely  to  have  a material
           adverse effect on the consolidated financial position of the
           Company  or  the  results  of  operations,  in  the  opinion
           of  management.  The various legal proceedings  to which the
           Company  is a party are routine in  nature and incidental to
           the Company's business.


   Item 2. Changes in Securities and Use of Proceeds.

           None.


   Item 3. Defaults Upon Senior Securities.

           None.


   Item 4. Submission of Matters to a Vote of Security Holders.

           None.


   Item 5. Other Information.

           None.


   Item 6. Exhibits and Reports on Form 8-K.


       (a) The exhibits  listed in the Exhibit Index appearing on page 17
           are filed herewith.

       (b) The Company  filed  the  following reports  on Form 8-K during
           the first quarter of 2004.

           Form  8-K  filed  March 8, 2004  containing  a  press  release
           announcing the appointment of Chief Financial Officer, Mark J.
           Morrison.

           Form  8-K  filed  March 31, 2004  containing  a  press release
           announcing  the financial results  for the fourth quarter  and
           year-ended December 31, 2003.

<PAGE>

                                Exhibit Index
                                -------------

    Exhibit
    Number                       Description
    ------                       -----------
    31(a)        Certification  of Chief  Executive  Officer  required by
                 Rule 13a-14(a) or Rule 15d-14(a).

    31(b)        Certification  of Chief  Financial  Officer  required by
                 Rule 13a-14(a) or Rule 15d-14(a).

    32(a)        Certification of Chief Executive  Officer Pursuant to 18
                 U.S.C. 1350 Enacted by Section 906 of the Sarbanes-Oxley
                 Act of 2002.

    32(b)        Certification of Chief Financial  Officer Pursuant to 18
                 U.S.C. 1350 Enacted by Section 906 of the Sarbanes-Oxley
                 Act of 2002.



                                  SIGNATURES

 Pursuant to the  requirements of the  Securities Exchange Act  of 1934,  the
 registrant has  caused  this  report to  be  signed  on its  behalf  by  the
 undersigned thereunto duly authorized.

                      HALLMARK FINANCIAL SERVICES, INC.
                                 (Registrant)



 Date: May 14, 2004          /s/ Mark E. Schwarz
                             ---------------------------------------------
                             Mark E. Schwarz, Chairman (Chief
                             Executive Officer)


 Date: May 14, 2004          /s/ Mark J. Morrison
                             ---------------------------------------------
                             Mark J. Morrison, Executive Vice President
                             (Chief Financial Officer)