SECOND AMENDMENT TO LOAN AGREEMENT 
                      AND GUARANTOR CONSENT 
 
 
     THIS SECOND AMENDMENT TO LOAN AGREEMENT AND GUARANTOR CONSENT (the
"Second Amendment") is made as of October 1, 1997, among HALLMARK
FINANCE CORPORATION, referred to herein as the "Borrower," HALLMARK
FINANCIAL SERVICES, INC., HALLMARK CLAIMS SERVICE, INC., AMERICAN
HALLMARK GENERAL AGENCY, INC., ACO HOLDINGS, INC., and AMERICAN HALLMARK
AGENCIES, INC. (collectively, the "Guarantors"), and NATIONSBANK OF
TEXAS, N.A., a national banking association, referred to herein as the
"Lender."
 
                         R E C I T A L S: 
 
     A.   The Borrower and the Lender are parties to a Loan Agreement
dated as of March 17, 1997 (the "Original Loan Agreement").  
 
     B.   The Guarantors executed Guaranty Agreements in favor of the
Lender pursuant to 
the Original Loan Agreement.   
 
     C.   The Original Loan Agreement has been amended pursuant to that
certain First Amendment to Loan Agreement and Guarantor Consent (the
"First Amendment") dated as of July 31, 1997, among the Borrower, the
Guarantors, and the Lender (the Original Loan Agreement, as amended by
the First Amendment, is hereinafter called the "Loan Agreement").
 
     D.   The Borrower has advanced the sum of $1,248,757.77 (the
"Advance") to  Hallmark Financial Services, Inc. ("HFS"), the result of
which has affected various provisions of the Loan Agreement. 
Accordingly, the Borrower has requested certain amendments to the Loan
Agreement in order to assure that the Advance to HFS is not in violation
of the Loan Agreement.  The Borrower has also requested that the Lender
waive any defaults under the Loan Agreement as a result of the Advance,
and the Lender is willing to do so subject to the terms and provisions
contained herein.

     E.   The parties desire to amend the Loan Agreement as hereinafter
provided, and the Guarantors desire to consent to such amendment.

     NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
     1.   Same Terms.  All terms used herein which are defined in the
Loan Agreement have the same meanings when used herein unless the
context hereof otherwise requires or provides.  In addition, all
references in the Loan Documents to the "Agreement" mean the Original
Loan Agreement, as amended by the First Amendment and as amended by this
Second Amendment, as the same are hereafter amended from time to time.

     2.   Amendments to Loan Agreement.   Effective as of the date
above, the Loan Agreement is hereby amended as follows:

     (a)  Section 6.3 of the Loan Agreement is amended by substituting
the following paragraph in place of paragraph 6.3 in the Loan Agreement:
<PAGE>
     "6.3 Minimum Tangible Net Worth.  Permit the Tangible Net Worth of
     Borrower at any time during 1997 to be less than $6,650,000 or at
     any time during 1998 to be less than $6,950,000."

     (b)  Section 7.2 of the Loan Agreement is hereby amended by
substituting the following paragraph in place of paragraph 7.2 in the
Loan Agreement:

     "7.2 Minimum Tangible Net Worth.  Neither HFS nor ACO will permit
     at any time Borrower's Tangible Net Worth as of the day of any
     reporting period required by law or required by the Texas
     Department of Insurance during the following calendar years to be
     less than the following amounts:

                         1997      $6,650,000 
                         1998      $6,950,000."
 
     3.   Waivers of Default.  The Lender hereby waives the following
Events of Default (if any) as a result of the Advance:

     (a)  Any Event of Default under Section 6.4 pertaining to a
disposition of or transfer of any assets of the Borrower;

     (b)  Any Event of Default under Section 6.6 pertaining to making
any loan or advance to any person or entity except as otherwise
specified in the Loan Agreement;

     (c)  Any Event of Default under Section 6.10 pertaining to engaging
in any transaction with any Affiliate of Borrower or making an
assignment or other transfer of its properties or assets to any
Affiliate; and

     (d)  Any other Event of Default under the Loan Agreement which may
be triggered as a result of the Advance.

     Such waiver of Events of Default as a result of such Advance is
limited precisely as written, is a one-time-only waiver and shall not be
deemed to be a waiver of such covenants in the Loan Agreement to any
future or other actions by the Borrower and except as otherwise provided
herein, Borrower hereby reaffirms all such covenants in the Loan
Agreement to be binding and enforceable against the Borrower as written.

     4.   Certain Representations.

     (a)  The Borrower represents and warrants that, as of the date
hereof:  (i) the Borrower has full power and authority to execute this
Second Amendment, and this Second Amendment constitutes the legal, valid
and binding obligation of the Borrower enforceable in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar
laws affecting the enforcement of creditors' rights generally; and (ii)
no authorization, approval, consent or other action by, notice to, or
filing with, any governmental authority or other person is required for
the execution, delivery and performance by the Borrower of this Second
Amendment.

     (b)  Each Guarantor represents and warrants that, as of the date
hereof:  (i) such Guarantor has full power and authority to execute this
<PAGE>
Second Amendment, and this Second Amendment constitutes the legal, valid
and binding obligation of such Guarantor enforceable in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar
laws affecting the enforcement of creditors' rights generally; and (ii)
no authorization, approval, consent or other action by, notice to, or
filing with, any governmental authority or other person is required for
the execution, delivery and performance by such Guarantor of this Second
Amendment.

     5.   Concerning the Guaranty Agreements.  By its execution below,
each Guarantor reaffirms the obligations under each Guaranty Agreement
executed and delivered by it in connection with the Loan Documents and
acknowledges that the execution and delivery of this Second Amendment
shall not reduce or modify in any respect such Guarantor's liability
under such Guaranty Agreement.     

     6.   Limitation on Agreements.  The modifications set forth herein
are limited precisely as written and shall not be deemed (a) to be a
consent under or a waiver of or an amendment to any other term or
condition in the Loan Agreement or any of the Loan Documents, or (b) to
prejudice any right or rights which the Lender now has or may have in
the future under or in connection with the Loan Agreement and the Loan
Documents, each as amended hereby, or any of the other documents
referred to herein or therein. This Second Amendment constitutes a Loan
Document for all purposes.

     7.   Entirety, Etc.  This instrument together with all of the other
Loan Documents embodies the entire agreement between the parties.  THIS
AGREEMENT AND ALL OF THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Loan Agreement to be effective as of the date and year
first above written.

                                   BORROWER:

Address:                           HALLMARK FINANCE CORPORATION

14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:


                                   GUARANTORS: 
 
Address:                           HALLMARK FINANCIAL SERVICES, INC.

14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:
 
<PAGE> 
Address:                           HALLMARK CLAIMS SERVICE, INC.  
 
14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:


Address:                           AMERICAN HALLMARK GENERAL AGENCY,
                                   INC.

14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:
 
 
Address:                           ACO HOLDINGS, INC.

14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:
 
 
Address:                           AMERICAN HALLMARK AGENCIES, INC.

14651 Dallas Parkway               By:
Dallas, Texas 75240                Name:
                                   Title:<PAGE>
 
 
LENDER: 

Address:                           NATIONSBANK OF TEXAS, N.A. 
 
NationsBank Plaza, 7th Floor       By:
901 Main Street                    Name: Susan M. Raher
Dallas, Texas 75202                Title: Vice President