CONFORMED COPY

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                 FORM 10-QSB

              Quarterly report under Section 13 or 15(d) of the

                       Securities Exchange Act of 1934

                 For the quarterly period ended June 30, 2001

                         Commission file number 0-16090

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

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

     14651 Dallas Parkway, Suite 900 Dallas, Texas         75240
     ---------------------------------------------       ---------
       (Address of principal executive offices)          (Zip Code)

       Issuer's telephone number, including area code:  (972) 404-1637

       Check whether the issuer (1) has  filed all reports required to
       be filed by Section 13 or 15(d)  of the Securities Exchange Act
       during the past 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

                     APPLICABLE ONLY TO CORPORATE ISSUERS

       State the number of shares outstanding  of each of the issuer's
       classes of  common equity, as  of the latest  practicable date:
       Common Stock,  par  value $.03  per share  -  11,049,133 shares
       outstanding as of August 12, 2001.

<PAGE>
                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                     INDEX TO FINANCIAL STATEMENTS

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


 Consolidated Balance Sheets at June 30, 2001                3
 (unaudited) and December 31, 2000

 Consolidated Statements of Income (unaudited) for           4
 the three and six months ended June 30, 2001 and

 Consolidated Statements of Cash Flows (unaudited)           5
 for the six months ended June 30, 2001 and June

 Notes to Consolidated Financial Statements                  6
 (unaudited)

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                   --------

                                                     June 30        December 31
                    ASSETS                             2001            2000
                                                    -----------     -----------
                                                    (Unaudited)
 Investments:
    Debt securities, held-to-maturity,
      at amortized cost                            $  2,341,049    $  7,243,373
    Equity securities, available-for-sale,
      at market value                                   143,901         145,302
    Short-term investments, at cost which
      approximates market value                      12,128,700       6,188,764
                                                    -----------     -----------
             Total investments                       14,613,650      13,577,439

 Cash and cash equivalents                            5,664,667       6,830,712
 Restricted cash                                      2,614,783       4,276,397
 Prepaid reinsurance premiums                        14,420,074      10,943,902
 Premiums receivable from lender (net of
   allowance for doubtful accounts of                17,797,145      13,544,985
   $278,199 in 2001 and $168,648 in 2000)
 Premiums receivable                                    118,351         799,140
 Reinsurance recoverable                             20,733,052      19,212,172
 Deferred policy acquisition costs                    4,766,736       3,867,033
 Excess of cost over net assets acquired (net
   of accumulated amortization of $1,720,600
   in 2001 and $1,642,093 in 2000)                    4,509,614       4,588,121
 Current federal income tax recoverable                 322,522          95,232
 Deferred federal income taxes                          676,008         572,112
 Accrued investment income                               18,665         108,364
 Other assets                                           864,375         642,205
                                                    -----------     -----------
                                                   $ 87,119,642    $ 79,057,814
                                                    ===========     ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
 Liabilities:
    Notes payable                                  $ 13,430,494    $ 13,032,999
    Unpaid losses and loss adjustment expenses       23,136,573      22,297,816
    Unearned premiums                                21,051,825      16,710,581
     Reinsurance balances payable                     5,664,646       3,341,437
     Deferred ceding commissions                      4,315,070       3,505,421
     Drafts outstanding                                 952,419       1,534,721
     Accrued ceding commission refund                 3,994,811       2,503,128
     Accounts payable and other accrued expenses      3,884,967       3,258,475
     Accrued litigation costs                                 -       1,385,840
                                                    -----------     -----------
          Total liabilities                          76,430,805      67,570,418
                                                    -----------     -----------
 Stockholders' equity
     Common stock, $.03 par value, authorized
       100,000,000 shares issued 11,855,610
       shares in 2001 and 2000                          355,668         355,668
     Capital in excess of par value                  10,875,432      10,875,432
     Retained earnings                                  500,904       1,309,934
     Accumulated other comprehensive income                   -         (10,471)
     Treasury stock, 806,477 shares, at cost         (1,043,167)     (1,043,167)
                                                    -----------     -----------
          Total stockholders' equity                 10,688,837      11,487,396
                                                    -----------     -----------
                                                   $ 87,119,642    $ 79,057,814
                                                    ===========     ===========

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

<PAGE>
<TABLE>
           HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF OPERATIONS


                                                     Three Months Ended                   Six Months Ended
                                                           June 30                             June 30
                                                -----------------------------    ---------------------------------
                                                    2001             2000               2001              2000
                                                ------------     ------------       ------------      ------------
 <S>                                           <C>              <C>                <C>               <C>
 Gross premiums written                        $  14,087,294    $  12,870,742      $  29,834,269     $  26,098,589
 Ceded premiums written                           (9,704,123)      (7,662,205)       (20,262,920)      (15,401,396)
                                                ------------     ------------       ------------      ------------
       Net premiums written                    $   4,383,171    $   5,208,537      $   9,571,349     $  10,697,193
                                                ============     ============       ============      ============
 Revenues:
    Gross premiums earned                         13,062,063       11,863,434         25,493,025        22,511,182
    Ceded premiums earned                         (8,731,329)      (6,831,799)       (16,786,748)      (12,933,169)
                                                ------------     ------------       ------------      ------------
       Net premiums earned                         4,330,734        5,031,635          8,706,277         9,578,013

    Investment income, net of expenses               232,005          292,550            542,440           518,347
    Finance charges                                  861,853          712,355          1,694,250         1,551,386
    Processing and service fees                      306,000          605,982            728,595         1,138,943
    Other income                                      60,296           82,033            106,287           166,760
                                                ------------     ------------       ------------      ------------
        Total revenues                             5,790,888        6,724,555         11,777,849        12,953,449
                                                ------------     ------------       ------------      ------------
 Benefits, losses and expenses:
    Losses and loss adjustment expenses           13,277,866       11,571,810         24,168,647        21,118,143
    Reinsurance recoveries                        (8,447,013)      (7,654,285)       (15,530,827)      (14,044,111)
                                                ------------     ------------       ------------      ------------
 Net losses and loss adjustment expenses           4,830,853        3,917,525          8,637,820         7,074,032

 Acquisition costs, net                             (147,064)          83,546            (90,054)           17,531
 Other acquisition and underwriting
  expenses (net of ceding commission of
  $5,566,090 in 2001 and $4,381,989 in 2000)         983,966          958,248          1,822,197         2,123,396
 Operating expenses                                  900,724        1,137,221          2,010,465         2,282,175
 Interest expense                                    255,779          273,273            549,523           504,747
 Amortization of intangible assets                    39,253           39,253             78,507            78,507
                                                ------------     ------------       ------------      ------------
         Total benefits, losses and expenses       6,863,511        6,409,066         13,008,458        12,080,388
                                                ------------     ------------       ------------      ------------
 Income (loss) from operations before
   federal income taxes                           (1,072,623)         315,489         (1,230,609)          873,061
 Federal income tax expense (benefit)               (362,344)         120,362           (421,579)          324,088
                                                ------------     ------------       ------------      ------------
 Net income (loss)                             $    (710,279)   $     195,127      $    (809,030)    $     548,973
                                                ============     ============       ============      ============

 Basic and diluted earnings (loss) per share   $       (0.06)   $        0.02      $       (0.07)    $        0.05
                                                ============     ============       ============      ============
 Common stock shares outstanding                  11,049,133       11,048,133         11,049,133        11,048,133
                                                ============     ============       ============      ============

                The accompanying notes are an integral part
                 of the consolidated financial statements
</TABLE>
<PAGE>

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

                                                         Six Months Ended
                                                             June 30
                                                     ------------------------
                                                        2001           2000
                                                     ----------     ----------
 Cash flows from operating activities:
    Net income (loss)                               $  (809,030)   $   548,973

 Adjustments to reconcile net income (loss) to cash
   provided by (used in) operating activities:
       Depreciation and amortization expense            142,663        164,443
       Change in deferred Federal income taxes         (103,896)      (112,668)
       Change in prepaid reinsurance premiums        (3,476,172)    (2,468,228)
       Change in premiums receivable                    680,789       (789,803)
       Change in deferred policy acquisition costs     (899,703)      (725,366)
       Change in deferred ceding commissions            809,649        742,897
       Change in unpaid losses and loss
         adjustment expenses                            838,757      2,918,050
       Change in unearned premiums                    4,341,244      3,587,408
       Change in reinsurance recoverable             (1,520,880)    (3,072,056)
       Change in reinsurance balances payable         2,323,209        972,193
       Change in current federal income
         tax payable/recoverable                       (227,290)       (38,348)
       Change in litigation cost                     (1,385,840)             -
       Change in accrued ceding commission refund     1,491,683        238,433
       Change in all other liabilities                   44,190      1,426,052
       Change in all other assets                       (62,574)      (524,190)
                                                     ----------     ----------
 Net cash provided by operating activities            2,186,799      2,867,790
                                                     ----------     ----------
 Cash flows from investing  activities:
    Purchases of property and equipment                (133,780)       (85,604)
    Premium finance notes originated                (29,408,199)   (18,295,128)
    Premium finance notes repaid                     25,156,039     15,275,384
    Change in restricted cash                         1,661,614        (18,000)
    Purchases of debt securities                              -     (3,101,030)
    Maturities and redemptions
      of investment securities                        4,913,922        985,831
    Purchase of short-term investments              (10,439,935)    (9,559,589)
    Maturities of short-term investments              4,500,000      9,000,000
                                                     ----------     ----------
       Net cash used in investing activities         (3,750,339)    (5,798,136)
                                                     ----------     ----------
 Cash flows from financing activities:
     Repayment of borrowings                           (364,000)      (215,298)
     Net advances from lender                           761,495      1,799,223
                                                     ----------     ----------
         Net cash provided by financing activities      397,495      1,583,925
                                                     ----------     ----------
 Decrease in cash and cash equivalents               (1,166,045)    (1,346,421)
 Cash and cash equivalents at beginning of period     6,830,712      5,786,069
                                                     ----------     ----------
 Cash and cash equivalents at end of period         $ 5,664,667    $ 4,439,648
                                                     ==========     ==========

             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 primarily  of normalrecurring
 adjustments, necessary to present fairly the financial position of  Hallmark
 Financial Services, Inc.  and subsidiaries (the  "Company") as  of June  30,
 2001 and  the consolidated  results of  operations  and  cash  flows for the
 periods presented.  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  ("GAAP") have  been condensed  or omitted.
 Reference is made to the Company's annual consolidated  financial statements
 for the  year  ended December  31,  2000  for a  description  of  accounting
 policies and certain other disclosures.   Certain items in the 2000  interim
 financial  statements  have  been  reclassified  to  conform  to  the   2001
 presentation.

     The results  of operations for the  period ended June  30, 2001 are  not
 necessarily indicative of the operating results to be expected for the  full
 year.


 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 reinsurers  do  not  meet their  obligations  under  the
 reinsurance agreements.

     Effective  March  1,  1992,  the  Company  entered  into  a  reinsurance
 arrangement with  State &  County Mutual  Fire Insurance  Company ("State  &
 County"), an unaffiliated company,  to assume 100%  of the nonstandard  auto
 business produced by the  Company and underwritten by  State & County.   The
 arrangement is supplemented by  a separate retrocession agreement  effective
 July  1,  2000   between  the  Company   and  Dorinco  Reinsurance   Company
 ("Dorinco").  Under  the agreement, the  Company currently  retains 30%  and
 cedes 70% of the risk to Dorinco.

     Effective March  1, 2001 the  minimum commission rate  decreased to  26%
 from 31%.  The commission rate  increases 1:1 to any percentage decrease  in
 the loss  ratio  from  an established  benchmark  to  a  provisional/maximum
 commission rate of 41%.  Effective April 1, 2001 the provisional  commission
 rate decreased from 41% to 34% and decreased again to 31% effective  July 1,
 2001.  Additionally, effective  April 1, 2001 a  loss corridor was added  to
 the reinsurance agreement  affecting losses on  policies effective April  1,
 2001 and after.

     Effective  April 1,  2001,  the Company's  reinsurance  agreements  with
 Dorinco were  amended  to include  a  loss  corridor  provision  whereby the
 Company retains 100% of losses between a  loss  ratio corridor of 65% to 77%
 on policies effective April 1, 2001.  This corridor increased to 65% to  80%
 effective July 1,  2001 on  policies effective  after that  date.   Further,
 Dorinco and the Company have executed  a letter of agreement effective  July
 1, 2001,  that  among  other  things,  imposes  on  the  Company  additional
 financial  and   operational  covenants   under  the   Dorinco   reinsurance
 agreements, provides remedies for the breach of such covenants and grants to
 Dorinco certain options to maintain or increase the level of its reinsurance
 of Hallmark policies.


 Note 3 - Commitments and Contingencies

     In March  1997, a jury  returned a verdict  against the  Company and  in
 favor of a  former director  and officer  of the  Company in  the amount  of
 approximately  $517,000   on  the   basis  of   contractual  and   statutory
 indemnification claims.   The  court  subsequently granted  the  plaintiff's
 motion for  attorneys'  fees  of  approximately  $271,000,  court  costs  of
 approximately $39,000  and  pre-judgment  and  post-judgment  interest,  and
 rendered final judgment on the verdict.  The Company believed the outcome in
 this case  was  both  legally  and  factually  incorrect  and  appealed  the
 judgment.   During  the  fourth  quarter  of  1997,  the  Company  deposited
 $1,248,758 into the registry of the court in order to stay execution on  the
 judgment pending the result  of appeals.  The  amount on deposit  (including
 interest) with the court of $1,457,311 as of December 31, 2000 was  included
 as restricted cash in the accompanying balance sheet.  During February 2001,
 the court ruled  against the Company  in its appeal,  and $1,388,627 of  the
 funds on deposit with the court were disbursed to the plaintiff during March
 2001.  The remaining funds  on deposit with the  court were refunded to  the
 Company.  There was no financial impact on the Company's earnings in 2001.
<PAGE>


 Item 2.  Management's Discussion and Analysis or Plan of Operation.

     Introduction.  Hallmark Financial Services, Inc. ("HFS") and its  wholly
 owned subsidiaries (collectively referred to herein as the "Company") engage
 in the sale  of property and  casualty insurance products.    The  Company's
 business primarily involves marketing, underwriting and premium financing of
 non-standard automobile insurance,  as well  as claims  adjusting and  other
 insurance related services.

     The  Company  pursues its  business  activities  through  an  integrated
 insurance group, (collectively, the "Insurance Group"), the members of which
 are an authorized  Texas property and  casualty insurance company,  American
 Hallmark Insurance Company of Texas ("Hallmark"); a managing general  agent,
 American Hallmark General  Agency, Inc.  ("AHGA"); a  network of  affiliated
 insurance agencies  known  as  the  American  Hallmark  Agencies  ("Hallmark
 Agencies"); a premium finance company, Hallmark Finance Corporation ("HFC");
 and a claims  handling and adjustment  firm, Hallmark  Claims Service,  Inc.
 ("HCS"). The Company operates only in Texas.

     Hallmark provides non-standard automobile liability and physical  damage
 insurance  through  reinsurance   arrangements  with  several   unaffiliated
 companies.  Through arrangements with State  & County Mutual Fire  Insurance
 Company ("State & County"), Hallmark provides insurance primarily for  high-
 risk drivers  who do  not qualify  for  standard-rate insurance.  Under  the
 supplementary quota-share  reinsurance  agreement, Hallmark  ,  upon  mutual
 agreement with its  current reinsurer,  may elect  on a  quarterly basis  to
 retain 30% to 45% of the risk  while ceding the remaining percentage to  its
 reinsurer.  The Company's  principal reinsurer, Dorinco Reinsurance  Company
 ("Dorinco"), currently assumes 70% of  Hallmark's risk. HFC finances  annual
 and six-month policy premiums  through its premium  finance  program.   AHGA
 manages the  marketing of  Hallmark policies  through  a network  of  retail
 insurance agencies which operate under the American Hallmark Agencies  name,
 and through independent agents operating under their  own  respective names.
 Additionally, AHGA  provides premium  processing, underwriting,  reinsurance
 accounting and cash  management for unaffiliated  managing general  agencies
 ("MGAs").  HCS  provides fee-based claims  adjustment, salvage,  subrogation
 recovery and litigation services to Hallmark and unaffiliated MGAs.

 Reinsurance Term Changes

     Effective  April 1,  2001,  the Company's  reinsurance  agreements  with
 Dorinco were  amended  to include  a  loss  corridor  provision  whereby the
 Company retains 100% of losses between a  loss  ratio corridor of 65% to 77%
 on policies effective April 1, 2001.  This corridor increased to 65% to  80%
 effective  July  1,  2001  on  policies  effective  after  that  date.   The
 provisional ceding commission rate was decreased from 41% to 34% on April 1,
 2001 and further decreased to 31% on July 1, 2001.  Further, Dorinco and the
 Company have executed  a letter of  agreement effective July  1, 2001,  that
 among  other  things,  imposes  on  the  Company  additional  financial  and
 operational covenants  under the  Dorinco reinsurance  agreements,  provides
 remedies for the  breach of  such covenants  and grants  to Dorinco  certain
 options to maintain  or increase the  level of its  reinsurance of  Hallmark
 policies.


 Financial Condition and Liquidity

     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, premium finance  service charges, and  processing fees.   Other
 sources of funds are from financing and investment activities.

     On a  consolidated basis, the  Company's liquidity  remained almost  the
 same  during the first  six months of 2001  as compared  to the same  period
 of  2000.  The  Company's  total  cash,  cash  equivalents  and  investments
 (excluding restricted cash of  $2.6 million) at June  30, 2001 and  December
 31, 2000 were $20.3 million and $20.4 million, respectively.

     Net cash  provided by  the Company's  consolidated operating  activities
 decreased approximately $0.7  million during the  first six  months of  2001
 compared to the  first six months  of 2000.   The net decrease  in net  cash
 provided by operations is primarily attributable to several factors.  During
 the first  quarter of  2001, the  Company exhausted  its appeals  of a  1997
 lawsuit and subsequently paid approximately $1.4 million of restricted funds
 which had  been held  by the  court for  several years  (See Note  3 to  the
 Consolidated Financial  Statements).   During the  second quarter  of  2001,
 weather-related claims significantly impacted losses.  Further, the addition
 of  a  loss  corridor  provision  in  the  Company's  reinsurance  agreement
 effective April  1, 2001,  increased the  adverse  financial impact  of  the
 weather-related losses as well as a portion of other second quarter losses.

     Cash used by  investing activities during the  first six months of  2001
 decreased $2.0 million as compared  to the first six  months of 2000.   This
 decrease in cash used  in investing activities was  primarily the result  of
 the release of funds  during the first quarter  previously deposited in  the
 registry of  the court  and higher  proceeds from  maturities and  calls  of
 investments, as partially offset by an  increase in originations of  premium
 finance notes when netted against repayments of premium finance notes.

     Cash provided by  financing activities decreased by $1.2 million  during
 the first six months  of 2001 as compared  to the first  six months of  2000
 primarily due  to a  decrease in  net advances  from the  Company's  premium
 finance lender.   This was  principally due  to a  change in  the timing  of
 funding of premium finance notes during 2001.  Previously, funding of  notes
 occurred almost daily.  In 2001,  funding of premium finance notes  occurred
 approximately  on  a  weekly basis.  Additionally,  during 2001, the Company
 began funding a portion of the premium finance notes internally.

     A  substantial  portion  of the  Company's  liquid  assets  is  held  by
 Hallmark and  is not  available  for general  corporate  purposes.   Of  the
 Company's consolidated liquid assets of $20.3 million at June 30, 2001, $1.9
 million  (as compared  to approximately $1.4 million  at December 31,  2000)
 represents non-restricted cash.  Since state insurance regulations  restrict
 financial transactions between an insurance company and its affiliates,  HFS
 is limited in its ability to use Hallmark funds for its own working  capital
 purposes. Furthermore, dividends and  loans by Hallmark  to the Company  are
 restricted  and  subject to Texas Department  of Insurance ("TDI") approval.
 Although TDI has sanctioned the payment of management fees, commissions  and
 claims handling fees  by Hallmark to  HFS and affiliates,  since the  second
 half of 2000, Hallmark has chosen not to pay all of the commissions  allowed
 to AHGA.  Additionally,  during the first six  months of 2001, Hallmark  did
 not pay any  management fees to  HFS.  These  steps were  taken to  preserve
 Hallmark's  surplus  principally  to accommodate  increased  premium volume.
 During the first six months of 2000, Hallmark accrued $100,000 of management
 fees to HFS.  Management anticipates  that Hallmark may pay management  fees
 periodically during the remainder of 2001. The Company has never received  a
 dividend from Hallmark, and there is no immediate plan to pay a dividend.

     During the first six months of 2001, the amount of funding available  to
 fund premium finance notes under the secured financing arrangement with  the
 unaffiliated third party was increased to $12.5 million from $11.0  million.
  As of June 30, 2001, HFC had  an outstanding balance on advances under  the
 financing arrangement of approximately $12.1 million at an interest rate  of
 7.25%.  Under  the financing  arrangement, the  maximum additional  advances
 available to HFC at June 30, 2001 were $0.4 million.

     As  of  June  30, 2001,  the  Company  had  approximately  $2.1  million
 outstanding on notes payable under a  loan agreement with Dorinco.  For  the
 fiscal quarter ended June 30, 2001,  Dorinco waived compliance with  certain
 financial covenants of the loan agreement  which were adversely impacted  by
 changes to the Dorinco reinsurance treaties and other factors effecting  the
 loss ratio of the Company.  (See "Reinsurance Term Changes" and "Results  of
 Operations".)

     Commissions from  the Company's  annual policy  program for  independent
 agents represent  a  source of  unrestricted  liquidity when  annual  policy
 production is level or increasing from  the most  recent  previous quarters.
 Under this  program, AHGA  offers independent  agents the  ability to  write
 annual policies and six-month policies, but commissions to substantially all
 independent  agents  are  paid  monthly  on  an  "earned"  basis.   However,
 consistent with customary industry practice, Hallmark pays total commissions
 up-front to AHGA based  on the entire  annual/six-months  premiums  written.
 Independent agent production of annual policies was $17.8 million during the
 first six months of 2001 as compared  to $12.2 million during the first  six
 months of 2000.   During the first  six months of  2001, AHGA received  $2.6
 million in commissions related to this program from Hallmark and paid earned
 commissions of approximately $2.3 million to independent agents. During  the
 first six months of 2000, AHGA received $2.5 million in commissions  related
 to this program from Hallmark, and  paid earned commissions of $1.5  million
 to independent agents.   As noted  above, Hallmark did  not pay  all of  the
 commissions allowed to AHGA as evidenced by the small difference between the
 commissions paid  to AHGA  during 2001,  and the  commissions paid  to  AHGA
 during 2000 despite a $5.6 million increase in annual policies during  2001.
 This was done to preserve Hallmark's surplus.

     Ceding commission  income represents a  significant source  of funds  to
 the Company.  A portion of  ceding commission income and policy  acquisition
 costs  is  deferred  and  recognized  as  income and  expense, respectively,
 as related  net  premiums  are  earned.  Deferred ceding  commission  income
 increased to $4.3 million at June 30, 2001 from $3.5 million at December 31,
 2000.  Deferred policy acquisition costs as of June 30, 2001 increased  $0.9
 million as compared to December 31,  2000.  The increase in deferred  ceding
 commission income and deferred policy acquisition costs is primarily due  to
 the increase in Hallmark's core State & County annual premium volume.

     Premium receivable  from lender increased  $4.3 million  during 2001  as
 compared to December  31, 2000  as a  result of  financing increased  annual
 policy production during  2001.  Prepaid  reinsurance premiums,  reinsurance
 recoverable, unpaid losses and LAE, unearned premiums, reinsurance  balances
 payable and  accounts  payable  and  other  accrued  expenses  increased  as
 expected in relation to increased premium writings.

     At June 30, 2001,  Hallmark's reported statutory capital and surplus  of
 $6.3 million which reflects a slight  decrease from the balance reported  at
 December 31, 2000.  While Hallmark experienced a statutory net loss of  $0.6
 million during  the first  six  months of  2001,  surplus did  not  decrease
 accordingly.  Effective  January 1, 2001,  TDI adopted  the Codification  of
 Statutory Accounting  Principles ("Codification")  guidance, which  replaces
 the National  Association of  Insurance  Commissioners primary  guidance  on
 statutory accounting.  As a result  of the implementation of   Codification,
 Hallmark recognized  a deferred  tax asset  in the  amount of  $0.5  million
 during the first six months of  2001.  In accordance with Codification,  the
 deferred tax asset was established and  a corresponding increase to  surplus
 was   made.   The  deferred  tax  adjustment  required  by  Codification  is
 recognized by  TDI  as  an increase  to  surplus;  however,  certain  rating
 agencies, such as A.M. Best, do not recognize the adjustment as an  increase
 to surplus.  Under Codification, Hallmark's premium to surplus ratio for the
 twelve months ended June 30, 2001 was 2.84 to 1 as compared to 2.98 to 1  at
 December 31, 2000 and  June 30, 2000, respectively.   Hallmark's premium  to
 surplus ratio, without Codification,  for the twelve  months ended June  30,
 2001 was  3.11 to  1.   Management  does not  presently expect  Hallmark  to
 require additional capital during 2001 to fund existing operations.

     The  Company  provides   on-going  program  administration  and   claims
 handling for one unaffiliated  MGA and has three  similar contracts in  run-
 off.  The  Company  will continue  to perform  functions as  defined in  the
 respective contracts during the run-off periods.   For the one  unaffiliated
 MGA program which continues to produce new business, the Company, as program
 administrator, performs  certain  administrative functions,  including  cash
 management, underwriting  and  rate-setting  reviews,  underwriting,  policy
 processing and claims handling.   Hallmark assumes a  20% pro-rata share  of
 the business  produced  under this  unaffiliated  MGA program,  and  Dorinco
 assumes the remainder.

     Management is  continuing to  investigate opportunities  to enhance  and
 expand its operations.  While additional capital or strategic alliances  may
 be required  to  fund  future company  expansion,  operational  enhancements
 through increased information technology capabilities  is in progress.   The
 first  phase  is  designed  to  enhance  Company  and  agency  relationships
 by  improving content  and  timeliness  of  information  to  support  agents
 in servicing  their  customers.   Full  implementation  of  this   web-based
 information system  (named e-Integrity  and referred  to as  the  "Integrity
 System")  was  initiated  and completed during  the second quarter  of 2001.
 Additional enhancements not in  the scope of the  original first phase  have
 been developed  during the  second quarter  and  will be  fully  implemented
 during the third quarter of 2001.  The second phase of the Integrity  System
 is to implement point-of-sale technology to support agents in more  promptly
 and efficiently producing new  business, as well as  to improve the  quality
 and timeliness of servicing existing policyholders.  Due to the increase  in
 scope of Phase  I, implementation  of Phase II  is targeted  to commence  in
 Spring 2002 with full roll-out to be completed in Summer 2002.

 Results of Operations

     Gross premiums  written (prior  to reinsurance)  for the  three and  six
 months ended June 30, 2001 increased  9% and 14%, respectively, in  relation
 to gross premiums  written during  the same  periods in  2000. Net  premiums
 written (after reinsurance) for the three and six months ended June 30, 2001
 decreased approximately 16% and 11%, respectively, over the same periods  in
 2000. The increase in gross premiums written was due to the increase in  the
 core State & County premium volume partially offset by a decrease in premium
 volume from assumed business  produced by unaffiliated  MGAs as compared  to
 the prior  year.  The  disparity between  gross  premiums  written  and  net
 premiums written is due to the combined effect of a decrease in policy  fees
 retained by the Company (30% retained during the first six months of 2001 as
 compared to 100% during the first six months of 2000) and  the  decrease  in
 assumed business produced by the unaffiliated MGAs.

     Gross  premiums earned  (prior to  reinsurance) for  the three  and  six
 months ended June 30, 2001 increased 10% and 13%, respectively, as  compared
 to the same periods of 2000.   For the three and  six months ended June  30,
 2001, net premiums  earned (after reinsurance)  decreased approximately  14%
 and 9%,  respectively,  as  compared to  the  same  periods of  2000.    The
 disparate change in premiums earned prior to and after reinsurance is due to
 the change  in retention  of policy  fees and  the decreased  assumption  of
 premiums produced by the unaffiliated MGAs.

     Net  incurred  loss  ratios  (computed  on  net  premiums  earned  after
 reinsurance) for the three  and six months ended  June 30, 2001 were  111.5%
 and 99.2%, respectively, compared to 77.9% and 73.9% for the same periods of
 2000.  The most significant factor impacting the 2001 loss ratio was various
 amendments to Hallmark's reinsurance  treaties.  During  the second half  of
 2000, the reinsurance treaties were changed  to include 100% of policy  fees
 in the reinsurance treaty  base (i.e. Hallmark retained  30% of policy  fees
 during 2001 and 100% during 2000), thus reducing net earned premium in 2001.
 Reinsurance  terms were further amended effective April 1, 2001 to include a
 loss corridor provision, thus increasing losses incurred by the Company.  If
 these changes to reinsurance treaties had not occurred, the loss ratios  for
 the three and  six months  ended June  30, 2001  would have  been 85.4%  and
 79.4%, respectively.

     Net  incurred  loss  ratios  (computed  on  net  premiums  earned  after
 reinsurance) for the  three and  six months ended  June 30,  2001 were  also
 adversely impacted by  extraordinary weather-related  losses principally  in
 connection with a  catastrophic storm and  flooding in the  Houston area  of
 Texas in June 2001.  These  weather-related losses impacted both the  number
 and amount of claims filed  which in turn magnified  the impact of the  loss
 corridor.  If  neither the  changes to  the reinsurance  treaties nor  these
 extraordinary weather-related losses had occurred,  the loss ratios for  the
 three and six months ended  June 30, 2001 would  have been 78.9% and  76.2%,
 respectively.   Additionally, depressed  premiums from  2000 (which  do  not
 reflect the  full impact  of  increasing rates)  being  earned in  2001  and
 increasing claim costs (principally due to rising medical, labor and  repair
 costs) continue to adversely impact the 2001 loss ratio.

     Finance charges, which increased $0.1 million (9%) during the first  six
 months of 2001 as  compared to the same  period of 2000, represent  interest
 earned on premium notes issued by HFC.  This increase is directly correlated
 to the increase in the annual premium volume.

     Processing  and  service  fees represent  fees  earned  on  third  party
 processing and servicing contracts with  unaffiliated MGAs.  Processing  and
 service fees for the first six  months of 2001 decreased $0.4 million  (36%)
 as a result of cancellation of the service contracts with three unaffiliated
 MGAs (which are currently in run-off).

     Acquisition costs, net represents the amortization of acquisition  costs
 (and credits)  deferred over  the past  twelve months  and the  deferral  of
 acquisition  costs  (and  credits)  incurred in  the  current  period.   The
 decrease in acquisition costs, net is primarily due to a larger increase  in
 acquisition costs (debits) than ceding commission income (credits).

     Other acquisition and  underwriting expenses for the three months  ended
 June 30, 2001 increased slightly,  while other acquisition and  underwriting
 expenses  for the  six months ended June 30, 2001 decreased  14% as compared
 to  the  same  periods  of  2000.  The  decrease in  expenses is   primarily
 attributable to increased ceding commission income as a result of  increased
 core State  & County  premium  volume partially  offset  by an  increase  in
 commission  expense,  office  rental  and  healthcare  costs  applicable  to
 acquisition  and  underwriting  expenses,  and  certain  variable   expenses
 associated with increased premium volume.

     Operating  expenses   include  expenses  related   to  premium   finance
 operations, general corporate overhead,  and third party administrative  and
 claims  handling  contracts.   Related revenues  are  derived  from  finance
 charges and  processing  and service  fees.   Operating  expenses  decreased
 approximately 21% and  12%, respectively, during  the three  and six  months
 ended June 30, 2001 as compared to the  same periods of 2000.  The  majority
 of this decrease  is attributable to  the variable expenses  related to  the
 processing  of  third party  contracts.  As three  of the  unaffiliated  MGA
 programs are in run-off, staffing and operational costs related to the  run-
 off of this business have decreased,  particularly in the second quarter  of
 2001. These decreases  are partially offset  by increased  costs related  to
 corporate office space and healthcare applicable to operating expense.


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

     This Form 10-QSB 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, 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-QSB
 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.


            Except for routine litigation incidental to the business of
            the Company and as described in Note 3 to the Consolidated
            Financial Statements of the Company, neither the Company
            nor any of the properties of the Company was subject to any
            material pending or threatened legal proceedings as of the
            date of this report.


   Item 2.  Changes in Securities.

            None.


   Item 3.  Defaults on Senior Securities.

            None.


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


     ( a ) The Company's Annual Meeting of  Shareholders was held on
           May 23, 2001.  Of the 11,049,133 shares of common stock of
           the Company entitled to vote at the meeting, 8,775,428
           shares were present in person or by proxy.

     ( b ) The following individuals were elected to serve as directors
           for the Company:  Ramon D. Phillips, Linda H. Sleeper, James
           H. Graves, George R. Manser, Mark E. Schwarz, and Scott T.
           Berlin.

     ( c ) There was no other business to come before the meeting.


   Item 5. Other Information.

           None.


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

     (a)   The exhibit listed in the Exhibit Index appearing on page 14
           is filed herewith.

     (b)   The Company did not file any Form 8-K Current Reports during
           the second quarter of 2001.

<PAGE>

                                Exhibit Index



    Exhibit                             Description
    Number
    10(a)        Claim Account Agreement, by and between GE Reinsurance
                 Corporation, Lincolnshire, Illinois, Dorinco Reinsurance
                 Company, Midland, Michigan, American Hallmark Insurance
                 Company of Texas, Dallas, Texas, and Hallmark Claims
                 Services, Inc., Dallas, Texas, effective February 1,
                 2001.

    10(b)        Addendum No. 1 to Claim Account Agreement, dated
                 February 1, 2001, by and between GE Reinsurance
                 Corporation, Lincolnshire, Illinois, Dorinco Reinsurance
                 Company, Midland, Michigan, American Hallmark Insurance
                 Company of Texas, Dallas, Texas, and Hallmark Claims
                 Services, Inc., Dallas, Texas, effective February 1,
                 2001

    10(c)        Cut-Through Agreement, dated as of June 26, 2001, by and
                 among American Hallmark Insurance Company of Texas,
                 American Hallmark General Agency, Inc., Hallmark Finance
                 Corporation and FPF, Inc.

    10(d)        First Modification Agreement to the Cut-Through
                 Agreement dated as of June 26, 2001, by and among
                 American Hallmark Insurance Company of Texas, American
                 Hallmark General Agency, Inc., Hallmark Finance
                 Corporation and FPF, Inc., entered into June 27, 2001.

    10(e)        Form of Fourth Amendment to Executive Compensation
                 Agreement effective June 1, 2001, between Ramon D.
                 Phillips and Hallmark Financial Services Inc., dated
                 August 24, 1994.

    10(f)        Letter of Agreement, dated August 3, 2001, between
                 Hallmark Financial Services, Inc. and Dorinco
                 Reinsurance Company.

    10(g)        Letter of Agreement, dated August 6, 2001, between
                 Hallmark Financial Services, Inc. and Dorinco
                 Reinsurance Company.

<PAGE>

                                  SIGNATURES

 In accordance with the requirements of the Exchange Act, the registrant  has
 caused this report to be signed on its behalf by the undersigned,  thereunto
 duly authorized.

                      HALLMARK FINANCIAL SERVICES, INC.
                                 (Registrant)



 Date: August 14, 2001            /s/ Linda H. Sleeper
                                  ---------------------------
                                  Linda H. Sleeper, President
                                  (Chief Executive Officer)


 Date: August 14, 2001            /s/ John J. DePuma
                                  ---------------------------
                                  John J. DePuma,
                                  Chief Financial Officer