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 March 31, 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 May 12, 2001.

<PAGE>

                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                       INDEX TO FINANCIAL STATEMENTS

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

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

 Consolidated Statements of Income (unaudited) for               4
 the three months ended March 31, 2001 and March 31,

 Consolidated Statements of Cash Flows (unaudited)               5
 for the three months ended March 31, 2001 and March

 Notes to Consolidated Financial Statements                      6
 (unaudited)

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                   --------
                                                     March 31       December 31
                    ASSETS                             2001            2000
                                                    (Unaudited)
                                                    -----------     -----------
 Investments:
    Debt securities, held-to-maturity,
      at amortized cost                            $  5,171,842    $  7,243,373
    Equity securities, available-for-sale,
      at market value                                   143,901         145,302
    Short-term investments, at cost which
      approximates market value                       8,572,204       6,188,764
                                                    -----------     -----------
             Total investments                       13,887,947      13,577,439

 Cash and cash equivalents                            5,414,280       6,830,712
 Restricted cash                                      2,819,086       4,276,397
 Prepaid reinsurance premiums                        13,447,280      10,943,902
 Premiums receivable from lender (net of
   allowance for doubtful accounts of
   $178,789 in 2001 and $168,648 in 2000)            16,578,118      13,544,985
 Premiums receivable                                    320,779         799,140
 Reinsurance recoverable                             19,322,881      19,212,172
 Deferred policy acquisition costs                    4,574,829       3,867,033
 Excess of cost over net assets acquired (net
   of accumulated amortization of $1,681,346
   in 2001 and $1,642,093 in 2000)                    4,548,867       4,588,121
 Current federal income tax recoverable                       -          95,232
 Deferred federal income taxes                          672,787         572,112
 Accrued investment income                              115,284         108,364
 Other assets                                           966,310         642,205
                                                    -----------     -----------
                                                   $ 82,668,448    $ 79,057,814
                                                    ===========     ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
 Liabilities:
    Notes payable                                  $ 11,689,651    $ 13,032,999
    Unpaid losses and loss adjustment expenses       21,895,218      22,297,816
    Unearned premiums                                20,026,594      16,710,581
     Reinsurance balances payable                     5,576,393       3,341,437
     Deferred ceding commissions                      4,270,227       3,505,421
     Drafts outstanding                               1,090,961       1,534,721
     Current federal income taxes payable                36,602               -
     Accrued ceding commission refund                 3,126,352       2,503,128
     Accounts payable and other accrued expenses      3,557,334       3,258,475
     Accrued litigation costs                                 -       1,385,840
                                                    -----------     -----------
          Total liabilities                          71,269,332      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                                1,211,183       1,309,934
     Accumulated other comprehensive income                   -         (10,471)
     Treasury stock, 806,477 shares in 2000
       and 1999, at cost                             (1,043,167)     (1,043,167)
                                                    -----------     -----------
          Total stockholders' equity                 11,399,116      11,487,396
                                                    -----------     -----------
                                                   $ 82,668,448    $ 79,057,814
                                                    ===========     ===========

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


<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS


                                                       Three Months Ended
                                                            March 31
                                                 -----------------------------
                                                    2001               2000
                                                 -----------       -----------
  Gross premiums written                        $ 15,746,975      $ 13,227,847
  Ceded premiums written                         (10,558,797)       (7,739,191)
                                                 -----------       -----------
        Net premiums written                    $  5,188,178      $  5,488,656
                                                 ===========       ===========
  Revenues:
     Gross premiums earned                        12,430,962        10,647,748
     Ceded premiums earned                        (8,055,419)       (6,101,370)
                                                 -----------       -----------
        Net premiums earned                        4,375,543         4,546,378

     Investment income, net of expenses              310,436           225,797
     Finance charges                                 832,397           754,031
     Processing and service fees                     422,595           532,961
     Other income                                     45,990            84,727
                                                 -----------       -----------
         Total revenues                            5,986,961         6,143,894
                                                 -----------       -----------
  Benefits, losses and expenses:
     Losses and loss adjustment expenses          10,890,782         9,546,333
     Reinsurance recoveries                       (7,083,814)       (6,389,826)
                                                 -----------       -----------
         Net losses and loss adjustment expenses   3,806,968         3,156,507

  Acquisition costs, net                              57,011           (66,015)
  Other acquisition and underwriting expenses
    (net of ceding commission of $3,073,688
    in 2001 and $2,164,801 in 2000)                  838,233         1,165,148
  Operating expenses                               1,109,740         1,059,955
  Interest expense                                   293,742           231,474
  Amortization of intangible assets                   39,253            39,253
                                                 -----------       -----------
          Total benefits, losses and expenses      6,144,947         5,586,322
                                                 -----------       -----------
  Income (loss) from operations
    before federal income taxes                     (157,986)          557,572
  Federal income tax expense (benefit)               (59,235)          203,726
                                                 -----------       -----------
  Net income (loss)                             $    (98,751)     $    353,846
                                                 ===========       ===========

  Basic and diluted earnings per share          $      (0.01)     $       0.03
                                                 ===========       ===========
  Common stock shares outstanding                 11,049,133        11,048,133
                                                 ===========       ===========

                 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)

                                                       Three Months Ended
                                                            March 31
                                                     ------------------------
                                                        2001          2000
                                                     ----------    ----------
 Cash flows from operating activities:
    Net income (loss)                               $   (98,751)  $   353,846

 Adjustments to reconcile net income (loss) to cash
   provided by (used in) operating activities:
       Depreciation and amortization expense             69,119       100,923
       Change in deferred Federal income taxes         (100,675)      (45,923)
       Change in prepaid reinsurance premiums        (2,503,378)   (1,637,822)
       Change in premiums receivable                    478,361      (910,835)
       Change in deferred policy acquisition costs     (707,796)     (556,459)
       Change in deferred ceding commissions            764,806       490,444
       Change in unpaid losses and loss
         adjustment expenses                           (402,598)      991,881
       Change in unearned premiums                    3,316,013     2,580,099
       Change in reinsurance recoverable               (110,709)   (1,334,245)
       Change in reinsurance balances payable         2,234,956     1,417,573
       Change in current federal income
         tax recoverable                                 95,232             -
       Change in current federal income tax payable      36,602       144,520
       Change in accrued ceding commission refund       623,224       156,957
       Change in litigation costs                    (1,385,840)            -
       Change in all other liabilities                 (144,901)      892,868
       Change in all other assets                      (295,846)      (74,466)
                                                     ----------    ----------
           Net cash provided by operating activities  1,867,819     2,569,361
                                                     ----------    ----------
 Cash flows from investing  activities:
    Purchases of property and equipment                 (65,043)      (31,247)
    Premium finance notes originated                (14,166,688)   (9,101,758)
    Premium finance notes repaid                     11,133,555     7,228,790
    Change in restricted cash                         1,457,311        (9,000)
    Maturities and redemptions
      of investment securities                        2,083,403       894,960
    Purchase of short-term investments               (4,383,440)   (6,479,337)
    Maturities of short-term investments              2,000,000     2,500,000
                                                     ----------    ----------
       Net cash used in investing activities         (1,940,902)   (4,997,592)
                                                     ----------    ----------
 Cash flows from financing activities:
     Net advances from lender                        (1,161,349)    2,106,168
     Repayment of short-term borrowings                (182,000)      (17,309)
                                                     ----------    ----------
         Net cash (used in) provided
           by financing activities                   (1,343,349)    2,088,859
                                                     ----------    ----------
 Decrease in cash and cash equivalents               (1,416,432)     (339,372)
 Cash and cash equivalents at beginning of period     6,830,712     5,786,069
                                                     ----------    ----------
 Cash and cash equivalents at end of period         $ 5,414,280   $ 5,446,697
                                                     ==========    ==========

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

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES


 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 normal recurring
 adjustments, necessary to present fairly the financial position of  Hallmark
 Financial Services, Inc. and  subsidiaries (the "Company")  as of March  31,
 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 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,  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  March 31, 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%.


 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 first quarter  2001
 earnings.


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

     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 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 agency,
 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 adjusting  firm, Hallmark  Claims Service,  Inc.
 ("HCS"). The Company operates only in Texas.

     Hallmark provides non-standard automobile liability and physical  damage
 insurance through a  reinsurance arrangement with  an unaffiliated  company,
 State & County Mutual  Fire Insurance Company ("State  & County").   Through
 State & County, Hallmark provides insurance primarily for high-risk  drivers
 who do not qualify for standard-rate insurance. Under a 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  agents
 ("MGAs").  HCS  provides fee-based claims  adjustment, salvage,  subrogation
 recovery and litigation services to Hallmark and unaffiliated MGAs.


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

     Net cash  provided by  the Company's  consolidated operating  activities
 decreased $0.7 million  during the  first quarter  of 2001  compared to  the
 first quarter  of 2000.   During  the  first quarter  of 2001,  the  Company
 exhausted its appeals of a lawsuit  and subsequently paid out  approximately
 $1.4 million to  the plaintiff  (See Note  3 to  the Consolidated  Financial
 Statements).  This decrease  is partially offset by  the increase in  annual
 policy production during the first quarter of 2001.

     Cash used  by investing activities  during the  first quarter  decreased
 approximately $3.1 million as compared to  the first quarter of 2000.   This
 decrease in cash used  in investing activities was  primarily the result  of
 the release of funds 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  used in  financing activities  increased by  $3.4 million  in  the
 first quarter of 2001 as compared to  the same period of 2000 primarily  due
 to the decrease in  net advances from the  Company's premium finance  lender
 attributable to increased production of annual policies.

     On  a  consolidated  basis,  the  Company's  liquidity  decreased   $1.1
 million during  the  first quarter of  2001.  The Company's total cash, cash
 equivalents and investments (excluding restricted cash of approximately $2.8
 million) at March  31, 2001  and December 31,  2000 were  $19.3 million  and
 $20.4 million, respectively.

     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 $19.3  million at  March 31,  2001,
 $1.5 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
 three  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  quarter of  2000,
 Hallmark paid $50,000 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.

       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  total annual  policy  premiums  was  $9.2
 million during the first quarter of 2001 as compared to $6.1 million  during
 the first quarter of 2000.  During the first quarter of 2001, AHGA  received
 $1.4 million in commissions related to  this program from Hallmark and  paid
 earned commissions of $1.1 million to  independent agents. During the  first
 quarter of 2000, AHGA received $1.3  million in commissions related to  this
 program from  Hallmark  and  paid earned  commissions  of  $0.7  million  to
 independent agents.  As noted in  the paragraph 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 $3.1  million increase in annual policies  during
 2001.

     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 March 31, 2001  from $3.5 million at  December
 31, 2000.  Deferred policy acquisition costs increased to approximately $4.6
 million at March  31, 2001  from $3.9  million at  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
 and County annual premium volume.

     Premium receivable from  lender increased $3.0 million during the  first
 quarter of 2001 as compared  to December 31, 2000  as a result of  financing
 increased  annual  policy  production  during   2001.   Prepaid  reinsurance
 premiums, unearned  premiums,  reinsurance  balance  payable,  and  accounts
 payable and  other  accrued  expenses generally  increased  as  expected  in
 relation to increased premium writings.

     At March 31, 2001, Hallmark  reported statutory capital  and  surplus of
 $7.0 million, which reflects an increase of approximately $0.6 million  over
 the balance reported at December 31,  2000.  Effective January 1, 2001,  TDI
 adopted  the   Codification   of  Statutory   Accounting   Principles   (the
 "Codification")  guidance,  which  replaces  the  National  Association   of
 Insurance Commissioners  primary guidance  on statutory  accounting.   As  a
 result  of  the  implementation  of  the  Codification  guidance,   Hallmark
 recognized a deferred  tax asset in  the amount of  $0.5 million during  the
 first quarter  of  2001.  In accordance with  Codification, the deferred tax
 asset was established and a corresponding increase to surplus was made.  The
 remaining increase to Hallmark's surplus is the result of approximately $0.1
 million of first quarter statutory net income.  The deferred tax  adjustment
 required by the 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 the Codification,  Hallmark's
 premium-to-surplus ratio for the twelve months ended March 31, 2001 was 2.63
 to 1.   Hallmark's premium-to-surplus ratio,  without the Codification,  for
 the twelve months ended March 31, 2001 was 2.85 to 1 as compared to 2.98  to
 1 for the year ended December 31, 2000 and  2.75 to 1 for the twelve  months
 ended March 31,  2000.   Management does  not presently  expect Hallmark  to
 require additional capital during 2001 to fund existing operations.

     The  Company  currently  provides  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 and  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 implentation of this web-based  information
 system (named  e-Integrity and  referred to  as  the Integrity  System)  was
 initiated and completed  during the first  four months 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. Implementation of Phase II is  targeted to commence by  year-
 end 2001 with full roll-out to be completed early 2002.

 Results of Operations

     Gross premiums written (prior  to reinsurance) for the first quarter  of
 2001 increased 19% while net premiums written (after reinsurance)  decreased
 5%, in relation to  premiums written during  the same period  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 first  quarter 2001  compared to  100%
 during first quarter 2000) and the decrease in assumed business produced  by
 the unaffiliated MGAs.

     Gross premiums  earned (prior to reinsurance)  for the first quarter  of
 2001 increased approximately 17%  as compared  to the  same period  of 2000.
 For the  first quarter  of 2001,  net  premiums earned  (after  reinsurance)
 decreased approximately 4%  in relation  to the same  period 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  ratio   (computed  on  net  premiums  earned  after
 reinsurance) for the first quarter of  2001 was 87.0% compared to 69.4%  for
 the same  respective  period  of  2000. During  the  second  half  of  2000,
 Hallmark's reinsurance treaties were changed to include 100% of policy  fees
 in the reinsurance treaty  premium base (i.e.  Hallmark retained 30%  during
 2001 and  100% during  2000).  If  treatment  of policy  fees had  not  been
 changed, the net incurred loss  ratio for 2001 would  have been 73.5%.   The
 increase in the loss ratio is the  combined  result of (1) the change in the
 retention of  policy  fees from  100%  to 30%  effective  July 1,  2000,  as
 previously discussed,  (2) depressed  premiums from  2000  (as they  do  not
 reflect the full impact  of increasing rates) which  are still being  earned
 during 2001,  and  (3) increasing  claim  costs principally  due  to  rising
 medical, labor and repair costs.

     Investment  income  increased  37% during  the  first  quarter  of  2001
 compared to the same period  of 2000.  The  increase is attributable to  the
 combined effect of an increase in  funds available for investment  resulting
 from increased premium volume and an overall increase in the effective yield
 of the Company's investment portfolio.

     Finance charges, which  increased approximately $0.1 million during  the
 first quarter  of  2001 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 policy 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 quarter of 2001 decreased  $0.1 million (21%)  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
 increase in acquisition costs, net is primarily due to an increase in ceding
 commission income as a result of changes in the Company's reinsurance  terms
 partially offset by an  increase in acquisition  costs related to  increased
 annual premium volume.

     Other acquisition  and underwriting  expenses decreased  28% during  the
 first  quarter of 2001 as  compared to the same  respective period  of 2000.
 The decrease  in  expenses is  primarily  attributable to  increased  ceding
 commission income  as a  result of  increased core  State &  County  premium
 volume and an overall increase in  the effective ceding commission rate  for
 the first quarter  of 2001  to  29% from 27.9% for the  same period of 2000.
 The increased ceding commission income is partially offset by an increase in
 commission expenses,  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  increased
 approximately 5%  for the  first quarter  of 2001  as compared  to the  same
 period of 2000.   The  majority of this  increase in  operating expenses  is
 attributable to  increased  costs  related to  corporate  office  space  and
 healthcare applicable to operating expense.

     Interest expense  increased approximately  $0.1 million  during 2001  as
 compared to  2000.   This increase  is a  direct result  of an  increase  in
 premium finance secured  borrowings associated with  the increase in  annual
 premium volume, offset somewhat by a decrease in the effective interest rate
 to 8.7% from 9.0%.


 Subsequent Events

     Hallmark is presently negotiating a revision to the reinsurance  program
 with Dorinco which  will, among other  things, increase  the premium  volume
 which Dorinco  will reinsure.   The  Company expects  to execute  a  revised
 reinsurance  agreement  with Dorinco  during the  second  quarter  of  2001.
 Pending execution of the revised reinsurance agreement, Dorinco has  granted
 Hallmark an  increase in  premium volume  allowed  in order  to  accommodate
 anticipated premium volume.  In recognition of this  increase in the premium
 volume allowed, the revised reinsurance agreement with  Dorinco  will likely
 be retroactive to April 1, 2001.

     The Company anticipates that revised terms of the reinsurance  agreement
 with Dorinco may be  significantly less favorable  to Hallmark than  current
 terms.   Consequently, the  near term  profitability  and liquidity  of  the
 Company may be adversely impacted, commencing in the second quarter of 2001.
 However, it is  not possible  to evaluate  the  full impact  of the  revised
 agreement until all of the terms and conditions have been fully negotiated.


 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.

               None


      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 first quarter of 2001.


<PAGE>

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


 Exhibit Number                   Description
 --------------                   -----------
   10(a)         Form  of Endorsement  No. 2, effective  July 1,  2000, to
                 the  Guarantee Agreement provided  by Dorinco Reinsurance
                 Company  in  favor   of  State  and  County  Mutual  Fire
                 Insurance Company, effective July 1, 1996.


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


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