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 September 30, 1999

                       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  - 11,048,133  shares
      outstanding as of November 10, 1999.

<PAGE>
                                     PART I
                             FINANCIAL INFORMATION

  Item 1.   Financial Statements


                    INDEX TO FINANCIAL STATEMENTS

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

  Consolidated Balance Sheets at September 30,            3
  1999 (unaudited) and December 31, 1998

  Consolidated Statements of Income (unaudited)           4
  for the three and nine months ended September

  Consolidated Statements of Cash Flows                   5
  (unaudited) for the nine months ended

  Notes to Consolidated Financial Statements              6
  (unaudited)

<PAGE>
<TABLE>
            HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                                 --------
<CAPTION>
                                                   September 30   December 31
                                                       1999          1998
                                                    (Unaudited)
                                                    -----------   ----------
  <S>                                              <C>           <C>
  Investments:
     Debt securities, held-to-maturity,
       at amortized cost                           $  4,336,102  $ 4,444,606
     Equity securities, available-for-sale,
       at market value                                  144,352      151,375
     Short-term investments, at cost which
       approximates market value                      6,336,834    3,256,879
                                                    -----------   ----------
              Total investments                      10,817,288    7,852,860

  Cash and cash equivalents                           5,436,651    6,776,274
  Restricted cash                                     1,806,927    1,768,927
  Prepaid reinsurance premiums                        7,115,232    5,110,204
  Premium finance notes receivable (net of
    allowance for doubtful accounts of $78,326
    in 1999 and $52,119 in 1998)                      8,085,278    5,287,945
  Premiums receivable                                   976,376    1,048,689
  Reinsurance recoverable                            14,832,334   13,900,496
  Deferred policy acquisition costs                   2,813,848    2,088,902
  Excess of cost over net assets acquired (net
    of accumulated amortization of $1,445,825
    in 1999 and $1,328,065 in 1998)                   4,784,388    4,902,149
  Current federal income tax recoverable                      -      150,031
  Deferred federal income taxes                         127,569       43,636
  Accrued investment income                              35,843       68,042
  Other assets                                          539,381      622,798
                                                    -----------   ----------
                                                   $ 57,371,115  $49,620,953
                                                    ===========    =========
<PAGE>
        LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
     Notes payable                                $   7,050,182 $  7,098,383
     Unpaid losses and loss adjustment expenses      16,905,487   16,014,569
     Unearned premiums                               11,124,889    7,733,624
      Reinsurance balances payable                    2,992,581    2,097,564
      Deferred ceding commissions                     1,912,323    1,349,142
      Drafts outstanding                                804,493      739,817
      Accrued ceding commission refund                1,229,869      744,686
      Current federal income taxes payable              153,990          -
      Accounts payable and other accrued expenses     2,682,909    1,958,920
      Accrued litigation costs                          950,000      950,000
                                                    -----------   ----------
           Total liabilities                         45,806,723   38,686,705
                                                    -----------   ----------
  Stockholders' equity
      Common stock, $.03 par value, authorized
        100,000,000 shares issued 11,854,610
        shares in 1999 and 1998                         355,638      355,638
      Capital in excess of par value                 10,875,212   10,875,212
      Retained earnings                               1,386,876      755,994
      Accumulated other comprehensive income            (10,167)      (9,429)
      Treasury stock, 806,477 shares, at cost        (1,043,167)  (1,043,167)
                                                    -----------   ----------
           Total stockholders' equity                11,564,392   10,934,248
                                                    -----------   ----------
                                                   $ 57,371,115  $49,620,953
                                                    ===========   ==========
               The accompanying notes are an integral part
                 of the consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
           HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                      Three Months Ended            Nine Months Ended
                                         September 30                  September 30
                                       ----------------             ------------------
                                      1999          1998           1999            1998
<S>                             <C>            <C>             <C>           <C>
Gross premiums written          $   9,631,847  $  5,833,905    $ 28,039,106  $  25,991,543
Ceded premiums written             (5,797,482)   (3,656,419)    (16,491,216)   (16,934,207)
                                 ------------   -----------     -----------   ------------
      Net Premiums written      $   3,834,365  $  2,177,486    $ 11,547,890  $   9,057,336
                                 ============   ===========     ===========   ============
Revenues:
   Gross premiums earned            8,628,631     8,465,140      24,647,840     28,809,541
   Earned premiums ceded           (4,996,583)   (5,602,549)    (14,486,188)   (19,341,634)
                                 ------------   -----------     -----------   ------------
      Net Premiums earned           3,632,048     2,862,591      10,161,652      9,467,907

   Investment income, net
    of expenses                       212,356       203,614         564,832        593,212
   Finance charges                    521,974       266,504       1,488,262      1,390,560
   Processing and service fee         499,973       442,288       1,506,597      1,186,030
   Other income                        93,784       129,484         287,116        358,341
                                 ------------  ------------     -----------   ------------
       Total revenues               4,960,135     3,904,481      14,008,459     12,996,050
                                 ------------  ------------     -----------   ------------

Benefits, losses and expenses:
   Losses and loss adjustment
     expenses                       7,355,814     6,349,007      18,894,337     19,863,677
   Reinsurance recoveries          (4,911,209)   (4,208,418)    (12,362,513)   (13,611,002)
                                 ------------  ------------     -----------   ------------
        Net losses and loss
          adjustment expenses       2,444,605     2,140,589       6,531,824      6,252,675

Acquisition costs, net                226,777       (18,801)       (161,766)       (20,585)
Other acquisition and
  underwriting expenses             1,096,832     1,285,739       3,606,015      3,925,461
Operating expenses                    809,345       717,819       2,443,980      1,910,307
Interest expense                      149,275       198,092         444,299        579,427
Amortization of intangible
  assets                               39,254        39,254         117,761        144,511
                                 ------------  ------------     -----------   ------------
        Total benefits losses
          and expenses              4,766,088     4,362,692      12,982,113     12,791,796
                                 ------------  ------------     -----------   ------------
Income (loss) from operations
  before federal income taxes         194,047      (458,211)      1,026,346        204,254
Federal income tax expense             65,661      (136,979)        395,468        123,461
                                 ------------  ------------     -----------   ------------

Net income (loss)               $     128,386 $    (321,232)   $    630,878         80,793
                                 ============  ============     ===========   ============
<PAGE>
Basic and diluted earnings
  per share                     $        0.01 $       (0.03)   $       0.06           0.01
                                 ============  ============     ===========   ============
Common stock shares outstanding    11,048,133    10,668,277      11,048,133     10,668,277
                                 ============  ============     ===========   ============

               The accompanying notes are an integral part
                of the consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
          HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF CASH FLOWS
                               (Unaudited)
<CAPTION>
                                                            Nine Months Ended
                                                              September 30
                                                           ------------------
                                                           1999         1998
                                                       ----------   ----------
  <S>                                                 <C>          <C>
  Cash flows from operating activities:
     Net income                                       $   630,878  $    80,793

     Adjustments to reconcile net loss to cash
        Depreciation and amortization expense             214,558      287,547
        Change in deferred Federal income taxes           (83,933)      64,924
        Change in prepared reinsurance premiums        (2,005,028)   2,475,311
        Change in premiums receivable                      72,313     (127,982)
        Change in deferred policy acquisition costs      (724,946)     803,150
        Change in deferred ceding commissions             563,181     (823,640)
        Change in unpaid losses and loss
          adjustment expenses                             890,918   (1,618,778)
        Change in unearned premiums                     3,391,265   (2,885,880)
        Change in reinsurance recoverable                (931,838)   1,972,417
        Change in reinsurance balances payable            895,017   (1,271,541)
        Change in current federal income
          tax recoverable                                  -           635,920
        Change in current federal income payable          304,021       -
        Change in accrued ceding commission refund        485,183   (1,393,985)
        Change in all other liabilities                   788,664     (307,042)
        Change in all other assets                         68,043     (243,954)
                                                       ----------   ----------
            Net cash provided by (used in)
              operating activities                      4,558,300   (2,352,740)
                                                       ----------   ----------
<PAGE>
  Cash flows from investing  activities:
     Purchases of property and equipment                  (48,292)     (65,849)
     Premium finance notes originated                 (18,734,555) (20,018,621)
     Premium finance notes repaid                      15,937,222   21,606,838
     Repayment of note receivable                          -         1,149,280
     Change in restricted cash                            (38,000)     (46,800)
     Purchase of debt securities                       (1,792,633)      -
     Maturities and redemptions of
       investment securities                            1,906,491      810,366
     Purchase of short-term investments               (12,301,156)  (9,509,061)
     Maturities of short-term investments               9,221,201    8,011,679
                                                       ----------   ----------
        Net cash (used in) provided by investing       (5,849,722)   1,937,832
                                                       ----------   ----------
  Cash flows from financing activities:
      Proceeds from common stock issued                    -             2,150
      Repayment of short-term borrowings                  (48,201)     (43,632)
      Proceeds from bank credit line                       -           750,000
                                                       ----------   ----------
          Net cash (used in) provided by
             financing activities                         (48,201)     708,518
                                                       ----------   ----------
  (Decrease) increase in cash and cash equivalents     (1,339,623)     293,610
  Cash and cash equivalents at beginning of period      6,776,274    5,814,127
                                                       ----------   ----------
  Cash and cash equivalents at end of period          $ 5,436,651  $ 6,107,737
                                                        =========    =========

              The accompanying notes are an integral part
               of the consolidated financial statements
</TABLE>
<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  September 30, 1999  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  generally accepted  accounting
  principles ("GAAP") have been condensed or omitted.  Reference is  made
  to the Company's annual consolidated financial statements for the  year
  ended December 31, 1998  for a description  of accounting policies  and
  certain other disclosures.  Certain items in the 1998 interim financial
  statements have been reclassified to conform to the 1999 presentation.

      The results of operations  for the period ended September 30,  1999
  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, 1997 between  the Company, GE  Reinsurance
  Corporation (GE Re) (formerly  Kemper Reinsurance Company) and  Dorinco
  Reinsurance Company (Dorinco). From July 1, 1996 to June 30, 1997,  the
  Company supplemented  this  arrangement with  a  separate  retrocession
  agreement  with  GE  Re, Dorinco  and Odyssey  Reinsurance Corporation.
  Prior to  July  1,  1996,  the  Company  had  a  separate  retrocession
  agreement with Vesta  Fire Insurance Corporation.   Under  each of  the
  agreements, the Company retains  25% and cedes 75%  of the risk to  the
  reinsurers.
<PAGE>
  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  plaintiffs
  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  believes  the
  outcome in this case was both  legally and factually incorrect and  has
  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  such appeal.   The
  amount on deposit (including interest) with the court of $1,355,457  as
  of September  30, 1999  has been  included as  restricted cash  in  the
  accompanying balance sheet.

      Although the  Company intends  to aggressively  pursue its  appeal,
  the Company  is  presently unable  to  determine the  likelihood  of  a
  favorable result.  Further, a favorable ruling on some portions of  the
  appeal could entail  the necessity  for a  new trial.   Therefore,  the
  Company established a reserve of $950,000 during the fourth quarter  of
  1997 for loss contingencies related to this case.  This reserve remains
  unchanged as of September 30, 1999.  The possible range of loss in  the
  event of an  ultimately unfavorable outcome  to this  case exceeds  the
  amount presently reserved.   Conversely, in  the event  of a  favorable
  resolution of the case,  the expenses incurred could  be less than  the
  reserve amount.  Therefore,  future adjustments to  the reserve may  be
  required.

      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.
<PAGE>
      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 supplementary  quota-share  reinsurance
  agreements, Hallmark  cedes  a  substantial portion  of  its  risk  and
  retains  the  balance.   The  Company's  principal  reinsurers  are  GE
  Reinsurance Corporation (GE Re)  (formerly Kemper Reinsurance  Company)
  and Dorinco Reinsurance Company (Dorinco), and they collectively assume
  75% 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 Hallmark  Agencies name, and  through
  independent agents operating under their own respective names.

  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 service
  fees.   Other  sources  of funds  are  from  financing  and  investment
  activities.

      Net  cash   provided  by  the   Company's  consolidated   operating
  activities was approximately $6.9 million greater during the first nine
  months of 1999 than during the same  period of 1998.  This increase  is
  principally due to the increase in annual policy production during  the
  first nine months  of 1999 as  compared to 1998  as well as  Hallmark's
  increased retention of policy fees during 1999 (see further  discussion
  below).  Cash used by investing activities increased approximately $7.8
  million as the Company  increased its purchase  of debt securities  and
  short-term  investments  during  the  first  nine  months  of  1999  to
  capitalize on higher yields of bonds and discount notes as compared  to
  overnight investments.  Additionally, during 1998, the Company received
  approximately $1.1 million in proceeds from a note receivable.  No such
  proceeds were received during 1999 as the note was fully repaid  during
  1998.  Cash  provided by  financing activities  was approximately  $0.8
  million greater during  the first nine  months of 1998  as compared  to
  1999 primarily due to an advance of approximately $0.8 million from the
  Company's bank credit line (see further discussions of bank credit line
  below).  No such advances were taken in 1999.

      On a  consolidated basis, the Company's  liquidity increased   $1.6
  million during the first nine months of 1999. The Company's total cash,
  cash equivalents and  investments (excluding restricted  cash of   $1.8
  million) at September 30, 1999 and December 31, 1998 were $16.3 million
  and $14.6 million respectively.  This increased liquidity is  primarily
  due to the combined  effect of positive  changes in reinsurance  treaty
  terms (as discussed below), and  increased third party processing  fees
  and policy production relative to year-end 1998.
<PAGE>
      A substantial  portion of the Company's  liquid assets are held  by
  Hallmark and are not available for general corporate purposes.  Of  the
  Company's consolidated liquid assets of $16.3 million at September  30,
  1999, approximately $1.7  million  (as  compared to approximately  $2.8
  million at December 31, 1998)  represents non-restricted cash.   During
  1999, the  Company is  funding premium  finance notes  with  internally
  generated funds.  These funds are transferred to Hallmark, and as  such
  are not available  for general  corporate purposes  thus reducing  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.  However, TDI has sanctioned the payment of  management
  fees, commissions  and claims  handling fees  by  Hallmark to  HFS  and
  affiliates.   During the first  nine months of 1999 and 1998,  Hallmark
  paid or  accrued $425,000  and  $475,000, respectively,  in  management
  fees.   Management  anticipates that  Hallmark  will  continue  to  pay
  management fees periodically  during the  remainder of  1999, and  this
  should continue to be a moderate source of unrestricted liquidity.  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
  annual policies was approximately $11.9  million during the first  nine
  months of 1999 as compared to $9.1 million during the first nine months
  of 1998.    During  the  first  nine  months  of  1999,  AHGA  received
  approximately $2.5 million in commissions related to this program  from
  Hallmark, and paid  earned commissions of  $1.4 million to  independent
  agents.  This has resulted in increased unrestricted liquidity for  the
  Company during  1999.   During  the first  nine  months of  1998,  AHGA
  received $2.1  million  in commissions  related  to this  program  from
  Hallmark and paid  earned commissions  of $2.2  million to  independent
  agents.

      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 $1.9 million at September 30, 1999  from
  $1.3 million at December 31, 1998.   Deferred policy acquisition  costs
  as of  September  30, 1999  increased    $0.7 million  as  compared  to
  December 31, 1998.  The increase  in deferred ceding commission  income
  and deferred policy acquisition costs is primarily due to the  increase
  in Hallmark's core premium volume, particularly with respect to  annual
  policy production, during the first nine months of 1999 as compared  to
  the last nine months of 1998.
<PAGE>
      Premium  finance notes  receivable  increased $2.8  million  as  of
  September 30,  1999  compared to  December  31,  1998 as  a  result  of
  increased annual  policy production  during the  first nine  months  of
  1999.

      Prepaid  reinsurance premiums  and unearned  premiums at  September
  30, 1999 increased as expected in  relation to the balance at  December
  31, 1998 due  to increased annual  policy production  during the  first
  nine months of 1999.

      Accounts payable and  other accrued expenses increased as a  result
  of increased commissions  due to  independent agents  under the  earned
  commission program.  As discussed  above, annual policy production  has
  increased since  year-end,  thus  generating  more  commission  due  to
  agents.

      At September  30, 1999,  Hallmark's statutory  capital and  surplus
  had increased  slightly  to  approximately $5.5  million.    Hallmark's
  premium-to-surplus ratio on  an annualized basis  was 2.81 to  1 as  of
  September 30, 1999 as compared to 2.13 to 1 for the year ended December
  31, 1998 and  2.24 to 1  at September 30,  1998.   Management does  not
  presently expect Hallmark to require additional capital during 1999  to
  fund existing operations.  However,  while programs currently in  place
  should provide  sufficient  capital for  near-term  growth,  additional
  capital or strategic alliances may be required to fund future expansion
  of the Company.

      Effective  January  1,  1999,  Hallmark  amended  its   reinsurance
  treaties with GE Re and Dorinco whereby the minimum commission rate was
  increased by  1%, and  Hallmark  retains 100%  of  the policy  fees  as
  compared to 62.5% previously.   These changes have positively  impacted
  liquidity during the nine months of 1999.

      Previously, the Company  had a bank credit  line which was used  to
  fund premium  finance notes  of HFC.    The bank  credit line  was  not
  renewed upon its expiration  on February 15, 1999.   Assuming a  modest
  growth in  annual/six month  premium volumes,  the Company  intends  to
  funds its premium finance notes with internally generated funds  during
  1999.  At September 30, 1999  and 1998, the Company had outstanding  to
  Dorinco a note payable  of approximately $7.0  million.  Provisions  of
  the Dorinco  loan  agreement, as  amended,  provide for  interest  only
  payments through  September 30,  1999.   Dorinco and  the Company  have
  agreed to  further amend  the loan  agreement  to provide  for  monthly
  principal payments of $20,000 plus interest  through  January 31, 2000.
  The remaining balance will be paid  under the original note  provisions
  based upon a five year amortization.
<PAGE>
      The Company  continues to pursue  third party  claims handling  and
  administrative contracts.  The Company provides program  administration
  for three  unaffiliated  managing general  agencies  (the  unaffiliated
  MGAs) and claims handling services for  four unaffiliated MGAs.   Under
  these  contracts,  the  Company,  as  program  administrator,  performs
  certain administrative functions,  including but not  limited to,  cash
  management, underwriting  and  rate-setting reviews,  underwriting  and
  policy  processing  (on  two of  the  programs)  and  claims  handling.
  Hallmark assumes a pro-rata share of  the business produced under  each
  of the unaffiliated MGAs  programs (ranging from 15%  to 25%) with  the
  remaining percentage of  the business assumed  by Hallmark's  principal
  reinsurers.  The premium volume ceded from these programs is considered
  a part of Hallmark's premium volume commitment to one of its  principal
  reinsurers.

      Management is  continuing to investigate  opportunities for  future
  growth and expansion.  Additional capital or strategic alliances may be
  required to fund future expansion of the Company.

  Results of Operations

      Gross premiums  written (prior to  reinsurance) for  the three  and
  nine months ended  September 30, 1999  increased approximately 65%  and
  8%, respectively, in relation to gross premiums written during the same
  respective periods in 1998.  The increase in gross premiums written  is
  primarily due to  the increase  in the  core State  and County  premium
  volume  during  the  third  quarter   and  to  increased  volume   from
  unaffiliated MGAs as compared to the prior year.  Net premiums  written
  (after reinsurance) for the three and  nine months ended September  30,
  1999 increased  76% and  28%, respectively,  over the  same  respective
  periods in 1998.  The increase in  net premiums written  is due to  the
  combined  effect  of  Hallmark's  retention  of  100%  of  policy  fees
  (effective January 1, 1999) and an increase in business written by four
  unaffiliated MGAs, a portion  of which is assumed  by Hallmark.   Since
  this business is not reinsured, the  impact on net premiums written  is
  intensified.

      Gross premiums earned  (prior to reinsurance) for the three  months
  ended September  30,  1999 increased  approximately  2% over  the  same
  period of 1998 while  gross premiums earned for  the nine months  ended
  September 30, 1999 decreased approximately 14% as compared to the  same
  period of 1998.   For  the three and  nine months  ended September  30,
  1999, net premiums  earned (after  reinsurance) increased  27% and  7%,
  respectively in relation to the same  respective periods of 1998.   The
  disparate change in premiums earned prior  to and after reinsurance  is
  due to the assumption  of premiums produced  by the unaffiliated  MGAs,
  and Hallmark's  retention  of the  policy  fees (effective  January  1,
  1999), both of which are fully retained by the Company, and thus have a
  greater impact on net premiums earned.

      Premiums earned (both  prior to reinsurance and after  reinsurance)
  did not  increase in  the same  proportion as  premiums written.    The
  disproportionate  changes  are  due  to   the  combined  effect  of   a
  significant increase in premium volume during the third quarter of 1999
  as compared  to 1998,  and an  increase in  the annual  premium  volume
  during 1999 as compared  to 1998.  The  earning of the annual  premiums
  written during  the third  quarter of  1999 will  occur throughout  the
  remainder of 1999 and into the year 2000.
<PAGE>
      Net  incurred loss  ratio (computed  on net  premiums earned  after
  reinsurance) for the  three and nine  months ended  September 30,  1999
  were 67% and 64%,  respectively, compared to 75%  and 66% for the  same
  respective periods of 1998.   The decrease in  the loss ratios  between
  1999 and 1998  is primarily due  to the change  in retention of  policy
  fees to 100% effective January 1,  1999 which has increased net  earned
  premium.   This decrease  is partially  offset by  (i) generally  lower
  premium rates in  1999, (ii) the  increased assumption  of third  party
  unaffiliated business (which has a higher  overall loss ratio than  the
  core State & County business),  and (iii) hail-related claims  incurred
  in May and June 1999.

      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 the  credit balance of acquisition costs,  net
  for the nine months  ended September 30, 1999  as compared to the  same
  respective period  of 1998,  is primarily  due to  an increase  in  the
  deferral rate as the policy mix  has shifted from more monthly to  more
  annual/six month  policies during  1999.   This increase  is  partially
  offset by  higher ceding  commission income  due to  increased  premium
  volume and  increased commission  rate.   The increase  in  acquisition
  costs, net for the three months ended September 30, 1999 as compared to
  the same  respective  period  of  1998  is  attributable  to  increased
  commission expense  recognition  due  to  higher  loss  ratios  on  the
  unaffiliated MGA business.

      Other acquisition and underwriting expenses for the three and  nine
  months ended September  30, 1999  decreased approximately  15% and  8%,
  respectively, over the same respective periods  of 1998.  The  decrease
  in expenses is  primarily attributable to  the combined  effect of  (1)
  decreases in  salaries  and  related expenses  and  reduced  management
  resources spent on insurance  operations and (2) a  1% increase in  the
  minimum ceding commission.  Management resources have been utilized  to
  build and manage the third party processing and program  administration
  business  and  are   allocated  to  operating   expenses  rather   than
  acquisition and underwriting expenses.   These decreases are  partially
  offset by an increase  in commission expense  related to assumption  of
  business written by unaffiliated  MGAs and to the  core State &  County
  premium during the third quarter of 1999.

      Operating   expenses  include   non-insurance  operating   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 service/consulting  fees.
  Operating  expenses  increased approximately  13%  and 28%  during  the
  three and nine month  periods ended September 30,  1999 as compared  to
  the same  respective  periods  of 1998.    The  increase  in  operating
  expenses is primarily attributable to increased expenses related to the
  processing of third party contracts.

      Finance charges represent  interest earned on premium notes  issued
  by HFC  net of  uncollected earned  interest charge-offs.   During  the
  three and  nine  months  ended  September  30,  1999,  finance  charges
  increased approximately 96%  and 7%, respectively,  as compared to  the
  same  respective  periods   of  1998.  During   1999,  charge-offs   of
  uncollectible interest  have  decreased in  relation  to 1998.    This,
  coupled with the increased core State  & County annual premium  volume,
  resulted in a net increase in finance charges for 1999.
<PAGE>
      Processing and service fees represent income earned on third  party
  processing and servicing contracts with unaffiliated MGAs.   Processing
  and service fees for the three and nine months ended September 30, 1999
  increased 13% and 27%, respectively, as compared to the same respective
  periods of 1998.  The increased  income is a result of increased  year-
  to-date premium volume of the third party MGAs during 1999 as  compared
  to 1998.

  Year 2000 Compliance

      General.   The Year  2000 problem  concerns the  inability of  some
  computerized systems to properly  recognize and process  date-sensitive
  information on and after January  1, 2000, due to  the use of only  the
  last two  digits  to  identify  a  year.    During  1998,  the  Company
  implemented a Year 2000  compliance program to  assess and remedy  Year
  2000 issues affecting the Company.   This Year 2000 compliance  program
  has been completed.   As a result, the  Company presently expects  that
  all of its material  systems and equipment will  be ready for the  Year
  2000 transition.

      State of Readiness.   The Company's primary information  technology
  systems may be classified in the following categories:

      Insurance Systems: These systems consist of mainframe hardware  and
  the Company's proprietary software programs that support its day-to-day
  insurance operations  (including policy  issuance, premiums  collection
  and claims  handling)  and  periodic batch  processing  and  regulatory
  reporting.

      Premium  Finance  Systems:   These  systems  consist  of   personal
  computer software  programs from  a  third-party vendor  which  support
  HFC's premium finance activities.

      Investment  Portfolio Systems:  These systems  consist of  personal
  computer software programs from a third-party vendor which support  the
  tracking and management of the Company's investment portfolio.

      General Ledger Systems: These systems consist of personal  computer
  software programs from a third-party vendor which support the Company's
  accounting and management information functions.

      All of  the Company's insurance  systems have been  modified to  be
  Year  2000  compliant.     Year  2000   modifications  and   additional
  enhancements to the programs supporting day-to-day insurance operations
  have been written, tested and demonstrated to be fully operational.  On
  October 16,  1999,  the Company  conducted  an extensive  test  of  its
  modified policy  management system  for Year  2000 compliance.    After
  advancing the system  date beyond January  1, 2000, a  series of  tests
  were performed  on  both the  operating  system and  policy  management
  system.  The results of the tests indicated that all insurance  systems
  were compliant with the Year 2000.

      The  Company's   premium  finance  systems,  investment   portfolio
  systems, and general ledger systems have been certified by the  vendors
  to be Year 2000 compliant and are fully implemented.
<PAGE>
      In  addition, the  Company has  tested all  material equipment  and
  facilities known to contain embedded  computer chips and believes  them
  to be Year 2000 compliant.  The Company has also corresponded with  all
  of its major reinsurers and assured their Year 2000 readiness.

      Costs to Address  Year 2000 Issues.   The Company has executed  its
  Year 2000  program primarily  with existing  internal resources.    The
  principal costs associated  with these internal  resources are  payroll
  and benefits of  employees engaged  in Year  2000 projects  as part  of
  their normal  duties.   The Company  does  not separately  track  these
  internal costs attributable to its Year 2000 program.

      The Company  has also incurred  costs for  outside consultants  and
  systems upgrades in connection with its Year 2000 program.  As a result
  of Year 2000 issues, the Company elected to upgrade its premium finance
  systems and general ledger systems during 1998 and 1999,  respectively.
  No  other significant projects have been accelerated or deferred due to
  Year 2000 issues.  The costs of these consultants and upgrades have not
  been, and are not expected to be in the future, material to the results
  of operations or financial condition of the Company.  All costs of Year
  2000 compliance  have  been  recorded  as  an  expense  in  the  period
  incurred.

      Risks  and  Contingency  Plans.   The  Company  believes  that  its
  information  technology  systems  are  presently  Year 2000  compliant.
  Therefore, any adverse consequences from  Year 2000 issues will  result
  from presently unforeseen circumstances.  As a result, the Company  has
  not made an assessment of worst  case Year 2000 scenarios or  developed
  any contingency plans.

      Although the Company believes that it is adequately addressing  the
  Year 2000 issue, there can be no assurance that Year 2000 problems will
  not have a material adverse effect on its business, financial condition
  or results  of operations.   In  addition, disruptions  in the  economy
  generally resulting  from  Year 2000  failures  could have  a  material
  adverse affect on the Company.
<PAGE>
  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.
<PAGE>

                                  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 upon Security Securities.

            None.


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

            None.


  Item 5.   Other Information.

            None.


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


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


      (b)   The Company did not file any Form 8-K Current Reports
            during the third quarter of 1999.

<PAGE>


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


 Exhibit                       Description
 -------                       -----------

  10(a)         Addendum No. 1  to the  Retrocession Contract  effective
                June 1, 1998  between Dorinco  Re and American  Hallmark
                Insurance Company  of  Texas  and Harold  Loving,  d/b/a
                Texas Insurance Facilities.

  10(b)         Endorsement No. 1 to the Retrocession Contract effective
                March 1, 1998 between  Dorinco Re and  American Hallmark
                Insurance  Company  of  Texas  and   Associated  General
                Agency, Inc.

  10(c)         Automobile Physical  Damage Catastrophe  Excess of  Loss
                Reinsurance Contract effective  January 1, 1999  between
                American Hallmark  Insurance  Company  of Texas  and  GE
                Reinsurance Corporation.

<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:  November 12, 1999    /s/ Ramon D. Phillips
                              ----------------------------
                              Ramon D. Phillips, President
                              (Chief Executive Officer)


  Date:  November 12, 1999    /s/ John J. DePuma
                              ---------------------------------------
                              John J. DePuma, Chief Financial Officer