SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C. 20549

                                 FORM 10-Q

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

                      Securities Exchange Act of 1934


               For the quarterly period ended March 31, 2005


                       Commission file number 0-16090


                     Hallmark Financial Services, Inc.

           (Exact name of registrant as specified in its charter)


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


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


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

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

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


                    APPLICABLE ONLY TO CORPORATE ISSUERS


 Indicate the number of shares outstanding of each of the  issuer's classes
 of  common stock, as  of the  latest practicable date:  Common Stock,  par
 value $.03 per share - 36,841,791 shares outstanding as of May 13, 2005.

<PAGE>
                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                       INDEX TO FINANCIAL STATEMENTS

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

 Consolidated Balance Sheets at March 31, 2005
 (unaudited) and December 31, 2004                               3

 Consolidated Statements of Operations (unaudited) for
 the three months ended March 31, 2005 and March 31, 2004        4

 Consolidated Statements of Cash Flows (unaudited) for
 the three months ended March 31, 2005 and March 31, 2004        5

 Notes to Consolidated Financial Statements (unaudited)          6

<PAGE>

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

                                                      March 31     December 31
                    ASSETS                              2005          2004
                    ------                           ----------    ----------
                                                     (unaudited)    (audited)

 Investments:
   Debt securities, available-for-sale,
     at market value                                $    32,687   $    28,206
   Equity securities, available-for-sale,
     at market value                                      3,406         3,580
   Short-term investments, available-for-sale,
     at market value                                      1,633           335
                                                     ----------    ----------
            Total investments                            37,726        32,121

 Cash and cash equivalents                                6,278        12,901
 Restricted cash and investments                          6,480         6,509
 Premiums receivable                                      4,358         4,103
 Accounts receivable                                      2,391         3,494
 Reinsurance recoverable                                  1,937         3,083
 Deferred policy acquisition costs                        7,847         7,475
 Excess of cost over fair value
   of net assets acquired                                 4,836         4,836
 Intangible assets                                          479           486
 Deferred federal income taxes                            5,170         5,173
 Other assets                                             2,483         2,330
                                                     ----------    ----------
            Total assets                            $    79,985   $    82,511
                                                     ==========    ==========
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
 Liabilities:
   Unpaid losses and loss adjustment expenses       $    19,205   $    19,648
   Unearned premiums                                      6,786         6,192
   Unearned revenue                                      11,512        11,283
   Accrued agent profit sharing                             458         1,875
   Accrued ceding commission payable                      1,691         1,695
   Pension liability                                      2,160         2,180
   Current federal income tax payable                       166         1,343
   Accounts payable and other accrued expenses            3,995         5,639
                                                     ----------    ----------
            Total liabilities                            45,973        49,855

 Commitments and Contingencies

 Stockholders' equity:
   Common stock, $.03 par value (authorized
     100,000,000 shares; issued 36,856,610
     shares in 2005 and 2004)                             1,106         1,106
   Capital in excess of par value                        19,640        19,647
   Retained earnings                                     14,918        13,103
   Accumulated other comprehensive income                (1,240)         (759)
   Treasury stock, at cost (354,319 shares
     in 2005 and 379,319 in 2004)                          (412)         (441)
                                                     ----------    ----------
            Total stockholders' equity                   34,012        32,656
                                                     ----------    ----------
                                                       $ 79,985   $    82,511
                                                     ==========    ==========

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

<PAGE>

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

                                                        Three Months Ended
                                                             March 31
                                                     ------------------------
                                                        2005          2004
                                                     ----------    ----------
 Gross premiums written                             $    10,634   $     8,753
 Ceded premiums written                                       -            24
                                                     ----------    ----------
   Net premiums written                                  10,634         8,777
   Change in unearned premiums                             (594)         (513)
                                                     ----------    ----------
   Net premiums earned                                   10,040         8,264

 Investment income, net of expenses                         411           279
 Finance charges                                            540           547
 Commission and fees                                      4,812         5,195
 Processing and service fees                              1,634         1,480
 Other income                                                 8             8
                                                     ----------    ----------
    Total revenues                                       17,445        15,773

 Losses and loss adjustment expenses                      6,026         5,227
 Other operating costs and expenses                       8,705         8,439
 Interest expense                                             3            24
 Amortization of intangible asset                             7             7
                                                     ----------    ----------
   Total expenses                                        14,741        13,697

 Income before tax                                        2,704         2,076

 Income tax expense                                         889           664
                                                     ----------    ----------
 Net income                                         $     1,815   $     1,412
                                                     ==========    ==========

 Net income per share:
       Basic                                        $      0.05   $      0.04
                                                     ==========    ==========
       Diluted                                      $      0.05   $      0.04
                                                     ==========    ==========


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

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)
                                                        Three Months Ended
                                                              March 31
                                                     ------------------------
                                                        2005          2004
                                                     ----------    ----------
 Cash flows from operating activities:
   Net income                                       $     1,815   $     1,412

 Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
    Depreciation and amortization expense                    72           112
    Deferred federal income tax expense                     266           177
    Change in prepaid reinsurance premiums                    -           281
    Change in premiums receivable                          (255)         (135)
    Change in accounts receivable                         1,103           (91)
    Change in deferred policy acquisition costs            (372)         (509)
    Change in unpaid losses and loss
      adjustment expenses                                  (443)       (4,694)
    Change in unearned premiums                             594           232
    Change in unearned revenue                              229           688
    Change in accrued agent profit sharing               (1,417)       (1,146)
    Change in reinsurance recoverable                     1,146         3,081
    Change in current federal income tax
      payable/recoverable                                (1,177)          664
    Change in accrued ceding commission payable              (4)            1
    Change in all other liabilities                      (1,618)         (254)
    Change in all other assets                             (180)         (146)
                                                     ----------    ----------
     Net cash used in operating activities                 (241)         (327)
                                                     ----------    ----------
 Cash flows from investing activities:
   Purchases of property and equipment                      (52)          (46)
   Premium finance notes originated,
     net of finance notes repaid                              -           (68)
   Change in restricted cash and investments                 29        (2,335)
   Purchases of debt and equity securities               (5,076)            -
   Maturities and redemptions of investment
     securities                                               1         1,000
   Net purchases of short-term investments               (1,297)         (110)
                                                     ----------    ----------
     Net cash used in investing activities               (6,395)       (1,559)
                                                     ----------    ----------
 Cash flows from financing activities:
   Proceeds from exercise of employee
     stock options                                           13             -
   Repayment of borrowings                                    -          (182)
                                                     ----------    ----------
     Net cash provided by (used in)
       financing activities                                  13          (182)
                                                     ----------    ----------
 Decrease in cash and cash equivalents                   (6,623)       (2,068)
 Cash and cash equivalents at beginning of period        12,901        10,520
                                                     ----------    ----------
 Cash and cash equivalents at end of period         $     6,278   $     8,452
                                                     ==========    ==========
 Supplemental Cash Flow Information:
   Interest paid                                    $         3   $        24
                                                     ----------    ----------
   Taxes paid                                       $     1,800   $         -
                                                     ----------    ----------

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

<PAGE>

 Item 1.  Notes to Consolidated Financial Statements (Unaudited)

 Note 1 - Summary of Accounting Policies

     In the  opinion of management,  the accompanying consolidated  financial
 statements contain  all adjustments,  consisting  only of  normal  recurring
 adjustments, necessary for  a fair statement  of the  financial position  of
 Hallmark Financial Services,  Inc. ("HFS")  and subsidiaries  (collectively,
 the  "Company")  as  of  March 31, 2005  and  the  consolidated  results  of
 operations and cash  flows for the  periods  presented.  The preparation  of
 financial  statements  requires  the  use  of  management's  estimates.  The
 accompanying financial statements have been prepared by the Company  without
 audit.

     Certain  information  and disclosures  normally  included  in  financial
 statements prepared  in accordance  with  US 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, 2004 for a description of accounting policies and certain other
 disclosures.  Certain  items  in the  2004  financial statements  have  been
 reclassified to conform to the 2005 presentation.

     The results of  operations for the period ended  March 31, 2005 are  not
 necessarily indicative of the operating results to be expected for the  full
 year.

     In  December 2004,  the Financial  Accounting  Standards  Board ("FASB")
 issued Statement No. 123R "Share-Based Payment" ("SFAS 123R"), which revises
 FASB  Statement  No.  123  ("SFAS 123")  and  supersedes APB 25.  SFAS  123R
 eliminates an entity's ability to account for share-based payments using APB
 25 and requires all such transactions to be accounted for using a fair value
 based method. In April 2005, the Securities and Exchange Commission deferred
 the  effective  date  of  SFAS  123R from the first interim or annual period
 beginning  after  June 15, 2005  to  the  next  fiscal  year beginning after
 June 15, 2005.  SFAS  123R  is not expected to have a material impact on the
 Company's consolidated financial statements.



 Note 2 - Equity Compensation Plans

     The Company has  stock options outstanding under a stock-based  employee
 compensation plan  for  key employees  and  a non-qualified  plan  for  non-
 employee  directors.  These  plans  both  expired  in 2004 and are described
 more  fully  in  Note  10  to  the Company's Form 10-K  for  the  year ended
 December 31, 2004.  Effective January 1, 2003,  the Company adopted the fair
 value  recognition  provisions  of  SFAS 123 and the prospective  method  of
 adoption provided under FASB Statement  No. 148, "Accounting for Stock-Based
 Compensation - Transition and Disclosure" ("SFAS 148").  The following table
 illustrates  the  effect  on net income  and earnings per share if the  fair
 value based method  had been applied to  all outstanding and unvested awards
 in each period.

                                                          Three Months Ended
                                                               March 31
        (in thousands)                                     2005        2004
                                                          ------      ------
        Net income as reported                           $ 1,815     $ 1,412

        Add:  Stock-based employee compensation
        expenses included in reported net income,
        net of related tax effects                             6           5

        Deduct:  Total stock-based employee
        compensation expense determined under
        fair value based method for all awards,
        net of related tax effects                            (9)         (8)
                                                          ------      ------
        Pro forma net income                             $ 1,812     $ 1,409
                                                          ======      ======
        Earnings per share:
          Basic-as reported                              $  0.05     $  0.04
                                                          ======      ======
          Basic-pro forma                                $  0.05     $  0.04
                                                          ======      ======
          Diluted-as reported                            $  0.05     $  0.04
                                                          ======      ======
          Diluted-pro forma                              $  0.05     $  0.04
                                                          ======      ======

 Note 3 - Segment Information

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

     The following is additional  business segment information for the  three
 months ended March 31, 2005 and 2004 (in thousands):

                                             Three Months Ended
                                                 March 31,
                                             2005          2004
                                           --------      --------
  Revenues
  --------
    Personal Lines Group                  $  11,161     $  10,259
    Commercial Lines Group                    6,280         5,513
    Corporate                                     4             1
                                           --------      --------
      Consolidated                        $  17,445     $  15,773
                                           ========      ========

  Pre-tax income (loss)
  ---------------------
    Personal Lines Group                  $   2,442    $    1,786
    Commercial Lines Group                    1,068           820
    Corporate                                  (806)         (530)
                                           --------      --------
      Consolidated                        $   2,704     $   2,076
                                           ========      ========


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

                                           Mar. 31,      Dec. 31,
                                             2005          2004
                                           --------      --------
               Assets
               ------
        Personal Lines Group              $  61,830     $  63,136
        Commercial Lines Group               17,770        18,557
        Corporate                               385           818
                                           --------      --------
             Consolidated                 $  79,985     $  82,511
                                           ========      ========

 Note 4 - Reinsurance

     Prior to  April 1, 2003, Hallmark ceded reinsurance to  other companies.
 These reinsurance arrangements  are more fully described  in  Note 5  to the
 Company's  Form  10-K  for  the year ended  December 31, 2004.  The  Company
 remains obligated to its policyholders in the event that the  reinsurers  do
 not meet their obligations under the reinsurance agreements.

     Under its prior reinsurance arrangements, the Company continues to  earn
 ceding commissions based  on loss  ratio experience  on the  portion of  the
 policies ceded.  The Company received  a provisional commission as  policies
 were  produced  as  an  advance  against  the  later  determination  of  the
 commission actually earned.

     The following  table shows earned  premiums ceded  and reinsurance  loss
 recoveries by period (in thousands):

                                             Three Months Ended
                                                 March 31,
                                             2005          2004
                                           --------      --------
          Ceded earned premiums           $       -     $     257
          Reinsurance recoveries          $    (391)    $    (326)


 Note 5 - Deferred Policy Acquisition Costs

 Total deferred and amortized policy acquisition  costs for the three  months
 ending March 31, 2005 and 2004 (in thousands) were as follows:

                                             Three Months Ended
                                                 March 31,
                                             2005          2004
                                           --------      --------
        Deferred                          $  (6,087)    $  (6,148)
        Amortized                             5,715         5,639
                                           --------      --------
        Net Deferred                      $    (372)    $    (509)
                                           ========      ========


 Note 6 - Earnings per Share

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

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

                                                    Three Months Ended
                                                        March 31,
                                                    2005          2004
                                                  --------      --------
  Weighted average shares - basic                   36,493        36,443
  Effect of dilutive securities                        694           127
                                                  --------      --------
  Weighted average shares - assuming dilution       37,187        36,570
                                                  ========      ========

 For the three months ended March 31, 2005 and 2004, -0- and 771,000  shares,
 respectively,  attributable  to outstanding stock options were excluded from
 the calculation of diluted earnings per share because the exercise prices of
 the  stock  options  were  greater than or equal to the average price of the
 common shares and, therefore, their inclusion would have been anti-dilutive.


 Note 7 - Comprehensive Income

 The  following  table  sets  forth  comprehensive  income  for  the  periods
 indicated (in thousands):

                                                    Three Months Ended
                                                        March 31,
                                                    2005          2004
                                                  --------      --------
 Net Income                                      $   1,815     $   1,412

 Additional pension liability, net of tax               30             -
 Unrealized gain/(loss) on available
   for sale securities, net of tax                    (511)          305
                                                  --------      --------
 Other comprehensive income (loss)                    (481)          305
                                                  --------      --------
 Comprehensive income                            $   1,334     $   1,717
                                                  ========      ========


 Note 8 - Net Periodic Pension Cost

 The Company recognized $16 thousand in net periodic pension cost during  the
 first  quarter of 2005.  The components  of this cost  are interest cost  of
 $181 thousand, amortization of net loss of $19 thousand and expected  return
 on plan assets of ($184) thousand.


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

 Management Overview

     Hallmark  Financial  Services,   Inc.  ("HFS")  and  its  wholly   owned
 subsidiaries (collectively, the  "Company") engage in  the sale of  property
 and casualty insurance  products.  The Company's business involves marketing
 and underwriting of  non-standard automobile insurance  primarily in  Texas,
 Arizona, and New  Mexico, marketing of  commercial insurance  in Texas,  New
 Mexico, Idaho,  Oregon  and Washington,  and  providing third  party  claims
 administration and other  insurance related services.  The  Company  pursues
 its business activities through subsidiaries organized into a Personal Lines
 Group, which  handles  non-standard  personal automobile  insurance,  and  a
 Commercial Lines Group, which handles commercial insurance.  The members  of
 the Personal Lines Group  are American Hallmark  Insurance Company of  Texas
 ("Hallmark"), an authorized Texas  property and casualty insurance  company;
 Phoenix Indemnity  Insurance  Company  ("Phoenix"),  an  authorized  Arizona
 property and casualty  insurance company; American  Hallmark General  Agency
 ("AHGA"), a managing general agency; and Hallmark Claims Services ("HCS"), a
 claims administrator.  The  members of  the  Commercial Lines  Group  are  a
 managing general agency, Hallmark General Agency,  Inc. ("HGA") and a  third
 party claims administrator, Effective Claims Management, Inc. ("ECM").

     During the first quarter of  fiscal 2005, total revenues of the  Company
 were $17.4 million, representing a 10.6% increase over the $15.8 million  in
 total revenues for  the comparable  period of fiscal  2004.  For  the  three
 months  ended  March 31, 2005,  the  Company  reported net  income  of  $1.8
 million, representing a 28.5% increase over the $1.4 million reported in the
 first quarter of 2004.  On a diluted  per share basis, net income was  $0.05
 for the three months ended March 31, 2005 as compared to $0.04 for the  same
 period in the prior year.

     The increase in total revenues for  the quarter ended March 31, 2005  as
 compared to the first quarter of  fiscal 2004 was primarily attributable  to
 increased premium assumption  by the  Personal Lines  Group  as  a result of
 changes in Hallmark's  reinsurance arrangements and  the combined impact  of
 increased premium volume  and improved  commission terms  in the  Commercial
 Lines  Group.  The increase  in net  income for  the first  quarter of  2005
 versus the  same period  in 2004  reflects  ongoing initiatives  to  improve
 underwriting  performance  in  both   operating  units,  increased   premium
 assumption by the Personal Lines Group and additional commission revenue  in
 the Commercial Lines Group.

 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), commissions, and
 processing and service fees.  Other sources of funds are from financing  and
 investment activities.  On a  consolidated  basis, the  Company's  cash  and
 investments (excluding restricted  cash and investments)  at  March 31, 2005
 were $44.0 million compared to $45.0 million at December 31, 2004.

     Net cash  used by the  Company's consolidated  operating activities  was
 $0.2 million for the first three months of 2005 compared to $0.3 million for
 the first three months of 2004.  The change in operating cash flow primarily
 resulted from a  $1.7 million  increase in  collected premiums  due to  more
 assumed premium than the first quarter  of 2004 and a $1.5 million  decrease
 in net loss and loss adjustment  expenses paid due to improved  underwriting
 performance, partially offset  by a  $1.8 million  tax deposit  made in  the
 first quarter of 2005, incentive compensation payments of $0.9 million  paid
 in the  first quarter  of 2005  and a  $0.1 million  reduction in  collected
 ceding commissions due to increased premium assumption.

     Cash used by investing activities during the first three months of  2005
 was  $6.4 million as compared to $1.6 million  for the same period  in 2004.
 The increase  in cash  used in  investing activities  is mainly  due to  the
 purchase of $5.1 million in debt and equity securities in the first  quarter
 of  2005,  the  $1.2  million  increase  in  net  purchases  of   short-term
 investments and the maturity of $1.0 million in debt securities in the first
 quarter of  2004,  partially offset  by  a  transfer of  $2.3  million  into
 restricted cash and investments in the first quarter of 2004.

     Cash provided by financing activities was $13 thousand in proceeds  from
 the exercise of employee stock options in the first three months of 2005  as
 compared to  cash used  in financing  activities of  $0.2 million  from  the
 repayment on a note payable to Dorinco during the same period in 2004.

     HFS  is dependent  on dividend  payments and  management fees  from  its
 insurance companies and  free cash flow  of its  non-insurance companies  to
 meet operating expenses and  debt obligations.  As  of March 31, 2005,  cash
 and invested assets of HFS were $0.2  million.  Cash and invested assets  of
 non-insurance subsidiaries were $6.6 million as of March 31, 2005.  Property
 and casualty insurance companies domiciled in the State of Texas are limited
 in the  payment  of dividends  to  their shareholders  in  any  twelve-month
 period, without the prior written consent  of the Commissioner of Insurance,
 to the greater of statutory net  income for the prior  calendar  year or 10%
 of statutory  policyholders'  surplus  as of the prior  year end.  Dividends
 may only be paid  from  unassigned surplus  funds.  During  2005, Hallmark's
 ordinary dividend capacity is $1.5 million.  Phoenix, domiciled in  Arizona,
 is limited in the payment of  dividends to the lesser  of 10% of prior  year
 policyholder's surplus or prior year's net investment income, without  prior
 written approval from the AZDOI.  During 2005,  Phoenix's ordinary  dividend
 capacity is $0.8 million.  Neither  Hallmark nor Phoenix paid a dividend  to
 HFS during the first quarter of 2005.

   The Texas Department of Insurance ("TDI") regulates financial transactions
 between Hallmark and affiliated companies.  Applicable  regulations  require
 TDI's  approval  of  management  and  expense  sharing contracts and similar
 transactions.  AHGA paid $0.3 million and $0.2 million in management fees to
 HFS during the first three months of 2005 and 2004, respectively.

   The AZDOI regulates financial transactions between  Phoenix and affiliated
 companies.  Applicable regulations require  AZDOI's  approval  of management
 and expense sharing contracts and similar  transactions.  Phoenix paid  $0.3
 million in management fees to AHGA during the first three months of 2005 and
 2004, respectively.

 Results of Operations

     Income before  tax was  $2.7  million  for the  quarter ended  March 31,
 2005, compared to $2.1 million for the same period in 2004.  The improvement
 in pre-tax earnings  for the  first quarter of  2005 compared  to the  first
 quarter  of  2004   reflects   increased  premium  assumption  and  improved
 underwriting results in the Personal  Lines Group and additional  commission
 revenue in  the Commercial  Lines Group  from increased  premium volume  and
 improved commission terms.

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

                                     2005         2004
                                   --------     --------
                Revenues
                --------
        Personal Lines Group      $  11,161    $  10,259
        Commercial Lines Group        6,280        5,513
        Corporate                         4            1
                                   --------     --------
             Consolidated         $  17,445    $  15,773
                                   ========     ========

         Pre-tax income (loss)
         ---------------------
        Personal Lines Group      $   2,442    $   1,786
        Commercial Lines Group        1,068          820
        Corporate                      (806)        (530)
                                   --------     --------
             Consolidated         $   2,704    $   2,076
                                   ========     ========


 Personal Lines Group

     Net premium written increased  $1.9 million during the first quarter  of
 2005 to $10.6 million compared to $8.8 million in the first quarter of 2004.
 The increase is  due mainly  to Hallmark assuming  100% of  the  Texas  non-
 standard  automobile  business  produced  by  AHGA  and  underwritten  by  a
 third party, effective  October 1, 2004.  Prior to October 1, 2004, Hallmark
 assumed only 45% of this business.  Total premium production  for the  first
 quarter of 2005  declined $2.3  million, or  18.3%, from  the $12.9  million
 produced in the first quarter of  2004.  The decline in produced premium  is
 reflective of increased competition from newly capitalized entities entering
 the marketplace  that are  requiring premium  growth either  organically  or
 through acquisitions to meet expected revenue targets and return on  equity.
 This  pressure has resulted in a  general bias towards neutral overall  rate
 adjustments with targeted rate decreases.

     Revenue  for the  Personal  Lines Group  increased  8.8% for  the  first
 quarter of 2005 to $11.2 million from  $10.3 million for the same period  in
 2004.  Increased net  premium earned of $1.8  million due to higher  assumed
 premium volume is the primary cause of this increase.  This increase in  net
 premiums earned was partially  offset by a $0.9  million decrease in  ceding
 commission income due to  Hallmark assuming 100%  of the Texas  non-standard
 automobile business effective October 1, 2004.

     Pre-tax income for the  Personal Lines Group increased $0.7 million,  or
 36.7%  for the first quarter of 2005  compared to the first quarter of 2004.
 Approximately $0.3 million  of the  increase in  pre-tax income  was due  to
 improved loss experience as evidenced by  a loss ratio (defined as loss  and
 loss adjustment expenses divided  by net premiums earned)  of 60.2% for  the
 first  quarter  of 2005  as compared to 63.6%  for the same  period in 2004.
 Taking into consideration the effect  on ceding commissions, increased  loss
 and loss adjustment expenses  and premium production  costs, the changes  in
 premium volume produced and assumed contributed $0.1 million to the increase
 in  pre-tax  income.  Lower salary  and  related expenses  contributed  $0.2
 million and  increased investment  income contributed  $0.1 million  to  the
 increased pre-tax income for the first quarter of 2005 over 2004.

 Commercial Lines Group

     Total revenue  for the Commercial  Lines Group of  $6.3 million for  the
 first quarter of 2005 was $0.8  million more than the $5.5 million  reported
 in  the first  quarter of 2004.  This 13.9%  increase in  total revenue  was
 primarily due to additional commission revenue of $0.6 million in the  first
 quarter  of  2005  as  compared  to  the  same  period  in  2004.  Increased
 commercial premium volume  and improved  commission terms  were the  primary
 causes of the increased commission revenue for the quarter.  Earned  premium
 generated by the Commercial  Lines Group for the  first quarter of 2005  was
 $18.9  million as compared to  $17.5  million in the  first quarter of 2004.
 The Company does not  bear the primary underwriting  risk for this  business
 and, therefore, the resulting premiums and  claims are not reflected in  the
 Company's reported results.

     Pre-tax income for  the Commercial Lines Group  of $1.1 million for  the
 first quarter  of 2005  increased  $0.3 million,  or  30.2%, over  the  $0.8
 million  reported  for the  first quarter  of 2004.  Increased  revenue,  as
 discussed above, is the primary reason  for the increase in pre-tax  income,
 partially offset by additional agent commissions of $0.4 million due to  the
 increased premium volume and increased salary  and related expenses of  $0.1
 million.

 Corporate

      Corporate pre-tax loss was $0.8 million  for the first quarter of  2005
 as compared to $0.5 million for the same  period in 2004.  The increase  was
 due mostly to the  transfer of accounting positions  from both the  Personal
 Lines and Commercial Lines Groups to Corporate.

 Strategic Initiatives

      The Company is in the process of implementing a strategic plan intended
 to enhance its opportunities for profitable growth.  The primary elements of
 this  strategic  plan  are  (i) the infusion  of additional working capital,
 (ii) the  realignment and expansion  of  the Company's insurance operations,
 and (iii)  the  enhancement  of the Company's  financial  strength  ratings.
 Management believes that  the successful implementation  of these and  other
 related initiatives  will position  the Company  to increase  gross  premium
 written,  reduce  reliance  on  reinsurance,  pursue  geographic  expansion,
 withstand  soft  market  conditions  and  explore  strategic   acquisitions.
 However, there is no assurance that all elements of this strategic plan will
 be successfully completed  or that  any of  the desired  objectives will  be
 attained.

      As a part of the first element  of this strategic plan, the Company  is
 presently offering additional shares of its common stock exclusively to  its
 existing shareholders pursuant to a  rights offering (Form S-3  Registration
 Statement  No.  333-123993)  scheduled  to  conclude  on  May 31, 2005.  The
 successful completion of this offering will add approximately $45.0  million
 to  the  working  capital  of the  Company.  In  addition,  the  Company  is
 presently evaluating alternatives for a $30.0 million private debt  issuance
 to further  enhance  working capital  sufficiently  to achieve  the  desired
 financial strength ratings.  This new  indebtedness could be in the form  of
 trust preferred securities, senior or subordinated notes,  surplus notes  or
 bank term loans,  or could  be comprised of  any combination  of these  debt
 vehicles.  However, the  structure and terms of  this new  indebtedness have
 not  yet  been  finalized.  Therefore,  there  is  no  assurance  that  this
 placement of debt instruments can be completed on acceptable terms.

      The Company has filed applications with insurance regulators in  Texas,
 New Mexico,  Idaho,  Oregon  and  Washington  to  obtain  a  certificate  of
 authority for Hallmark,  as an admitted  property and  casualty company,  to
 underwrite commercial insurance policies similar to those presently marketed
 by our Commercial Lines Group on behalf of a third party.  Upon approval  of
 these applications  and  the infusion  of  additional working  capital,  the
 Company intends to consolidate the underwriting  of all of its  non-standard
 automobile insurance in Phoenix and begin underwriting commercial  insurance
 through  Hallmark.  As a result,  Hallmark would become  a component of  the
 Commercial Lines Group.  However, there  is no assurance that the  necessary
 regulatory approval  can  be  timely  obtained  or  that  the  Company  will
 successfully implement the realignment of its insurance operations.

      Management believes that  enhancing the financial  strength ratings  of
 the Company's  insurance subsidiaries  is critical  to fully  achieving  the
 objectives  of this strategic plan.  The Company has presented the strategic
 plan  to  its  primary  rating  agency  and  is  confident  that,  upon full
 implementation  of  the  plan,  the  financial  strength  ratings of Phoenix
 and  Hallmark  will  be  upgraded.  In  order  to  maintain  these  ratings,
 the capitalization  and  operating performance  of  the  Company's insurance
 subsidiaries  must be  consistent  with projections provided  to  the rating
 agency.  There is no assurance  that the Company will be able to satisfy the
 conditions to obtain and maintain these improved financial strength ratings.


 Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

      As of March 31, 2005, there had been no material changes in the  market
 risks described in the Company's Form  10-K for the year ended December  31,
 2004.


 Item 4.  Controls and Procedures.

     The Chief Executive Officer  and Chief Financial Officer of the  Company
 have evaluated the  Company's disclosure  controls and  procedures and  have
 concluded  that,  as  of  the  end  of  the  period covered  by this report,
 such disclosure controls and procedures  were  effective  in  ensuring  that
 information required to be disclosed  by  the Company in the reports that it
 files or  submits  under the  Securities  Exchange  Act of  1934  is  timely
 recorded, processed, summarized  and reported. The  Chief Executive  Officer
 and Chief Financial Officer also concluded that such disclosure controls and
 procedures were  effective  in  ensuring that  information  required  to  be
 disclosed by the Company in the reports that it files or submits under  such
 Act is accumulated and communicated  to the Company's management,  including
 its Chief Executive Officer and Chief  Financial Officer, as appropriate, to
 allow timely  decisions  regarding  required  disclosure.  During  the  most
 recent fiscal quarter, there have been no changes in the Company's  internal
 controls over  financial reporting  that have  materially affected,  or  are
 reasonably likely to materially affect, the Company's internal control  over
 financial reporting.

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

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


                                   PART II
                              OTHER INFORMATION


  Item 1.   Legal Proceedings.

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


  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

            None.


  Item 3.   Defaults Upon Senior Securities.

            None.


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

            None.


  Item 5.   Other Information.

            None.


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

        (a) The exhibit listed in the Exhibit Index appearing on page 18 is
            filed herewith.

        (b) The Company filed the following reports on Form 8-K during the
            first quarter of 2005.

               Form  8-K filed March 9, 2005 announcing the approval of
               bonuses for each of the Company's executive officers.

               Form 8-K filed March 31, 2005 containing a press release
               announcing the financial results for the fourth quarter and
               year-ended December 31, 2004.



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


    Exhibit
    Number                       Description
    ------                       -----------

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

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

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

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



                                  SIGNATURES

 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 13, 2005          /s/ Mark E. Schwarz
                             ---------------------------------------------
                             Mark E. Schwarz, Chairman
                             (Chief Executive Officer)


 Date: May 13, 2005          /s/ Mark J. Morrison
                             ---------------------------------------------
                             Mark J. Morrison, Executive Vice President
                             (Chief Operating Officer and Chief Financial
                             Officer)