CONFORMED COPY

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                 FORM 10-QSB

              Quarterly report under Section 13 or 15(d) of the
                       Securities Exchange Act of 1934

              For the quarterly period ended September 30, 2000

                       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

                            Yes   X       No

                     APPLICABLE ONLY TO CORPORATE ISSUERS

       State the number of shares outstanding  of each of the issuer's
       classes of common equity,  as of the latest  practicable  date:
       Common Stock,  par  value $.03  per share  -  11,049,133 shares
       outstanding as of November 10, 2000.
<PAGE>

                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements



                   INDEX TO FINANCIAL STATEMENTS

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

 Consolidated Balance Sheets at September 30,            3
 2000 (unaudited) and December 31, 1999

 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
                                   --------
                                                    September 30    December 31
                                                        2000           1999
                                                    (Unaudited)
                                                    -----------     -----------
 <S>                                               <C>             <C>
 Investments:
    Debt securities, held-to-maturity, at
      amortized cost                               $  5,929,165    $  3,831,657
    Equity securities, available-for-sale, at
      market value                                      142,800         142,901
    Short-term investments, at cost which
      approximates market value                       6,652,919       6,373,491
                                                    -----------     -----------
             Total investments                       12,724,884      10,348,049

 Cash and cash equivalents                            6,927,199       5,786,069
 Restricted cash                                      3,449,297       3,422,297
 Prepaid reinsurance premiums                        10,281,813       7,673,196
 Premium receivable from lender (net of
   allowance for doubtful accounts of
   $166,447 in 2000 and $78,326 in 1999)             13,382,577       9,058,958
 Premiums receivable                                    947,306         741,613
 Reinsurance recoverable                             19,753,226      15,673,241
 Deferred policy acquisition costs                    3,830,686       2,741,076
 Excess of cost over net assets acquired (net
   of accumulated amortization of $1,602,841
   in 2000 and $1,485,080 in 1999)                    4,627,374       4,745,134
 Deferred federal income taxes                          361,390         212,059
 Accrued investment income                               96,108          52,721
 Other assets                                           698,740         547,820
                                                    -----------     -----------
                                                   $ 77,080,600    $ 61,002,233
                                                    ===========     ===========
       LIABILITIES AND STOCKHOLDERS' EQUITY
 Liabilities:
    Notes payable                                  $ 12,512,537    $  9,288,366
    Unpaid losses and loss adjustment expenses       20,966,268      17,804,254
    Unearned premiums                                15,794,458      11,761,723
     Reinsurance balances payable                     4,444,251       2,623,603
     Deferred ceding commissions                      3,395,434       2,142,097
     Drafts outstanding                               1,462,366         901,471
     Accrued ceding commission refund                 1,653,812       1,251,614
     Current federal income taxes payable                28,718          46,124
     Accounts payable and other accrued expenses      3,688,809       2,516,222
     Accrued litigation costs                           950,000         950,000
                                                    -----------     -----------
          Total liabilities                          64,896,653      49,285,474
                                                    -----------     -----------
 Stockholders' equity
     Common stock, $.03 par value, authorized
       100,000,000 shares issued 11,855,610 in
       2000 and 11,854,610 shares in 1999               355,668         355,638
     Capital in excess of par value                  10,875,432      10,875,212
     Retained earnings                                2,010,069       1,543,304
     Accumulated other comprehensive income             (14,055)        (14,228)
     Treasury stock, 806,477 shares, at cost         (1,043,167)     (1,043,167)
                                                    -----------     -----------
          Total stockholders' equity                 12,183,947      11,716,759
                                                    -----------     -----------
                                                   $ 77,080,600    $ 61,002,233
                                                    ===========     ===========

              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




                                                 Three Months Ended                  Nine Months Ended
                                                    September 30                        September 30
                                           -----------------------------        ------------------------------
                                               2000              1999               2000               1999
                                           -----------       -----------        -----------        -----------
 <S>                                      <C>               <C>                <C>                <C>
 Gross premiums written                   $ 12,352,362      $  9,631,847       $ 38,450,952       $ 28,039,106
 Ceded premiums written                     (8,235,564)       (5,797,482)       (23,636,960)       (16,491,216)
                                           -----------       -----------        -----------        -----------
       Net Premiums written               $  4,116,798      $  3,834,365       $ 14,813,992       $ 11,547,890
                                           ===========       ===========        ===========        ===========
 Revenues:
    Gross premiums earned                   11,202,560         8,628,631         33,713,742         24,647,840
    Earned premiums ceded                   (7,390,701)       (4,996,583)       (20,323,870)       (14,486,188)
                                           -----------       -----------        -----------        -----------
       Net Premiums earned                   3,811,859         3,632,048         13,389,872         10,161,652

    Investment income, net of expenses         293,178           212,356            811,525            564,832
    Finance charges                                  -           521,974                  -          1,488,262
    Processing and service fee               1,191,435           499,973          3,881,764          1,506,597
    Other income                                76,577            93,784            243,338            287,116
                                           -----------        ----------         ----------         ----------
        Total revenues                       5,373,049         4,960,135         18,326,499         14,008,459

 Benefits, losses and expenses
    Losses and loss adjustment expenses     10,616,960         7,355,814         31,735,103         18,894,337
    Reinsurance recoveries                  (7,038,221)       (4,911,209)       (21,082,332)       (12,362,513)
                                           -----------        ----------         ----------        -----------
 Net losses and loss adjustment expenses     3,578,739         2,444,605         10,652,771          6,531,824

 Acquisition costs, net                        146,195           226,777            163,728           (161,766)
 Other acquisition and underwriting
   expenses                                    415,473         1,096,832          2,538,869          3,606,015
 Operating expenses                            998,526           809,345          3,280,698          2,443,980
 Interest expense                              300,225           149,275            804,972            444,299
 Amortization of intangible assets              39,253            39,254            117,761            117,761
                                           -----------       -----------        -----------        -----------
 Total benefits losses and expenses          5,478,411         4,766,088         17,558,799         12,982,113
                                           -----------       -----------        -----------        -----------
 (Loss) income from operations
   before federal income taxes                (105,362)          194,047            767,700          1,026,346
 Federal income tax (benefit) expense          (23,154)           65,661            300,934            395,468
                                           -----------       -----------        -----------        -----------

 Net (loss) income                        $    (82,208)     $    128,386       $    466,766       $    630,878
                                           ===========       ===========        ===========        ===========

 Basic and diluted earnings per share     $      (0.01)     $       0.01       $       0.04       $       0.06
                                           ===========       ===========        ===========        ===========
 Common stock shares outstanding            11,049,133        11,048,133         11,049,133         11,048,133
                                           ===========       ===========        ===========        ===========

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

         HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF CASH FLOWS
                              (Unaudited)
                                                         Nine Months Ended
                                                           September 30
                                                     -----------------------
                                                        2000         1999
                                                     ----------   ----------
 <S>                                                <C>          <C>
 Cash flows from operating activities:
    Net income                                      $   466,766  $   630,878

    Adjustments to reconcile net loss to cash
       Depreciation and amortization expense            234,517      214,558
       Change in deferred Federal income taxes         (149,331)     (83,933)
       Change in prepared reinsurance premiums       (2,608,617)  (2,005,028)
       Change in premiums receivable                   (205,693)      72,313
       Change in deferred policy acquisition costs   (1,089,610)    (724,946)
       Change in deferred ceding commissions          1,253,337      563,181
       Change in unpaid losses and loss adjustment
         expenses                                     3,162,014      890,918
       Change in unearned premiums                    4,032,735    3,391,265
       Change in reinsurance recoverable             (4,079,985)    (931,838)
       Change in reinsurance balances payable         1,820,648      895,017
       Change in current federal income payable         (17,406)     304,021
       Change in accrued ceding commission refund       402,198      485,183
       Change in all other liabilities                1,733,482      788,664
       Change in all other assets                      (141,229)      68,047
                                                     ----------   ----------
    Net cash provided by operating activities         4,813,826    4,558,300
                                                     ----------   ----------
 Cash flows from investing  activities:
    Purchases of property and equipment                (169,662)     (48,292)
    Premium finance notes originated                (29,426,827) (18,734,555)
    Premium finance notes repaid                     25,103,207   15,937,222
    Change in restricted cash                           (27,000)     (38,000)
    Purchase of debt securities                      (3,601,030)  (1,792,633)
    Maturities and redemptions of
      investment securities                           1,503,624    1,906,491
    Purchase of short-term investments              (14,779,428) (12,301,156)
    Maturities of short-term investments             14,500,000    9,221,201
                                                     ----------   ----------
       Net cash used in investing activities         (6,897,116)  (5,849,722)
                                                     ----------   ----------
 Cash flows from financing activities:
     Net advances from lender                         3,621,469            -
     Repayment of borrowings                           (397,299)     (48,201)
     Proceeds from common stock issued                      250            -
                                                     ----------   ----------
 Net cash provided by (used in) financing activities  3,224,420      (48,201)
                                                     ----------   ----------
 Increase (decrease) in cash and cash equivalents     1,141,130   (1,339,623)
 Cash and cash equivalents at beginning of period     5,786,069    6,776,274
                                                     ----------   ----------
 Cash and cash equivalents at end of period         $ 6,927,199  $ 5,436,651
                                                     ==========   ==========

             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, 2000 and the consolidated results  of operations and cash flows for  the
 periods presented.  The accompanying financial statements have been prepared
 by the Company without audit.

     Certain  information  and disclosures  normally  included  in  financial
 statements prepared  in  accordance  with  accounting  principles  generally
 accepted in  the  United States  ("GAAP") have  been  condensed  or omitted.
 Reference is made to the Company's annual consolidated financial  statements
 for the  year  ended December  31,  1999  for a  description  of  accounting
 policies and certain other disclosures.   Certain items in the 1999  interim
 financial  statements  have  been  reclassified  to  conform  to  the   2000
 presentation.

     The results of  operations for the period  ended September 30, 2000  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 between the
 Company and its reinsurer. Effective July 1, 2000, the Company entered  into
 a new  reinsurance agreement  with Dorinco  Reinsurance Company  ("Dorinco")
 whereby the Company,  upon mutual  agreement with  Dorinco, may  elect on  a
 quarterly basis to  retain 30% to  45% of the  risk.  Policy  fees are  100%
 included in the premium base.  The minimum commission rate is 31% at a 64.5%
 loss ratio or higher.  The  commission rate increases 1:1 to any  percentage
 decrease in the loss ratio to  a provisional/maximum commission rate of  41%
 at a loss ratio of 54.5% or lower.  Prior to July 2000, the Company retained
 25% of the risk and ceded 75% of the risk to two reinsurers, Dorinco and  GE
 Reinsurance Corporation.

      During the third quarter  of 2000, the  Company commuted loss  reserves
 under its previous  reinsurance agreement (effective  March 1, 1992  through
 June 30,  1996) with  Vesta Fire  Insurance Corporation.  The reserves  were
 commuted at 100%.  The Company  received approximately $0.5 million in  cash
 which has  subsequently  been invested  in  government securities.    It  is
 anticipated that related outstanding  claims will be  settled over the  next
 two years.
<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  plaintiff's
 motion for  attorneys'  fees  of  approximately  $271,000,  court  costs  of
 approximately $39,000  and  pre-judgment  and  post-judgment  interest,  and
 rendered final judgment on the verdict.  The Company 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  $1,400,006 as of September 30,  2000
 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,
 2000.  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.

                      [This space left blank intentionally]


 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.  During the  third
 quarter of fiscal 2000, Dorinco Reinsurance Company ("Dorinco") assumed  70%
 of the risk with  Hallmark retaining the  remaining 30%.   Prior to July  1,
 2000, the  Company's principal  reinsurers, GE  Reinsurance Corporation  and
 Dorinco collectively assumed 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 American Hallmark Agencies  name,
 and through independent agents operating under their own  respective  names.
 Additionally, AHGA  provides premium  processing, underwriting,  reinsurance
 accounting and  cash management  for  unaffiliated managing  general  agents
 ("MGAs").  HCS  provides fee-based claims  adjustment, salvage,  subrogation
 recovery and litigation services to Hallmark and unaffiliated MGAs.

 New Reinsurance Agreements

     As a result of increased  premium volume and funds expended by  Hallmark
 on systems development, the Company undertook several steps during the third
 quarter  to  strengthen  Hallmark's   surplus.    One   such  step  was   to
 retroactively renegotiate certain terms of a new reinsurance agreement  with
 Dorinco previously  executed  to be  effective  July  1, 2000.    Under  the
 renegotiated reinsurance agreement, Hallmark may elect on a quarterly  basis
 to retain  between 30%  and 45%  of  the risk  (compared  to 25%  under  the
 previous arrangements) and Dorinco, as the sole reinsurer, has increased its
 participation to assume the remainder. Policy  fees are now included in  the
 treaty at 100% (compared to 0% previously).  In addition, the new  agreement
 increases the provisional  and maximum ceding  commission from  30% to  41%,
 increases the minimum ceding commission from 27.5% to 31%, and increases the
 ratio for computing earned ceding commissions  above the minimum from  0.7:1
 to 1:1 (i.e. the number of percentage points by which the earned  commission
 is increased  over the  minimum is  now equal  to the  number of  percentage
 points by which  the reinsurance loss  ratio decreases  from an  established
 benchmark).  Regarding the minimum commission,  the rate of 31% is in  force
 through February 28,  2001 and decreases  to  26%  effective  March 1, 2001.
 Under the renegotiated agreement,  Hallmark retains the  provisional/maximum
 commission from July 1,  2000, through the third  quarter of 2002, at  which
 time the earned ceding commission will be determined based on the  developed
 reinsurance loss ratio as of June 30, 2002.

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

     Net cash  provided by  the Company's  consolidated operating  activities
 was approximately $0.3 million greater during the first nine months of  2000
 than during the first nine months of 1999.  This increase is principally due
 to  increased  annual  policy  premium  volume  and  the  increase  in   the
 provisional ceding commission  rate effective July  1, 2000.   Additionally,
 the Company  commuted  one of  its  reinsurance treaties  during  the  third
 quarter (as  discussed below),  thus generating  additional cash  flow  from
 operations.  Cash used by investing activities increased approximately  $1.0
 million.   As  a result  of  increased  annual policy  premium  volume,  HFC
 originated more premium finance  notes than it  received in premium  finance
 payments. Cash provided by financing activities increased approximately $3.3
 million  as  a  result  of  net  advances  under  HFC's  secured   financing
 arrangement with an unaffiliated third party.

     On a consolidated basis, the Company's liquidity increased $3.6  million
 during the first  nine months  of 2000.     The Company's  total cash,  cash
 equivalents and investments (excluding restricted  cash of $3.5 million)  at
 September 30,  2000 and  December  31, 1999  were  $19.7 million  and  $16.1
 million, respectively.    This  increased  liquidity  is  primarily  due  to
 increased policy  production during  fiscal 2000  and  the increase  in  the
 provisional ceding commission rate to 41% from 30%.  To a lesser extent, the
 commutation  of  the   reinsurance  treaty  discussed   below  was  also   a
 contributing factor to the Company's increased liquidity.

     A  substantial  portion  of the  Company's  liquid  assets  is  held  by
 Hallmark and  is not  available  for general  corporate  purposes.   Of  the
 Company's consolidated liquid assets of $19.7 million at September 30, 2000,
 $1.7 million  (as compared to $0.9 million at December 31, 1999)  represents
 non-restricted cash.  Since  state insurance regulations restrict  financial
 transactions between an insurance company and its affiliates, HFS is limited
 in its ability to use Hallmark  funds for its own working capital  purposes.
 Furthermore, dividends and loans by Hallmark  to the Company are  restricted
 and subject to Texas Department of Insurance ("TDI") approval.  Although TDI
 has sanctioned  the  payment  of management  fees,  commissions  and  claims
 handling fees by Hallmark  to HFS and affiliates,  during the third  quarter
 Hallmark did not pay the commissions allowed to AHGA. Additionally, HFS made
 a capital contribution of $250,000 to  Hallmark.  These steps were taken  in
 order to bolster Hallmark's surplus to accommodate increased premium  volume
 and systems development expenditures.  During the first nine months of  2000
 and 1999, Hallmark paid or accrued management fees of $150,000 and $425,000,
 respectively. Management  anticipates that  Hallmark  will continue  to  pay
 management fees periodically during the remainder  of 2000, and this  should
 continue to be a moderate source of unrestricted liquidity.

      During the third quarter  of 2000, the  Company commuted loss  reserves
 under its previous  reinsurance agreement (effective  March 1, 1992  through
 June 30,  1996) with  Vesta Fire  Insurance Corporation.  The reserves  were
 commuted at 100%.  The Company  received approximately $0.5 million in  cash
 which has  subsequently  been invested  in  government securities.    It  is
 anticipated that related outstanding  claims will be  settled over the  next
 two years.
<PAGE>

      During the first nine months of  2000, the amount of funding  available
 to fund premium finance notes under  the secured financing arrangement  with
 the unaffiliated  third  party was  increased  to $11.0  million  from  $8.0
 million.   As of  September 30,  2000,  HFC had  an outstanding  balance  on
 advances under the  financing arrangement of  $10.4 million  at an  interest
 rate of  10%.   Under  the  financing arrangement,  the  maximum  additional
 advances available to HFC at September 30, 2000 were $0.6 million.

     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 $18.7 million during the
 first nine months of 2000 as compared to $11.9 million during the first nine
 months of 1999.  During  the first nine months  of 2000, AHGA received  $3.6
 million in  commissions related  to this  program  from Hallmark,  and  paid
 earned  commissions  of  approximately $2.4  million to  independent agents.
 This  has  resulted in  increased  unrestricted  liquidity for  the Company.
 During the  first  nine  months  of 1999,  AHGA  received  $2.5  million  in
 commissions  related  to  this  program  from  Hallmark,  and  paid   earned
 commissions of $1.4 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  approximately $3.4  million at  September 30,  2000 from  $2.1
 million at  December 31,  1999.   Deferred policy  acquisition costs  as  of
 September 30,  2000  increased approximately  $1.1  million as  compared  to
 December 31, 1999.   The increase in Hallmark's  core State & County  annual
 premium  volume  contributed  to  the  increase  in  both  deferred   ceding
 commission income and deferred policy acquisition costs.  Additionally,  the
 increase in deferred ceding commission income  was impacted by the  increase
 in the minimum ceding commission rate to 31% from 27.5%.

     Premium receivable from lender  increased $4.3 million during 2000 as  a
 result of increased annual policy production during the first nine months of
 2000 as  compared to  the last  nine months  of 1999.   Prepaid  reinsurance
 premiums, unpaid  losses  and  LAE,  reinsurance  recoverable  and  unearned
 premiums increased as expected in relation  to increased  premium  writings.
 Accounts payable  and  other  accrued expenses  increased  as  a  result  of
 increased commissions due to independent agents under the earned  commission
 program.
<PAGE>

     At September  30, 2000, Hallmark's  statutory capital  and  surplus  was
 $6.3 million, which  reflects a  5% increase  over the  balance reported  at
 December 31, 1999.    On a rolling-twelve  months premium basis,  Hallmark's
 premium-to-surplus ratio for the twelve months ended September 30, 2000  was
 2.96 to 1 as compared to 2.57 to 1 for the year ended December 31, 1999  and
 2.81 to  1 at  September 30,  1999. As  noted previously,  during the  third
 quarter of  2000, HFS  contributed $250,000  to  Hallmark. The  increase  in
 Hallmark's premium to surplus ratio from December 31, 1999 to September  30,
 2000 is a result of increased core State & County premium volume as well  as
 funds expended by Hallmark on systems development.  For statutory  purposes,
 systems development  is treated  as a  non-admitted asset  and thus  reduces
 statutory surplus.  For GAAP purposes, the systems development qualifies  as
 an asset.

     The  Company  provides   program  administration  and  claims   handling
 services for unaffiliated MGAs. The Company provides these services for  two
 unaffiliated MGA programs which are currently producing new business.  Under
 these contracts,  the Company,  as program  administrator, performs  certain
 administrative functions, including cash management, underwriting and  rate-
 setting reviews, underwriting and policy processing (on two of the programs)
 and claims handling.  Hallmark assumes a 20% pro-rata share of the  business
 produced under each  of the unaffiliated  MGAs programs  with the  remaining
 percentage  of  the  business assumed  by  Hallmark's  principal  reinsurer.
 Effective July 1,  2000, two  other unaffiliated  MGA programs  discontinued
 writing new business due to non-renewal  of their reinsurance treaties.  The
 Company will  continue to  perform functions  as defined  in the  respective
 contracts during the run-off period.

      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,  2000 increased  28% and  37%, respectively,  in
 relation to gross  premiums written  during the  same periods  in 1999.  Net
 premiums written (after  reinsurance) for the  three and  nine months  ended
 September 30, 2000 increased 7% and 28%, respectively, over the same periods
 in 1999. The increase in premiums written  for the three and nine months  of
 2000 was due to  the increase in the  core State &  County  premium  volume.
 Additionally, increased  premium volume  from assumed  business produced  by
 unaffiliated MGAs contributed to the increase for the nine months  of  2000.
 As a result of a new reinsurance  agreement effective July 1, 2000, 100%  of
 policy  fees  are  now  included  as  reinsurance  premium  compared  to  0%
 previously (i.e.  Hallmark retained  30% during  the third  quarter of  2000
 compared to 100% previously).  This  change in reinsurance has impacted  net
 premiums written  during  the third  quarter  of 2000  thus  explaining  the
 disproportionate increase between gross and net premiums written.
<PAGE>

     Premiums earned  (prior to reinsurance)  for the three  and nine  months
 ended September 30, 2000 increased approximately 30% and 37%,  respectively,
 as compared to  the same periods  of 1999.   For the three  and nine  months
 ended September 30, 2000, net premiums earned (after reinsurance)  increased
 5% and 32%, respectively, as compared to the same periods of 1999. As  noted
 above, changes in the Company's reinsurance  have impacted the retention  of
 policy fees.   The disproportionate  change in premiums earned prior to  and
 after reinsurance is  due to  policy fees  and the  assumption of  increased
 premiums produced by the unaffiliated MGAs, both of which are fully retained
 by the Company and thus have a greater impact on net premiums earned.

      Net incurred  loss  ratios  (computed  on  net  premiums  earned  after
 reinsurance) for the  three and nine  months ended September  30, 2000  were
 approximately 94% and  80%, respectively, compared  to 67% and  64% for  the
 same periods of 1999.  As noted above, Hallmark's reinsurance treaties  were
 changed effective July 1, 2000 to include 100% of policy fees in the premium
 base. If policy fees had  not been ceded during  the third quarter of  2000,
 then the loss ratios for the three and  nine months would have been 85%  and
 77%, respectively. The increase in loss ratios is attributable to  increased
 loss ratios on the  unaffiliated MGA business  as well as  the core State  &
 County business.  Two of the  unaffiliated MGA programs, which are still  in
 run-off and thus continue to impact the Company's loss ratio, were cancelled
 effective July 1, 2000.  The loss ratios on these two programs exceeded 110%
 for the nine months  ended September 30, 2000.  The increased loss ratio  on
 the core State  & County  business is a  result of  depressed premium  rates
 during 1999 and the  first part of 2000.  Additionally, hail related  losses
 incurred during the spring of 2000 also impacted the loss ratio for the nine
 months ended September 2000.   As a result  of a tightening of  underwriting
 guidelines, raising  of  agent  performance  criteria,  and  a  recent  rate
 increase, the  indicated  loss  ratio  on  the  Company's  new  treaty  year
 effective July 1, 2000  is significantly lower.   However, claims costs  are
 increasing principally due to rising medical, labor and repair costs.

     Acquisition  costs,  net, represents  the  amortization  of  acquisition
 costs (and credits) deferred over the past twelve months and the deferral of
 acquisition costs  (and  credits)  incurred in  the  current  period.    The
 increase in  acquisition costs,  net, is  primarily due  to an  increase  in
 annual policy premium volume which directly impacts the deferral rate and an
 increased ceding commission  rate as a  result of changes  in the  Company's
 reinsurance terms.

     Other  acquisition and  underwriting expenses  for  the three  and  nine
 months ended  September  30,  2000  decreased  approximately  62%  and  30%,
 respectively, as compared  to the  same periods of  1999.   The decrease  in
 expenses is primarily attributable to increased ceding commission income  as
 a result  of increased  core State  & County  premium volume  and  increased
 minimum commission rate due  to changes in  the Company's reinsurance  terms
 during the third  quarter of  2000 to 31%  from 27.5%.  These decreases  are
 partially offset by an  increase in commission  expenses and other  variable
 expenses associated with increased premium volume.
<PAGE>

     Operating  expenses   include  expenses  related   to  premium   finance
 operations, general corporate overhead,  and third party administrative  and
 claims  handling   contracts.      Related   revenues   are   derived   from
 service/consulting  fees.    Operating  expenses  increased  23%  and   34%,
 respectively, during the three and nine  months ended September 30, 2000  as
 compared to the  same periods of  1999.  The  majority of  this increase  is
 attributable to the  variable expenses related  to increased  volume in  the
 Company's premium finance operations, the deployment of management and staff
 resources to the administration and processing of third party contracts  and
 the development of technological improvements in information systems.

     During 1999,  the Company earned finance  charges (interest) on  premium
 notes issued by HFC.  The Company has not earned finance charges during 2000
 as the  result of  a secured  financing and  servicing arrangement  with  an
 unaffiliated third party  to fund HFC's  premium finance  activities.   This
 arrangement was  initiated  during the  fourth  quarter  of 1999.    As  HFC
 services the premium finance notes for the unaffiliated third party,  income
 derived from  the  premium finance  notes  is reflected  in  processing  and
 service fees.

      Investment income increased 38% and 44%, respectively, during the three
 and nine months  ended September 30,  2000 compared to  the same periods  of
 1999.  The increase is attributable to the combined effect of an increase in
 funds available for investment resulting  from increased premium volume  and
 an overall  increase in  the effective  yield  of the  Company's  investment
 portfolio.

     Processing  and service  fees represent  income  earned on  the  premium
 finance servicing arrangement  with an  unaffiliated third  party and  third
 party processing and servicing contracts with unaffiliated MGAs.  Processing
 and service  fees for  the three  and  nine months  of 2000  increased  $0.7
 million and $2.4 million, respectively, as compared to 1999 principally as a
 result of  the  Company's premium  finance  servicing arrangement  with  the
 unaffiliated third party.

     Although total  revenues for the three  and nine months ended  September
 30, 2000 increased approximately 8% and  31%, respectively, compared to  the
 same periods  of  1999,  net  income  for  both  periods  decreased.  Market
 fragmentation and capital over-capacity in  the insurance industry over  the
 last several years have depressed premium  rates.  The cumulative effect  of
 inadequate rates, coupled  with hailstorm claims  in the first  half of  the
 year and less favorable reinsurance terms in the third quarter mitigated the
 impact of increased revenues on profitability.

 Recent Developments

      Management believes that recent trends emerging in the Texas  insurance
 industry may provide the foundation  for increasing future profitability  of
 the Company.   Initial  indicators reflect  a marketplace  characterized  by
 higher premium rates and a decrease in active competitors.  The Company  has
 been strategically increasing premium rates since November 1999, and intends
 to  systematically   implement  additional   rate  increases   to   optimize
 underwriting  profits.    As  part  of  the  continual  management  of   its
 independent  agents,  the  Company  is  actively  working  to  increase  the
 profitability of the business  produced by its  agent base through  targeted
 rate increases, more stringent underwriting guidelines and heightened  agent
 performance  requirements   (including  agency   underwriting   performance,
 operational quality standards and premium production commitments).
<PAGE>

      Additionally, management is  in the  process of  implementing a  phased
 program to  strengthen its  information technology  capabilities in  several
 areas.  The  thrust of  the first  phase is  to enhance  Company and  agency
 relationships by improving content and timeliness of information to  support
 its agents in servicing their customers.   The Company is currently  testing
 the first phase  internally.   The Company  expects to  commence testing  by
 selected agents  during the  fourth  quarter of  fiscal  2000, with  a  full
 implementation beginning thereafter.  The emphasis of the second phase  will
 be to implement point-of-sale technology to support agents in more  promptly
 and efficiently producing new  business, as well as  to improve the  quality
 and  timeliness  of   service  to  existing   policyholders.    When   fully
 implemented, these information technology enhancements should result in cost
 savings for both  the Company  and its  participating agents.   The  Company
 anticipates implementation of phase one and the majority of phase two during
 2001.

      The expectation of increased premium rates in the Texas marketplace  is
 largely the result of recent tightening  in the availability of  reinsurance
 on acceptable terms.  Partially as  a result of this development,  effective
 July 1,  2000,  Hallmark  entered into  a  new  reinsurance  agreement  with
 Dorinco, one of the two primary  reinsurers under the prior arrangement  (as
 more fully discussed under New Reinsurance Arrangements).

      Management  believes  that  Hallmark's  new  reinsurance  agreement  is
 advantageous to the  Company in light  of  the current  reinsurance  market.
 Although the  increase  in  the minimum  ceding  commission  rate  favorably
 impacts underwriting expenses  through February 28,  2001, the reduction  in
 retained policy fees may negatively impact  loss ratios  in the  short-term.
 Further, the decrease in the minimum ceding commission rate effective  March
 1, 2001 could adversely  impact underwriting margins  if improvement in  the
 loss ratio has not  occurred.  The increase  in both the provisional  ceding
 commission and the  ratio for computing  earned ceding commissions  provides
 the potential  for  enhancing  future  profits.    In  addition,  short-term
 liquidity will  be favorably  impacted by  the increase  in the  provisional
 ceding commissions.

     Principally  as a  result  of the  inability  of many  MGA's  to  secure
 acceptable reinsurance terms,  the Company has  curtailed active pursuit  of
 full  service  third  party  program  administration  contracts.    For  the
 foreseeable future, the Company plans to limits its marketing of third party
 services primarily to claims handling contracts.
<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 following
                  the signature page are filed herewith.


              (b) The Company did not file any Form 8-K Current Reports
                  during the third quarter of 2000.

<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 13, 2000             /s/ Linda H. Sleeper
                                     ---------------------------
                                     Linda H. Sleeper, President

 Date: November 13, 2000             /s/ John J. DePuma
                                     ---------------------
                                     John J. DePuma, Chief
                                     Financial Officer

<PAGE>

                                Exhibit Index



     Exhibit                     Description
     -------                     -----------
    10 ( a )     Quota Share  Retrocession  Agreement, effective  July 1,
                 2000,  between American  Hallmark  Insurance  Company of
                 Texas and Dorinco Reinsurance Company.

    10 ( b )     Addendum No.  2 to the  Retrocession Contract, effective
                 June 1, 1998,  issued to Dorinco  Reinsurance Company by
                 American Hallmark Insurance  Company of Texas, effective
                 October 1, 1999.

    10 ( c )     Commutation Agreement, effective April 30, 2000, between
                 Vesta Fire  Insurance Corporation and  American Hallmark
                 Insurance Company of Texas.