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 June 30, 2004

                        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 - 36,462,291 shares outstanding as of August 13, 2004.

<PAGE>
                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                     INDEX TO FINANCIAL STATEMENTS

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

 Consolidated Balance Sheets at June 30, 2004                    3
 (unaudited) and December 31, 2003

 Consolidated Statements of Operations (unaudited)               4
 for the three months and six months ended June 30,
 2004 and June 30, 2003

 Consolidated Statements of Cash Flows (unaudited)               5
 for the six months ended June 30, 2004 and June 30,
 2003

 Notes to Consolidated Financial Statements                      6
 (unaudited)

<PAGE>

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


                                                      June 30     December 31
                    ASSETS                              2004          2003
                    ------                           ----------    ----------
                                                     (unaudited)    (audited)
 Investments:
   Debt securities, available-for-sale,
     at market value                                $    26,134   $    25,947
   Equity securities, available-for-sale,
     at market value                                      3,692         3,573
   Short-term investments, available-for-sale,
     at market value                                      2,711           335
                                                     ----------    ----------
            Total investments                            32,537        29,855

 Cash and cash equivalents                                8,783        10,520
 Restricted cash and investments                          6,210         5,366
 Prepaid reinsurance premiums                                 8           291
 Premiums receivable                                      3,713         4,076
 Accounts receivable                                      2,656         3,395
 Reinsurance recoverable                                  5,166        10,516
 Deferred policy acquisition costs                        7,743         7,146
 Excess of cost over fair value
   of net assets acquired                                 4,836         4,836
 Intangible assets                                          499           513
 Current federal income tax recoverable                       -           625
 Deferred federal income taxes                            3,993         3,961
 Other assets                                             3,019         2,753
                                                     ----------    ----------
                                                    $    79,163   $    83,853
                                                     ==========    ==========
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
 Liabilities:
   Notes payable                                    $       627   $       991
   Unpaid losses and loss adjustment expenses            22,166        28,456
   Unearned premiums                                      5,160         5,862
   Unearned revenue                                      11,610        10,190
   Accrued agent profit sharing                             685         1,511
   Accrued ceding commission payable                      1,208         1,164
   Pension liability                                      1,201         1,237
   Current federal income tax payable                       120             -
   Accounts payable and other accrued expenses            6,420         7,045
                                                     ----------    ----------
                                                         49,197        56,456

 Commitments and Contingencies

 Stockholders' equity:
   Common stock, $.03 par value, authorized
     100,000,000 shares Issued 36,856,610
     shares in 2004 and 2003                              1,106         1,106
   Capital in excess of par value                        19,648        19,693
   Retained earnings                                     10,159         7,254
   Accumulated other comprehensive income (loss)           (471)          (93)
   Treasury stock, 409,319 shares in 2004 and
     484,319 in 2003, at cost                              (476)         (563)
                                                     ----------    ----------
            Total stockholders' equity                   29,966        27,397
                                                     ----------    ----------
                                                    $    79,163   $    83,853
                                                     ==========    ==========

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

<PAGE>
<TABLE>
              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                   (In thousands, except per share amounts)


                                                 Three Months Ended            Six Months Ended
                                                      June 30                      June 30
                                                ---------------------       ----------------------
                                                  2004         2003           2004          2003
                                                --------     --------       --------      --------
 <S>                                           <C>          <C>            <C>           <C>
 Gross premiums written                        $   7,011    $   7,849      $  15,764     $  29,764
 Ceded premiums written                                1        1,218             25        (7,180)
                                                --------     --------       --------      --------
   Net premiums written                            7,012        9,067         15,789        22,584

   Change in net unearned premiums                   932        2,361            419         1,346
                                                --------     --------       --------      --------
   Net premiums earned                             7,944       11,428         16,208        23,930

 Investment income, net of expenses                  344          260            623           454
 Finance charges                                     536          991          1,083         2,080
 Commission and fees                               5,295        4,347         10,490         7,697
 Processing and service fees                       1,524          977          3,004         2,285
 Other income                                          7           42             15           319
                                                --------     --------       --------      --------
   Total revenues                                 15,650       18,045         31,423        36,765

 Losses and loss adjustment expenses               4,422        7,551          9,649        16,441
 Other operating costs and expenses                9,004        9,395         17,443        18,165
 Interest expense                                     21          432             45           875
 Amortization of intangible asset                      7            7             14            14
                                                --------     --------       --------      --------
   Total expenses                                 13,454       17,385         27,151        35,495
                                                --------     --------       --------      --------

 Income before income tax and
   extraordinary gain                              2,196          660          4,272         1,270

 Income tax expense                                  703          225          1,367           432
                                                --------     --------       --------      --------
 Income before extraordinary gain                  1,493          435         2,905            838
 Extraordinary gain                                    -          (36)            -          8,116
                                                --------     --------       --------      --------
 Net income                                    $   1,493    $     399      $   2,905     $   8,954
                                                ========     ========       ========      ========

 Basic earnings per share:
   Income before extraordinary gain            $    0.04    $    0.04      $    0.08     $    0.07
     Extraordinary gain                                -            -              -          0.73
                                                --------     --------       --------      --------
     Net income                                $    0.04    $    0.04      $    0.08     $    0.80
                                                ========     ========       ========      ========

 Diluted earnings per share:
   Income before extraordinary gain            $    0.04    $    0.04      $    0.08     $    0.07
     Extraordinary gain                                -        (0.01)             -          0.70
                                                --------     --------       --------      --------
     Net income                                $    0.04    $    0.03      $    0.08     $    0.77
                                                ========     ========       ========      ========

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

</TABLE>
<PAGE>

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

                                                        Six Months Ended
                                                             June 30
                                                     ------------------------
                                                        2004          2003
                                                     ----------    ----------
 Cash flows from operating activities:
   Net income                                       $     2,905   $     8,954

 Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
    Extraordinary gain on acquisition of subsidiary           -        (8,116)
    Depreciation and amortization expense                   224           322
    Change in deferred federal income taxes                 122             -
    Change in prepaid reinsurance premiums                  283         4,700
    Change in premiums receivable                           313          (408)
    Change in accounts receivable                           739          (847)
    Change in deferred policy acquisition costs            (597)          211
    Change in unpaid losses and loss
      adjustment expenses                                (6,290)       (2,687)
    Change in unearned premiums                            (702)       (6,047)
    Change in unearned revenue                            1,420         2,932
    Change in accrued agent profit sharing                 (826)         (231)
    Change in reinsurance recoverable                     5,350         5,360
    Change in reinsurance balances payable                    -        (2,704)
    Change in current federal income tax
      payable/recoverable                                   745           754
    Change in accrued ceding commission payable              44           (64)
    Change in all other liabilities                        (661)        2,868
    Change in all other assets                             (269)       (1,087)
                                                     ----------    ----------
      Net cash provided by operating activities           2,800         3,910
                                                     ----------    ----------
 Cash flows from investing activities:
   Purchases of property and equipment                      (75)         (231)
   Acquisition of subsidiary                                  -         6,945
   Premium finance notes repaid,
     net of finance notes originated                         51         3,610
   Change in restricted cash and investments             (3,269)          (32)
   Purchase of fixed maturity and equity securities      (1,138)          (80)
   Maturities and redemptions of investment
     securities                                           2,634         4,214
   Net redemptions (purchases) of short-term
     investments                                         (2,376)        7,443
                                                     ----------    ----------
      Net cash (used in) provided by
        investing activities                             (4,173)       21,869
                                                     ----------    ----------
 Cash flows from financing activities:
    Net advances from lender                                  -        (3,028)
    Repayment of borrowings                                (364)         (420)
                                                     ----------    ----------
      Net cash used in financing activities                (364)       (3,448)
                                                     ----------    ----------
 Increase (decrease) in cash and cash equivalents        (1,737)       22,331
 Cash and cash equivalents at beginning of period        10,520         8,453
                                                     ----------    ----------
 Cash and cash equivalents at end of period         $     8,783   $    30,784
                                                     ==========    ==========

  In the first six months of 2004, the Company transferred $2.4 million of
  fixed maturity investments from restricted investments to debt securities,
  available-for-sale.  The Company paid $500 thousand in taxes and $45
  thousand in interest in the first six months of 2004.  The Company paid
  $0.4 million in interest in the first six months of 2003.


                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  June  30,  2004  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  accounting  principles  generally
 accepted in the  United States of  America ("GAAP") have  been condensed  or
 omitted.  Reference is made to  the Company's annual consolidated  financial
 statements for  the  year ended  December  31,  2003 for  a  description  of
 accounting policies and  certain other  disclosures.  Certain  items in  the
 2003 financial  statements have  been reclassified  to conform  to the  2004
 presentation.

     The results  of operations for the  period ended June  30, 2004 are  not
 necessarily indicative of the operating results to be expected for the  full
 year.

 Recently Adopted Accounting Pronouncements

     In  December 2002,  the Financial  Accounting Standards  Board  ("FASB")
 issued Statement of Financial Accounting Standards  No. 148, "Accounting for
 Stock-Based Compensation  -  Transition and Disclosure" ("SFAS  148").   The
 Statement amends SFAS 123 to provide  alternative methods  of transition for
 voluntary change to  the fair value  based method of  accounting for  stock-
 based employee compensation.  In addition,  SFAS 148  amends the  disclosure
 requirements of SFAS 123 to require prominent disclosures in both annual and
 interim financial statements about the method of accounting for  stock-based
 employee compensation and the effect of the method used on reported results.
 SFAS 148  is  effective  for financial  statements for  fiscal years  ending
 after December 15, 2002.  Effective January 1, 2003, the Company adopted the
 prospective method provisions of SFAS 148.

     At June  30, 2004, the Company  had a stock-based employee  compensation
 plan for key employees and a non-qualified plan for non-employee  directors,
 which are described more fully in Note  13 to the Company's Form 10-KSB  for
 December 31, 2003.  Prior to 2003,  the  Company accounted for  those  plans
 under the  recognition and  measurement provisions  of APB  Opinion No.  25,
 "Accounting for  Stock Issued  to Employees",  and related  Interpretations.
 Effective January 1, 2003,  the Company adopted  the fair value  recognition
 provisions  of  FASB   Statement  No.  123,   "Accounting  for   Stock-Based
 Compensation"  ("SFAS  123").  Under  the  prospective  method  of  adoption
 selected by the Company under the provisions of SFAS 148, compensation  cost
 is recognized for all  employee awards granted,  modified, or settled  after
 the beginning of  the fiscal year  in which the  recognition provisions  are
 first applied. Results for prior years have not been restated.

 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        Six Months Ended
                                      June 30,                 June 30,
  (in thousands)                 2004          2003       2004          2003
                                -------      -------     -------      -------
  Net income as reported       $  1,493     $    399    $  2,905     $  8,954

  Add:  Stock-based employee
  compensation expenses
  included in reported net
  income, net of related
  tax effects                         5            8          10            8

  Deduct:  Total stock-based
  employee compensation expense
  determined under fair value
  based method for all awards,
  net of related tax effect          (9)         (17)        (17)         (26)
                                -------      -------     -------      -------
  Pro forma net income         $  1,489     $    390    $  2,898     $  8,936
                                =======      =======     =======      =======
  Earnings per share:
    Basic-as reported          $   0.04     $   0.04    $   0.08     $   0.80
                                =======      =======     =======      =======
    Basic-pro forma            $   0.04     $   0.03    $   0.08     $   0.80
                                =======      =======     =======      =======
    Diluted-as reported        $   0.04     $   0.03    $   0.08     $   0.77
                                =======      =======     =======      =======
    Diluted-pro forma          $   0.04     $   0.03    $   0.08     $   0.77
                                =======      =======     =======      =======


 Note 2 - Reinsurance

     American  Hallmark Insurance  Company of  Texas ("Hallmark"),  a  wholly
 owned subsidiary  of HFS,  is  involved in  the  assumption and  cession  of
 reinsurance from/to other companies.  The  Company remains obligated to  its
 policyholders in the event that the reinsurers do not meet their obligations
 under the reinsurance agreements.

     Under   its  reinsurance   arrangements,   the  Company   earns   ceding
 commissions based on  loss ratio experience  on the portion  of policies  it
 cedes.   The  Company receives  a  provisional commission  as  policies  are
 produced as an  advance against the  later determination  of the  commission
 actually earned.  The provisional commission  is adjusted periodically on  a
 sliding scale based on expected loss ratios.

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

                                 Three Months          Six Months
                                    Ended                Ended
                                   June 30,             June 30,
                                2004      2003       2004      2003
                               ------    ------     ------    ------
     Ceded earned premiums    $     1   $ 4,073    $   258   $12,088
     Reinsurance recoveries   $   537   $ 2,602    $   211   $ 7,772


 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 ("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;  Hallmark
 Finance Corporation ("HFC"), a premium finance company; 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
 and six months ended June 30 (in thousands):


                                 Three Months Ended        Six Months Ended
                                      June 30,                 June 30,
                                 2004          2003       2004          2003
                                -------      -------     -------      -------
 Revenues
 --------
   Personal Lines Group        $  9,956     $ 13,414    $ 20,215     $ 27,447
   Commercial Lines Group         5,693        4,631      11,206        9,318
   Corporate                          1            -           2            -
                                -------      -------     -------      -------
     Consolidated              $ 15,650     $ 18,045    $ 31,423     $ 36,765
                                =======      =======     =======      =======
 Income before tax and
 extraordinary gain
 ------------------
   Personal Lines Group        $  1,949     $  1,135    $  3,585     $  2,083
   Commercial Lines Group           585          189       1,255          489
   Corporate                       (338)        (664)       (568)      (1,302)
                                -------      -------     -------      -------
     Consolidated              $  2,196     $    660    $  4,272     $  1,270
                                =======      =======     =======      =======

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

                                        June 30,           Dec. 31,
                                          2004               2003
                                        --------           --------
               Assets
               ------
        Personal Lines Group           $  63,052          $  68,247
        Commercial Lines Group            15,598             13,365
        Corporate                            513              2,241
                                        --------           --------
             Consolidated              $  79,163          $  83,853
                                        ========           ========


 Note 4 - Deferred Policy Acquisition Costs

 Total deferred and amortized policy acquisition costs for the three and  six
 months ending June 30, 2004 and 2003 (in thousands) were as follows:

                                 Three Months Ended        Six Months Ended
                                      June 30,                 June 30,
                                 2004          2003       2004          2003
                                -------      -------     -------      -------
        Deferred               $ (5,189)    $ (1,036)   $(11,337)    $ (4,362)
        Amortized                 5,101        1,498      10,740        4,573
                                -------      -------     -------      -------
        Net Deferred           $    (88)    $    462    $   (597)    $    211
                                =======      =======     =======      =======


 Note 5 - Earnings per Share

 The Company has adopted the provisions of Statement of Financial  Accounting
 Standards  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       Six Months Ended
                                       June 30,                June 30,
                                  2004          2003      2004          2003
                                 -------      -------    -------      -------
 Weighted average shares - basic  36,447       11,238     36,428       11,147
 Effect of dilutive securities       164          342        139          402
                                 -------      -------    -------      -------
 Weighted average shares -
   assuming dilution              36,611       11,580     36,567       11,549
                                 =======      =======    =======      =======

 Options to purchase  126,000 shares  and 75,000  shares of  common stock  at
 prices ranging from $0.75 to $1.00 were outstanding during the three  months
 ending June 30, 2004 and 2003, respectively, and options to purchase 526,000
 shares and 76,000  shares of common  stock at prices  ranging from $0.68  to
 $1.00 were outstanding during the six months ending June 30, 2004 and  2003,
 respectively, but were not included in  the computation of diluted  earnings
 per share because the inclusion would  result in an anti-dilutive effect  in
 periods where the option  exercise price exceeded  the average market  price
 per share for the period.


 Note 6 - Comprehensive Income

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

                                  Three Months Ended       Six Months Ended
                                       June 30,                June 30,
                                  2004          2003      2004          2003
                                 -------      -------    -------      -------
    Net income                  $  1,493     $    399   $  2,905     $  8,954
    Unrealized gain (loss)
       on available for sale
      securities, net of tax        (683)          25       (378)          60
                                 -------      -------    -------      -------
    Other comprehensive
      income (loss)                 (683)          25       (378)          60
                                 -------      -------    -------      -------
    Comprehensive income        $    810     $    424   $  2,527     $  9,014
                                 =======      =======    =======      =======


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

     Introduction.  Hallmark Financial Services, Inc. ("HFS") and its  wholly
 owned subsidiaries  (collectively,  the "Company")  engage  in the  sale  of
 property and casualty insurance products.  The  Company's business  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   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 ("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;  Hallmark
 Finance Corporation ("HFC"), a premium finance company; 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 Personal Lines Group provides non-standard automobile liability  and
 physical damage insurance through  Hallmark and Phoenix  for drivers who  do
 not qualify for or cannot obtain standard-rate insurance. Prior to April  1,
 2003, Hallmark assumed  the reinsurance of  100% of  the Texas  non-standard
 automobile policies  produced by  AHGA and  underwritten by  State &  County
 Mutual  Fire  Insurance  Company  ("State  &  County")  and  retroceded  55%
 of  the  business  to  Dorinco  Reinsurance Company ("Dorinco").  Under this
 arrangement, Hallmark  remained  obligated  to policyholders  in  the  event
 Dorinco  did  not meet  its  obligations  under the  retrocession agreement.
 Effective April 1,  2003, Hallmark  assumes the  reinsurance of  45% of  the
 Texas non-standard  automobile policies  produced by  AHGA and  underwritten
 either by State &  County (for policies written  from April 1, 2003  through
 September 30, 2003)  or Old American  County Mutual  Fire Insurance  Company
 ("OACM") (for policies written after September 30, 2003).  The remaining 55%
 of each policy is directly assumed by Dorinco.  Under these new  reinsurance
 arrangements, Hallmark is obligated to policyholders only for the portion of
 risk assumed by  Hallmark.  Phoenix underwrites non-standard auto  insurance
 produced  by  independent  agents  and  retains  100%  of  the  premium  and
 losses  for the business it  writes.  Effective  July 1, 2003,  the  Company
 discontinued HFC's premium finance program and shifted focus to a six  month
 direct bill program.  HCS  provides claims adjustment, salvage,  subrogation
 recovery and litigation services to Hallmark, Phoenix and Dorinco.

     The Commercial  Lines Group, through  HGA, markets commercial  insurance
 policies through independent  agents.  HGA  produces policies  on behalf  of
 Clarendon  National  Insurance  Company  ("CNIC")  under  a  general  agency
 agreement where it receives a commission  based on the premium written  with
 CNIC. ECM  provides fee-based  claims  adjustment, salvage  and  subrogation
 recovery, and litigation services on behalf of CNIC.


 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, 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 June  30,  2004  were  $41.3  million
 compared to $40.4 million at December 31, 2003.

     Net cash  provided by  the Company's  consolidated operating  activities
 was $2.8 million for the first six  months of 2004 compared to $3.9  million
 for  the  first  six  months of  2003.  The decrease  in operating cash flow
 is  due mostly  to a  reduction  in Personal  Lines  premium volume  causing
 an  approximate  $4.2  million reduction  in premiums  collected.  This  was
 partially offset by an approximate $3.0 million increase in collected ceding
 commission revenue due primarily to increased premium writings by Commercial
 Lines in 2004.

     Cash used by  investing activities during the  first six months of  2004
 was $4.2 million as compared to cash provided of $21.9 million for the  same
 period  in 2003.  The acquisition  of Phoenix in  2003 produced  a net  cash
 increase of $6.9  million.  The  decrease was  additionally attributable  to
 redemption of short-term investments in the first six months of 2003 of $7.4
 million compared  to purchases  of short-term  investments in  2004 of  $2.4
 million; repaid premium finance notes in  2003 of $3.6 million; transfer  of
 $3.3 million to  restricted investments  in 2004  for the  benefit of  OACM;
 purchase of available-for-sale securities in  2004 of $1.1 million  compared
 to $0.1 million in 2003; and redemption of available-for-sale securities  of
 $2.6 million in 2004 as compared to $4.2 million in 2003.

     Cash  used in  financing activities  decreased by  $3.1 million  in  the
 first six months of 2004 as compared to the  same period of 2003 due to  the
 discontinuation of the  premium finance program  in 2003. As  a result,  the
 Company did  not receive  any  advances in  2004  from the  premium  finance
 lender.

     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 June 30, 2004, cash and
 invested assets of HFS were $0.4 million.  Cash and invested assets of  non-
 insurance subsidiaries were $5.8 million as of June 30, 2004.  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  Texas Department  of  Insurance
 ("TDI"), to the greater of statutory net income for the prior calendar  year
 or 10% of  its statutory policyholders'  surplus as of  the prior year  end.
 Dividends may only  be paid  from unassigned  surplus funds.   During  2004,
 Hallmark's ordinary dividend capacity is  $2.2 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  Arizona Department  of  Insurance
 ("AZDOI").   During  2004,  Phoenix's ordinary  dividend  capacity  is  $0.6
 million.  Neither Hallmark nor Phoenix declared a dividend to HFS during the
 first six months of 2004.  Hallmark paid  a $0.2 million dividend to HFS  in
 2004 that was declared in 2003.

     TDI  regulates   financial  transactions  between   Hallmark,  HFS   and
 affiliated companies.   Applicable  regulations  require TDI's  approval  of
 management and expense  sharing contracts  and similar  transactions.   AHGA
 paid $0.3  million in  management fees  in 2004  to HFS  and HFC  paid  $0.3
 million in management fees to HFS in 2003.

     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 $0.6 million in management fees during the first six months of 2004  to
 AHGA.


 Results of Operations

 Three Months Ending June 30, 2004 as compared to Three Months Ending
 June 30, 2003

     Total revenues  for the  quarter  ended June  30, 2004,  decreased  $2.4
 million, or 13%,  as compared to  the same period  of 2003,  primarily as  a
 result of a  $3.5 million decline in total revenues from  the Personal Lines
 Group partially offset by a $1.1 million increase in total revenues from the
 Commercial Lines Group.  Income  before tax and  extraordinary gain for  the
 quarter ended June 30, 2004, increased $1.5 million, or 233%, as compared to
 the  same period  in 2003.  The improvement  in operating  earnings for  the
 second quarter  of 2004  compared to  the second  quarter of  2003  reflects
 improved underwriting  results  in  the  Personal  Lines  Group,  additional
 commission revenue  in  the  Commercial  Lines  Group  and  overall  reduced
 interest expenses.

     The following is additional  business segment information for the  three
 months ended June 30, 2004 and 2003 (in thousands):

                                                2004          2003
                                              --------      --------
                  Revenues
                  --------
  Personal Lines Group                       $   9,956     $  13,414
  Commercial Lines Group                         5,693         4,631
  Corporate                                          1             -
                                              --------      --------
       Consolidated                          $  15,650     $  18,045
                                              ========      ========

  Income before tax and extraordinary gain
  ----------------------------------------
  Personal Lines Group                       $   1,949     $   1,135
  Commercial Lines Group                           585           189
  Corporate                                       (338)         (664)
                                              --------      --------
       Consolidated                          $   2,196     $     660
                                              ========      ========


 Personal Lines Group

     Net premiums  written decreased $2.1 million  during the second  quarter
 of 2004 to $7.0 million  compared to $9.1 million  in the second quarter  of
 2003.  The decrease  in net premiums written  was primarily attributable  to
 the cancellation of unprofitable agents and  programs, a shift in  marketing
 focus from annual term  premium financed policies to  six month term  direct
 bill policies  and  a reduction in  policy counts caused by increased rates.
 Net premiums earned decreased $3.5 million  to $7.9 million for the  quarter
 ended June 30, 2004, as compared to the  same period of 2003.  Net  premiums
 earned declined more than  net premiums written due  to the decrease in  the
 rate of reduction  in written premium  for the months  prior to the  quarter
 ended June 30, 2004 as compared to the same period in 2003.  Primarily as  a
 result of the decline in net premiums earned, total revenue for the Personal
 Lines Group decreased $3.5 million or 26%, for the second quarter of 2004 to
 $10.0 million from $13.4 million for the same period in 2003.

     Even  though revenue  for the  Personal  Lines Group  declined,  pre-tax
 income increased  $0.8  million, or  72%  for  the second  quarter  of  2004
 compared to the second quarter of 2003.  The increase in pre-tax income  was
 due largely  to improved  underwriting  results as  shown  by a  loss  ratio
 (defined as  loss  and loss  adjustment  expenses divided  by  net  premiums
 earned) of 56.0% for the second quarter of 2004 as compared to 66.7% for the
 same period  of 2003.   Other  operating costs  and expenses  declined  $1.0
 million for  the  Personal Lines  Group  due  primarily  to a  $0.5  million
 reduction  in Phoenix policy service  fees  that were paid  to a third party
 in 2003.  In  2004,  the Company  performed these  services internally  with
 existing staff.  Also  contributing to the  reduction in operating  expenses
 was a  $0.2 million  reduction in  salary and  related expenses  due to  the
 successful integration  of  the Phoenix  operations  in late  2003  and  the
 overall reduction in premium volume.  Interest expense was $0.1 million less
 for the second quarter of 2004 as compared to the same period in 2003 due to
 the discontinuation of the premium finance program in July, 2003.

 Commercial Lines Group

     Total revenue  for the Commercial  Lines Group of  $5.7 million for  the
 second quarter of 2004 was $1.1 million more than the $4.6 million  reported
 in the  second  quarter of  2003.   The  improvement  was primarily  due  to
 additional commission  revenue  of  $0.7 million  and  claim  servicing  fee
 revenue of $0.3 million  in the second  quarter of 2004  as compared to  the
 same period  in 2003.  Increased commercial premium  volume was the  primary
 cause of the increased  commission and claim fee  revenue  for  the quarter.
 Earned premium  generated  by the  Commercial  Lines Group  for  the  second
 quarter of 2004 was $18.1 million as compared to $15.2 million in the second
 quarter  of 2003.  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 $0.6 million for  the
 second quarter of 2004 increased $0.4 million over the $0.2 million reported
 for the second quarter of 2003.  Increased revenue, as discussed above,  was
 the primary reason for the increase  in pre-tax income, partially offset  by
 additional agent commissions of  $0.5 million due  to the increased  premium
 volume and the payment of management fees to  HFS of $0.2 million in 2004.
 Commercial Lines did not pay any management fees in 2003.

 Corporate

      Corporate pre-tax loss was $0.3 million for the second quarter of  2004
 as compared to $0.7 million for the same period in 2003.  The Company  saved
 $0.3 million in interest expense for the second quarter of 2004 as  compared
 to the same  period in 2003  due to the  repayment of a  related party  note
 payable in September  2003.  Also  contributing to the  decrease in  pre-tax
 loss were additional  management fees  collected from  the Commercial  Lines
 Group of $0.2  million.  Corporate  did not collect  any management fees  in
 2003 from the Commercial Lines Group.


 Six Months Ending June 30, 2004 as compared to Six Months Ending
 June 30, 2003

     Total revenues for  the six months ended  June 30, 2004, decreased  $5.3
 million, or 15%, as compared  to the same period  of 2003, primarily as  the
 result of a $7.2 million  decline in total revenues from the Personal  Lines
 Group partially offset by  a $1.9 million   increase in total revenues  from
 the  Commercial Lines Group.  Income before tax  and extraordinary gain  for
 the six months  ended June  30, 2004, increased  $3.0 million,  or 236%,  as
 compared to the same period in 2003.  The improvement in operating  earnings
 in 2004  compared  to  2003  for the  first  six  months  reflects  improved
 underwriting results  in the  Personal  Lines Group,  additional  commission
 revenue in the Commercial Lines Group and overall reduced interest expenses.

     The following  is additional business  segment information  for the  six
 months ended June 30, 2004 and 2003 (in thousands):

                                                2004          2003
                                              --------      --------
                  Revenues
                  --------
  Personal Lines Group                       $  20,215     $  27,447
  Commercial Lines Group                        11,206         9,318
  Corporate                                          2             -
                                              --------      --------
       Consolidated                          $  31,423     $  36,765
                                              ========      ========

  Income before tax and extraordinary gain
  ----------------------------------------
  Personal Lines Group                       $   3,585     $   2,083
  Commercial Lines Group                         1,255           489
  Corporate                                       (568)       (1,302)
                                              --------      --------
       Consolidated                          $   4,272     $   1,270
                                              ========      ========


 Personal Lines Group

     Net premiums written decreased $6.8 million during the first six  months
 of 2004 to $15.8 million compared to $22.6 million during the same period of
 2003.  The decrease  in net premiums written  was primarily attributable  to
 the cancellation of unprofitable agents and  programs, a shift in  marketing
 focus from annual term  premium financed policies to  six month term  direct
 bill policies  and  a reduction in  policy counts caused by increased rates.
 Net premiums earned  decreased $7.7  million to  $16.2 million  for  the six
 months ended June 30,  2004,  as compared to  the same period  of 2003.  Net
 premiums earned declined more than net premiums written due to the  decrease
 in the rate of reduction in written premium for the months prior to the  six
 months  ended  June  30, 2004  as  compared to  the  same  period  in  2003.
 Primarily as a result of the  decline in net premiums earned, total  revenue
 for the Personal Lines  Group decreased $7.2 million  or 26%,  for the first
 six months of 2004 to $20.2 million  from $27.4 million for the same  period
 in 2003.

     Even  though revenue  for the  Personal  Lines Group  declined,  pre-tax
 income increased  $1.5 million,  or 72%  for the  first six  months of  2004
 compared to the same period of 2003.  The increase in pre-tax income was due
 largely to improved underwriting results as  shown by a loss ratio of  59.9%
 for the first half of 2004 as compared to 69.3% for the same period of 2003.
 Other  operating costs and expenses declined $1.5 million due primarily to a
 $0.9 million  reduction in  Phoenix policy service  fees  that were paid  to
 a  third party in  2003.  In 2004,  the  Company  performed  these  services
 internally  with  existing staff.  Also  contributing  to the  reduction  in
 operating expenses  was  a $0.3 million  reduction  in  salary  and  related
 expenses due to the successful integration of the Phoenix operations in late
 2003 and the overall reduction in premium volume.  Interest expense was $0.3
 million less for the first six months of 2004 as compared to the same period
 in 2003 due to the discontinuation  of the premium finance program in  July,
 2003.

 Commercial Lines Group

     Total revenue for  the Commercial Lines Group  of $11.2 million for  the
 first six  months  of 2004  was  $1.9 million  more  than the  $9.3  million
 reported for the same period in 2003.  The improvement was primarily due  to
 a $1.5 million increase in commission revenue and a $0.3 million increase in
 claim  servicing  fee revenue.  Commercial  premium  volume growth  was  the
 primary cause of  the increased  commission and  claim fee  revenue for  the
 first six months of 2004.  Earned premium generated by the Commercial  Lines
 Group for the first six months of  2004 was $35.6 million compared to  $29.7
 million for the same period in 2003.  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 $1.3 million for  the
 first six  months of  2004  increased $0.8 million  over  the  $0.5  million
 reported for  the same  period  of  2003.  Increased revenue,  as  discussed
 above, was the primary reason for the increase in pre-tax income,  partially
 offset by additional agent commissions of $0.9 million due  to the increased
 premium volume and the payment of management fees to HFS of $0.3 million  in
 2004.  Commercial Lines did not pay any management fees in 2003.

 Corporate

      Corporate pre-tax loss  was $0.6 million  for the first  six months  of
 2004 as compared to $1.3 million for the  same period in 2003.  The  Company
 saved $0.5 million in interest expense for  the first six months of 2004  as
 compared to the same period in 2003 due to the repayment of a related  party
 note  payable in September 2003.  Also contributing to the decrease in  pre-
 tax loss were additional management fees collected from the Commercial Lines
 Group of $0.3  million.  Corporate  did not collect  any management fees  in
 2003 from the Commercial Lines Group.


 Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

      Information required under Item 305 of  Regulation S-K is not  required
 in this Form 10-Q.


 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 such controls and procedures  are effective as of the end  of
 the  period covered by this report.  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.    Changes in Securities.

             None.


  Item 3.    Defaults on Senior Securities.

             None.


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

      (a)    The Company's Annual Meeting of Shareholders was held on May 20,
             2004.  Of the  36,447,291 shares of common stock of the  Company
             entitled to vote at the meeting,  35,135,155 shares were present
             in person or by proxy.

      (b)    The following individuals were elected to serve as directors  of
             the Company and received the number of votes  set forth opposite
             their respective names:

                 Director                       Shares Voted For

             Mark E. Schwarz                       35,134,005

             James H. Graves                       35,134,005

             George R. Manser                      35,134,005

             Scott T. Berlin                       35,134,005

             James C. Epstein                      35,134,005


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


  Item 5.    Other Information.

             None.


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

        (a)  The exhibits listed in the Exhibit Index appearing on page 19
             are filed herewith.

        (b)  The Company filed the  following reports on Form 8-K during
             the second quarter of 2004.

             Form 8-K filed May 12, 2004 containing a press release
             announcing the financial results for the first quarter
             ended March 31, 2004.

<PAGE>

                                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: August 13, 2004       /s/ Mark E. Schwarz
                             ---------------------------------------------
                             Mark E. Schwarz, Chairman (Chief
                             Executive Officer)


 Date: August 13, 2004       /s/ Mark J. Morrison
                             ---------------------------------------------
                             Mark J. Morrison, Executive Vice President
                            (Chief Financial Officer)