CONFORMED COPY

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                 FORM 10-QSB

              Quarterly report under Section 13 or 15(d) of the

                       Securities Exchange Act of 1934

                For the quarterly period ended March 31, 2002

                        Commission file number 0-16090

                      Hallmark Financial Services, Inc.
                      ---------------------------------
    (Exact name of small business issuer as specified in its charter)


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

     14651 Dallas Parkway, Suite 900 Dallas, Texas         75240
     ---------------------------------------------       ---------
       (Address of principal executive offices)          (Zip Code)

       Issuer's telephone number, including area code:  (972) 404-1637

       Check whether the issuer (1) has  filed all reports required to
       be filed by Section 13 or 15(d)  of the Securities Exchange Act
       during the past 12 months (or for  such shorter period that the
       registrant was required to file such reports), and (2) has been
       subject to such filing requirements for the past 90 days.

                            Yes   X       No


                     APPLICABLE ONLY TO CORPORATE ISSUERS


       State the number of shares outstanding  of each of the issuer's
       classes of  common equity, as  of the latest  practicable date:
       Common Stock,  par  value $.03  per share  -  11,049,133 shares
       outstanding as of May 12, 2002.

<PAGE>
                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                   INDEX TO FINANCIAL STATEMENTS

                                                           Page Number
                                                           -----------
 Consolidated Balance Sheets at March 31, 2002
 (unaudited) and December 31, 2001                               3

 Consolidated Statements of Operations (unaudited) for
 the three months ended March 31, 2002 and March 31, 2001        4

 Consolidated Statements of Cash Flows (unaudited) for
 the three months ended March 31, 2002 and March 31, 2001        5

 Notes to Consolidated Financial Statements (unaudited)          6


<PAGE>

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

                                                           March 31  December 31
                    ASSETS                                   2002       2001
                                                          (Unaudited)
                                                            -------    -------
 Investments:
    Debt securities, held-to-maturity,
      at amortized cost                                    $  3,799   $    876
    Equity securities, available-for-sale,
      at market value                                           144        144
    Short-term investments, at cost which
      approximates market value                               8,957     15,203
                                                            -------    -------
             Total investments                               12,900     16,223

 Cash and cash equivalents                                    7,489      5,533
 Restricted cash                                              1,693      1,990
 Prepaid reinsurance premiums                                11,956     11,611
 Premiums receivable from lender (net of allowance for
   doubtful accounts of $162 in 2002 and $208 in 2001)       14,664     13,740
 Premiums receivable                                            816        414
 Reinsurance recoverable                                     14,670     16,871
 Deferred policy acquisition costs                            1,181        761
 Excess of cost over net assets acquired                      4,431      4,431
 Current federal income tax recoverable                         677        696
 Deferred federal income taxes                                  339        425
 Accrued investment income                                       11          6
 Other assets                                                   738        904
                                                            -------    -------
                                                           $ 71,565   $ 73,605
                                                            =======    =======
     LIABILITIES AND STOCKHOLDERS' EQUITY
 Liabilities:
    Notes payable                                          $ 13,943   $ 13,933
    Unpaid losses and loss adjustment expenses               18,102     20,089
    Unearned premiums                                        18,395     16,793
    Reinsurance balances payable                              5,227      4,426
    Drafts outstanding                                          909        890
    Accrued ceding commission refund                          1,508      4,598
    Accounts payable and other accrued expenses               2,918      2,508
                                                            -------    -------
          Total liabilities                                  61,002     63,237
                                                            -------    -------
 Stockholders' equity
    Common stock, $.03 par value, authorized 100,000,000
      shares Issued 11,855,610 shares in 2002 and 2001          356        356
    Capital in excess of par value                           10,875     10,875
    Retained earnings                                           375        180
    Treasury stock, 806,477 shares in 2002
      and 2001, at cost                                      (1,043)    (1,043)
                                                            -------    -------
          Total stockholders' equity                         10,563     10,368
                                                            -------    -------
                                                           $ 71,565   $ 73,605
                                                            =======    =======

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

<PAGE>

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

                                                     Three Months Ended
                                                         March 31
                                                ----------------------------
                                                   2002              2001
                                                ----------       -----------
  Gross premiums written                       $    13,952      $     15,747
  Ceded premiums written                            (8,546)          (10,559)
                                                ----------       -----------
        Net premiums written                  $      5,406      $      5,188

  Revenues:
     Gross premiums earned                          12,312            12,431
     Ceded premiums earned                          (8,164)           (8,055)
                                                ----------       -----------
        Net premiums earned                          4,148             4,376

     Investment income, net of expenses                126               310
     Finance charges                                   655               832
     Processing and service fees                       143               423
     Other income                                       76                46
                                                ----------       -----------
         Total revenues                              5,148             5,987
                                                ----------       -----------

  Benefits, losses and expenses:
     Losses and loss adjustment expenses             7,963            10,891
     Reinsurance recoveries                         (4,784)           (7,084)
                                                ----------       -----------
     Net losses and loss adjustment expenses         3,179             3,807

  Acquisition costs, net                              (419)               57
  Other acquisition and underwriting expenses
    (net of ceding commission of $2,240 in
    2002 and $3,074 in 2001)                         1,285               838
  Operating expenses                                   599             1,110
  Interest expense                                     205               294
  Amortization of intangible assets                      -                39
                                                ----------       -----------
          Total benefits, losses and expenses        4,849             6,145
                                                ----------       -----------
  Income (loss) from operations before
    federal income taxes                               299              (158)

  Federal income tax expense (benefit)                 104               (59)
                                                ----------       -----------

  Net income (loss)                            $       195      $        (99)
                                                ==========       ===========

  Basic and diluted earnings per share         $      0.02      $      (0.01)
                                                ==========       ===========

  Common stock shares outstanding               11,049,133        11,049,133
                                                ==========       ===========


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

<PAGE>

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

                                                         Three Months Ended
                                                               March 31
                                                        ---------------------
                                                          2002          2001
                                                        -------       -------
 Cash flows from operating activities:
    Net income (loss)                                  $    195      $    (99)

 Adjustments to reconcile net income (loss) to cash
   (used in) provided by operating activities:
       Depreciation and amortization expense                 40            69
       Change in deferred federal income taxes               86          (101)
       Change in prepaid reinsurance premiums              (345)       (2,503)
       Change in premiums receivable                       (402)          478
       Change in deferred policy acquisition costs         (420)           57
       Change in unpaid losses and loss
         adjustment expenses                             (1,987)         (403)
       Change in unearned premiums                        1,602         3,316
       Change in reinsurance recoverable                  2,201          (111)
       Change in reinsurance balances payable               801         2,235
       Change in current federal income tax recoverable      19            95
       Change in current federal income tax payable           -            37
       Change in accrued ceding commission refund        (3,090)          623
       Change in litigation costs                             -        (1,386)
       Change in all other liabilities                      429          (143)
       Change in all other assets                           167          (296)
                                                        -------       -------
           Net cash (used in) provided by
             operating activites                           (704)        1,868

 Cash flows from investing activities:
    Purchases of property and equipment                     (46)          (65)
    Premium finance notes originated                    (13,090)      (14,167)
    Premium finance notes repaid                         12,166        11,134
    Change in restricted cash                               297         1,457
    Purchases of debt securities                         (3,000)            -
    Maturities and redemptions of investment securities      77         2,083
    Purchase of short-term investments                   (7,996)       (4,383)
    Maturities of short-term investments                 14,242         2,000
                                                        -------       -------
       Net cash provided by (used in)
         investing activities                             2,650        (1,941)

 Cash flows from financing activities:
     Net advances from lender                                10        (1,161)
     Repayment of short-term borrowings                       -          (182)
                                                        -------       -------
         Net cash provided by (used in)
           financing activities                              10        (1,343)
                                                        -------       -------
 Increase (decrease) in cash and cash equivalents         1,956        (1,416)
 Cash and cash equivalents at beginning of period         5,533         6,831
                                                        -------       -------
 Cash and cash equivalents at end of period            $  7,489      $  5,415
                                                        =======       =======

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

<PAGE>

              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES


 Item 1.  Notes to Consolidated Financial Statements (Unaudited).


 Note 1 - Summary of Accounting Policies

     In the  opinion of management,  the accompanying consolidated  financial
 statements contain all adjustments, consisting primarily of normal recurring
 adjustments, necessary to present fairly the financial position of  Hallmark
 Financial Services, Inc. and  subsidiaries (the "Company")  as of March  31,
 2002 and  the consolidated  results of  operations and  cash flows  for  the
 periods presented.  The accompanying financial statements have been prepared
 by the Company without audit.

     Certain  information  and disclosures  normally  included  in  financial
 statements prepared  in  accordance  with  accounting  principles  generally
 accepted in the  United States of  America ("GAAP") have  been condensed  or
 omitted.  Reference is made to  the Company's annual consolidated  financial
 statements for  the  year ended  December  31,  2001 for  a  description  of
 accounting policies and  certain other disclosures.   Certain  items in  the
 2001 interim financial statements have been  reclassified to conform to  the
 2002 presentation.

     The results of  operations for the period ended  March 31, 2002 are  not
 necessarily indicative of the operating results to be expected for the  full
 year.


 Note 2 - Reinsurance

     The Company  is involved in  the assumption and  cession of  reinsurance
 from/to other companies.  The Company remains obligated to its policyholders
 in the  event  that reinsurers  do  not  meet their  obligations  under  the
 reinsurance agreements.

     Effective  March  1,  1992,  the  Company  entered  into  a  reinsurance
 arrangement with  State &  County Mutual  Fire Insurance  Company ("State  &
 County"), an unaffiliated company,  to assume 100%  of the nonstandard  auto
 business produced by the  Company and underwritten by  State & County.   The
 arrangement is supplemented by  a separate retrocession agreement  effective
 July  1,  2000   between  the  Company   and  Dorinco  Reinsurance   Company
 ("Dorinco"). Under  the agreement,  the Company  currently retains  35%  and
 cedes 65% of the  risk to Dorinco.   Prior to January  1, 2002, the  Company
 retained 30% and ceded 70% of the risk to Dorinco.


 Note 3 - Intangible Assets

     When Hallmark, AHGA, HFC and HCS were purchased by HFS, the excess  cost
 over the fair value of the net assets acquired was recorded as goodwill  and
 was amortized on a straight-line basis  over forty years.  Other  intangible
 assets consist of a trade name, a managing general agent's license and  non-
 compete arrangements, all of which were fully amortized at March 31, 2002.

     In June 2001, the Financial Accounting Standards Board issued  Statement
 of  Financial  Accounting   Standards  No.  141   ("SFAS  141"),   "Business
 Combinations", and  No. 142  ("SFAS 142"),  "Goodwill and  Other  Intangible
 Assets".  SFAS  141 supersedes Accounting  Principles Board Opinion  ("APB")
 No. 16, "Business Combinations".   SFAS 141 (1)  requires that the  purchase
 method of accounting be used for  all business combinations initiated  after
 June 30, 2001, (2)  provides specific criteria  for the initial  recognition
 and measurement of intangible  assets apart from  goodwill and (3)  requires
 that  unamortized  negative  goodwill  be  written  off  immediately  as  an
 extraordinary gain.  SFAS 142 supersedes APB 17, "Intangible Assets," and is
 effective for fiscal  years beginning  after December  15, 2001.   SFAS  142
 primarily addresses  the  accounting  for  goodwill  and  intangible  assets
 subsequent to  their  initial  recognition.   SFAS  142  (1)  prohibits  the
 amortization  of  goodwill  and  indefinite-lived  intangible  assets,   (2)
 requires testing of  goodwill and indefinite-lived  intangible assets on  an
 annual basis for  impairment (and more  frequently if the  occurrence of  an
 event or circumstance indicates an impairment), (3) requires that  reporting
 units  be  identified  for  the   purpose  of  assessing  potential   future
 impairments of goodwill, and  (4) removes the  forty-year limitation on  the
 amortization period of intangible assets that have finite lives.

     The Company adopted the provisions of SFAS 142 during the first  quarter
 of 2002.  The Company is making the determinations as to what its  reporting
 units are and what amounts of goodwill, intangible assets, other assets, and
 liabilities should be  allocated to those  reporting  units.  In  accordance
 with SFAS 142, the Company has ceased recording amortization expense of  its
 goodwill.

     A reconciliation  of net income  and earnings per  share as reported  to
 illustrate the impact of  goodwill amortization for  the three months  ended
 March 31, 2002 and 2001 is as follows:

                                                Three Months Ended March 31
   (In thousands except for earnings                  2002        2001
   per share amounts)                                ------      ------

   Reported net income (loss)                       $   195     $   (99)
   Add back:  Goodwill amortization                       -          39
                                                     ------      ------
   Adjusted net income (loss)                       $   195     $   (60)
                                                     ======      ======
   Basic and diluted earnings per share:
   Reported net income (loss)                       $  0.02     $ (0.01)
   Goodwill amortization                                  -           -
                                                     ------      ------
   Adjusted net income (loss)                       $  0.02     $ (0.01)


     SFAS 142 requires that goodwill be tested annually for impairment  using
 a two-step process.   The first step is  to identify a potential  impairment
 and, in transition, this step  must be measured as  of the beginning of  the
 fiscal year.  However, a company has six months from the date of adoption to
 complete the first step.  The Company expects to complete the first step  of
 the goodwill impairment test during the second quarter of 2002.  The  second
 step of the goodwill impairment test  measures the amount of the  impairment
 loss (measured as of  the beginning of  the year of  adoption), if any,  and
 must be completed by the end of  the company's fiscal year.  Any  intangible
 assets of the Company deemed to have  an indefinite life will be tested  for
 impairment using a  one-step process which  compares the fair  value to  the
 carrying  amount of the asset as  of the beginning of  the fiscal year.  Any
 impairment loss resulting from the transitional impairment tests is expected
 to be reflected as the cumulative effect of a change in accounting principle
 in the Company's second quarter of 2002.  The Company has not yet determined
 what effect these impairment tests will  have on the Company's earnings  and
 financial position.  However, an impairment loss may be recognized.


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

     Introduction.  Hallmark Financial Services, Inc. ("HFS") and its  wholly
 owned subsidiaries  (collectively,  the "Company")  engage  in the  sale  of
 property and casualty insurance products.   The Company's business primarily
 involves marketing,  underwriting  and  premium  financing  of  non-standard
 automobile insurance,  as  well  as claims  adjusting  and  other  insurance
 related services.

     The  Company  pursues its  business  activities  through  an  integrated
 insurance group, (collectively, the "Insurance Group"), the members of which
 are an authorized  Texas property and  casualty insurance company,  American
 Hallmark Insurance Company of Texas ("Hallmark"); a managing general agency,
 American Hallmark General Agency, Inc. ("AHGA"); a network of four insurance
 agencies known as  the American Hallmark  Agencies ("Hallmark Agencies");  a
 premium finance company, Hallmark Finance Corporation ("HFC"); and a  claims
 handling and  adjusting firm,  Hallmark Claims  Service, Inc.  ("HCS").  The
 Company operates only in Texas.

     Hallmark provides non-standard automobile liability and physical  damage
 insurance through a  reinsurance arrangement with  an unaffiliated  company,
 State & County Mutual  Fire Insurance Company ("State  & County").   Through
 State & County, Hallmark provides insurance primarily for high-risk  drivers
 who do not qualify for standard-rate insurance. Under a supplementary quota-
 share reinsurance  agreement,  Hallmark,  upon  mutual  agreement  with  its
 current reinsurer, may elect on  a quarterly basis to  retain 30% to 45%  of
 the risk  while  ceding  the remaining  percentage  to  its  reinsurer.  The
 Company's principal  reinsurer,  Dorinco  Reinsurance  Company  ("Dorinco"),
 currently assumes 65%  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  the  Hallmark  Agencies,  and
 independent  agents.   Additionally,  AHGA   provides  premium   processing,
 underwriting, reinsurance accounting  and cash  management for  unaffiliated
 managing general agents ("MGAs").  HCS provides fee-based claims adjustment,
 salvage, subrogation  recovery  and  litigation  services  to  Hallmark  and
 unaffiliated MGAs.


 Financial Condition and Liquidity

     The Company's  sources of funds are  principally derived from  insurance
 related operations.  Major sources of funds from operations include premiums
 collected  (net  of  policy   cancellations  and  premiums  ceded),   ceding
 commissions, premium finance  charges and service  fees.   Other sources  of
 funds are from financing and investment activities.

     On a consolidated basis, the Company's total cash, cash equivalents  and
 investments (excluding restricted cash) at March  31, 2002 and December  31,
 2001 were  $20.4 million  and $21.8  million, respectively.   The  Company's
 liquidity decreased  6% during  the first  quarter of  2002 as  compared  to
 December 31, 2001  principally as a  result of an  annual ceding  commission
 adjustment with its reinsurer in the amount of $3.4 million during the first
 quarter of 2002, which was not significant in 2001.

     Net cash  used by the  Company's consolidated  operating activities  was
 $0.7 million for the first quarter of 2002 compared to net cash provided  by
 operating activities of approximately $1.9 million for the first quarter  of
 2001. The  approximate $3.4  million ceding  commission adjustment  paid  to
 reinsurers during  the first  quarter of  2002 was  partially offset  by  an
 increase in  monthly policy  production,  and to  a  lesser extent,  by  the
 increase in the Company's retention of State & County business to 35%  (from
 30%) effective January 1, 2002 under the Company's quota share  retrocession
 agreement with Dorinco.

     Cash provided by investing  activities during the first quarter of  2002
 increased approximately $4.6  million as compared  to the  first quarter  of
 2001.  This increase in cash provided by investing activities was  primarily
 the result  of increased  maturities of  short-term investments  during  the
 first  quarter  of  2002  as compared  to the  first quarter  of 2001.  This
 increase was partially offset by reinvestment of the matured funds into both
 long and short-term investments during the first quarter of 2002.

     Cash provided  by financing activities  increased by approximately  $1.4
 million in the first quarter of 2002 as compared to the same period of  2001
 primarily due  to a  decrease in  net advances  from the  Company's  premium
 finance lender.  The decrease in net advances was attributable to  decreased
 production of annual policies during the  first quarter of 2002 as  compared
 to the same period of 2001.

     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 $20.4 million at March 31, 2002, and
 $21.8 million  at  December  31,  2001, $2.1  million    and  $1.9  million,
 respectively,  represented  non-restricted  cash.    Since  state  insurance
 regulations restrict financial transactions between an insurance company and
 its affiliates, HFS is limited in its ability to use Hallmark funds for  its
 own working capital purposes.   Furthermore, dividends and loans by Hallmark
 to the Company are restricted and  subject to Texas Department of  Insurance
 ("TDI") approval.   Although TDI has  sanctioned the  payment of  management
 fees,  commissions  and  claims  handling  fees  by  Hallmark  to  HFS   and
 affiliates, since the second half of  2000, Hallmark has elected not to  pay
 all of the  commissions allowed  to AHGA.   Additionally,  during the  first
 three months of  2002,  Hallmark paid  only nominal  management fees to HFS.
 These  steps  were   taken  to  preserve   Hallmark's  surplus.   Management
 anticipates that Hallmark  may pay management  fees periodically during  the
 remainder of 2002. The Company has never received a dividend from  Hallmark,
 and there is no immediate plan to pay a dividend.

     Ceding commission  income represents a  significant source  of funds  to
 the Company.    Ceding commission  income  for  the first  quarter  of  2002
 decreased $0.8  million (representing  a 27%  decrease) as  compared to  the
 comparable period of  2001.  This  decrease was the  result of the  combined
 effect of (1) less favorable reinsurance  terms during the first quarter  of
 2002 compared to 2001, (2) a decrease in overall core State & County premium
 volume,  and (3) an increase in Hallmark's  retention rate  to 35% from 30%.
 In accordance with GAAP,  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   policy
 acquisition  costs  (net  of   deferred  ceding  commission)  increased   to
 approximately $1.2 million at March 31,  2002 from $0.8 million at  December
 31, 2001.  The increase in  net deferred acquisition costs was   principally
 due to the combined  effect of (1) decreased  ceding commission due to  less
 favorable reinsurance terms, (2) decreased annual policy production, and (3)
 increased retention  to 35%.  These  factors were    partially offset  by  a
 decrease in underwriting expenses.

     At March 31, 2002,  Hallmark  reported  statutory capital and surplus of
 $6.1 million, which reflects an increase of $0.1 million since December  31,
 2001.  Hallmark's premium-to-surplus ratio for the twelve months ended March
 31, 2002 was  2.61 to  1 as compared  to 2.62  for the  twelve months  ended
 December 31, 2001. Effective January 1,  2001, TDI adopted the  Codification
 of Statutory Accounting Principles (the "Codification"), which replaced  the
 National  Association  of  Insurance   Commissioners  primary  guidance   on
 statutory  accounting.    As   a  result  of   the  implementation  of   the
 Codification, Hallmark recognized a  deferred tax asset.   The deferred  tax
 adjustment required by the Codification is recognized by TDI as an  increase
 to surplus; however,  certain rating  agencies, such  as A.M.  Best, do  not
 recognize the adjustment as an  increase to surplus. Hallmark's  premium-to-
 surplus ratio, without the Codification, for  the twelve months ended  March
 31, 2002 was 2.86 to 1 as compared to 2.83 to 1 for the year ended  December
 31, 2001.

     The  Company provides  program administration  and claims  handling  for
 unaffiliated MGAs.  The  Company currently provides  these services for  one
 unaffiliated MGA which continues to produce new business.  Hallmark  assumes
 a pro-rata  share  of the  business  produced under  this  unaffiliated  MGA
 program, and Dorinco assumes the remainder.   Three other unaffiliated  MGAs
 for whom the Company provides similar services have discontinued writing new
 business due to the inability to obtain reinsurance and are in run-off.

     Management is  continuing to  investigate opportunities  to enhance  and
 expand the  Company's operations.   While  additional capital  or  strategic
 alliances may be required to fund future expansion, operational enhancements
 through  increased  information  technology  capabilities  are in  progress.
 During the summer of 2001, the Company rolled out its web-based  information
 system (named e-Integrity and referred to  as the "Integrity System")  which
 is designed to enhance Company and agency relationships by improving content
 and  timeliness  of  information  to  support  agents  in  servicing   their
 customers.  The  second phase  of the Integrity  System is  composed of  two
 parts.    Part  One  relates  to  electronic  reporting  and   communication
 capabilities, and Part Two encompasses, among other things, payment and  new
 business upload to support agents in more promptly and efficiently producing
 new business, as well as to improve the quality and timeliness of  servicing
 existing policyholders.   Part One alleviates  certain manual processes  and
 results in daily communication of time-sensitive information to agents, thus
 decreasing labor,  supplies and  postage costs  and increasing  the  agent's
 likelihood of policyholder retention.  This phase  was completed during  the
 first quarter  of 2002.   Part  Two, which  will further  reduce  processing
 costs, is  targeted to  be  completed by  year-end  2002 with  related  cost
 savings to commence in 2003.


 Results of Operations

 Overview

     The  Company  had profitable  results  for  the first  quarter  of  2002
 principally due to its focus on  rate adequacy, underwriting discipline  and
 agent management.  For  the first quarter ended  March 31, 2002, net  income
 was $0.2 million compared to a net loss of $0.1 million for the same quarter
 in 2001.   Gross premiums written  for the first  quarter of 2002  decreased
 11%, while net  premiums written  for the quarter  increased by  4% to  $5.4
 million compared to $5.2 million in the first quarter of 2001. Net  premiums
 earned of  $4.1 million  for the  quarter decreased  5% in  relation to  net
 premiums earned of $4.4 million for the 2001 quarter.

     The Company's net incurred loss  ratios declined to 76.6% for the  first
 quarter of 2002  from 87.0%  for the   first  quarter of  2001. Certain  key
 financial insurance operational ratios follow:


                                                 First        First
                                                quarter      quarter
                                                 2002         2001
                                                 -----        -----
 GAAP Incurred  Loss Ratio  (excluding storm
   and loss corridor)                            64.8%        87.0%
 GAAP Loss Corridor Incurred Loss Ratio  (1)     10.4%          -
 GAAP Storm Incurred Loss Ratio  (2)              1.4%          -
                                                 -----        -----
 GAAP Incurred Loss Ratio                        76.6%        87.0%
 GAAP Expense Ratio  (3)                         21.6%        15.1%
                                                 -----        -----
 GAAP Combined Ratio                             98.2%       102.1%
                                                 =====       ======

 (1)   Effective  April 1, 2001, the  Company's reinsurance agreement
   was amended to include a loss corridor provision.  Losses incurred
   within the loss corridor range are  retained 100% by the Company.
   The loss  corridor for the three  months ended March  31, 2002 was
   $0.4 million.

 (2)    Net storm losses  retained by the  Company were approximately
   $0.06 million for the three months ended March 31, 2002.

 (3)    The GAAP expense  ratio represents underwriting  expenses and
   other  income  less  certain  expenses  as  a  percentage  of  net
   premiums written.   The  principal reason  for the  increased GAAP
   expense ratio  is the decrease  in ceding commission  income. As a
   percentage  of  net  premiums written,  ceding  commission  income
   declined  17.9%,  as  discussed  in the  Financial  Condition  and
   Liquidity section.


 Analysis

     Gross premiums written (prior  to reinsurance) for the first quarter  of
 2002 decreased 11%, while net premiums written (after reinsurance) increased
 4%, in relation to the same period in 2001.  The decrease in gross  premiums
 written was principally due to the Company's strategic focus on underwriting
 profitability rather  than  market share.    This focus  included  increased
 attention to rate adequacy, agent performance and underwriting discipline.
 The disparity between  gross premiums written  and net  premiums written  is
 primarily due to the  increase in the Company's  retention of premiums  from
 30% to 35% effective January 1, 2002.

     Despite the 11% decrease in gross premiums written compared to the  same
 quarter of the prior year, gross premiums earned (prior to reinsurance)  for
 the first quarter of  2002 decreased only slightly  as compared to the  same
 period of 2001.  This was principally due to the combined effect of a  shift
 in policy mix from annual to  monthly policies and the continued earning  of
 annual premiums written at a higher volume level during 2001.  For the first
 quarter  of  2002,  net   premiums  earned  (after  reinsurance)   decreased
 approximately   5%  in   relation  to  the   same  period   of   2001.   The
 disproportionate change in premiums earned prior to and after reinsurance is
 principally due to the  reduction in premiums  earned from unaffiliated  MGA
 programs, three of which  are currently in run-off.    The unaffiliated  MGA
 programs have a greater impact on  net premiums as the Company assumes  this
 business from Dorinco (i.e. the same  amount is reflected in both gross  and
 net premiums).

     Net  incurred  loss  ratio   (computed  on  net  premiums  earned  after
 reinsurance) for the first quarter of  2002 was 76.6% compared to 87.0%  for
 the same period of  2001. During the second  quarter of 2001, the  Company's
 reinsurance agreement was amended to include a loss corridor provision which
 increases net  losses incurred  by the  Company between  certain loss  ratio
 levels.  If the  loss corridor provision  had not been  in place during  the
 first quarter of 2002,  the net incurred loss  ratio would have been  66.2%.
 Additionally, severe storms occurring in March  2002 impacted the 2002  loss
 ratio. Excluding the impact of storms and the loss corridor, the loss  ratio
 for  2002 would  have been 64.8%.  The significant  improvement in the  loss
 ratio from  2001  to  2002  is  principally  the  result  of  the  Company's
 increasing focus  on underwriting  profitability during  2001 which  is  now
 reflected in first quarter 2002 results.  Specific strategies implemented in
 late 2000 and  2001 to improve  the Company's loss  ratio included  multiple
 rate increases,  more  restrictive underwriting  guidelines,  reductions  in
 agency force and emphasis on faster payment of claims.

     Investment  income  decreased  59% during  the  first  quarter  of  2002
 compared to the same period  of 2001.  The  decrease is attributable to  the
 combined effect of decreased yields  currently available in the  marketplace
 and maturities/calls of higher yield investments.

     Finance charges, which  decreased approximately $0.2 million during  the
 first quarter  of  2002 compared  to  the  same period  of  2001,  represent
 interest earned on premium notes issued  by HFC.  This decrease is  directly
 correlated to the decrease in the annual policy premium volume.

     Processing  and  service  fees represent  fees  earned  on  third  party
 processing and servicing contracts with  unaffiliated MGAs.  Processing  and
 service fees  for the  first quarter  of 2002  decreased approximately  $0.3
 million (66%) as a  result of cancellation of  service contracts with  three
 unaffiliated MGAs (which are currently in run-off).

     Acquisition costs, net represents the amortization of acquisition  costs
 (and credits)  deferred over  the past  twelve months  and the  deferral  of
 acquisition costs (and credits)  incurred in the current  period.  The  $0.5
 million decrease in acquisition costs, net is primarily due to the  combined
 effect of  a decrease  in ceding  commission income  due to  changes in  the
 Company's reinsurance terms and an increase in the deferral rate as a result
 of the Company increasing its retention of State & County business under its
 quota share retrocession agreement.

     Other acquisition  and underwriting  expenses increased  53% during  the
 first quarter of 2002 as compared to the same period of 2001.  The  increase
 in expenses is primarily attributable to decreased ceding commission  income
 as a  result of  decreased core  State  & County  premium  volume and  a  5%
 increase  in  the  Company's  retention  of its  core  business.   This  was
 partially offset by a  decrease in variable  expenses, such as  commissions,
 front fees  and premium  taxes.   Additionally, certain  other  underwriting
 expenses which fluctuate  with premium volume  decreased due to  information
 technology enhancements.

     Operating  expenses   include  expenses  related   to  premium   finance
 operations, general corporate overhead,  and third party administrative  and
 claims handling  contracts.    Related revenues  are  derived  from  finance
 charges and processing and service fees.   Operating expenses decreased  46%
 for  the first quarter of 2002 as compared to  the same period of 2001.  The
 majority of this decrease in operating expenses is attributable to decreased
 operating costs related to third party processing and claims handling.

     Interest expense  decreased approximately  $0.1 million  during 2002  as
 compared to 2001.  This decrease is principally the result of a decrease  in
 the effective interest rate  related to the premium  finance line of  credit
 and to lower premium note volume as a result of lower annual premium volume.


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

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


                                   PART II
                              OTHER INFORMATION



   Item 1.      Legal Proceedings.

                Except  for   routine  litigation  incidental   to  the
                business of the  Company and as described  in Note 3 to
                the Consolidated  Financial Statements of  the Company,
                neither the Company,  nor any of the  properties of the
                Company  was  subject   to  any   material  pending  or
                threatened legal  proceedings as  of  the date  of this
                report.


   Item 2.     Changes in Securities.

               None.


   Item 3.     Defaults on Senior Securities.

               None.


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

               None


   Item 5.     Other Information.

               None.


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


          (a)  No exhibits are filed herewith

          (b)  The Company  did not file  any Form  8-K Current Reports


<PAGE>

                                  SIGNATURES

 In accordance with the requirements of the Exchange Act, the registrant  has
 caused this report to be signed on its behalf by the undersigned,  thereunto
 duly authorized.

                      HALLMARK FINANCIAL SERVICES, INC.
                                 (Registrant)



 Date: May 14, 2002               /s/ Linda H. Sleeper
                                  ---------------------------
                                  Linda H. Sleeper, President
                                  (Chief Executive Officer)


 Date: May 14, 2002               /s/ John J. DePuma
                                  ---------------------------
                                  John J. DePuma,
                                  Chief Financial Officer