SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549

                                    FORM 10-QSB

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

                 For the quarterly period ended September 30, 1995



   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:  (214) 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 - 10,662,277 shares outstanding as of November 14, 1995.


   Number of pages in this report - 14  
   No Exhibit Index is filed with this report.

   <PAGE>
   <TABLE>                            PART I
                               FINANCIAL INFORMATION
                HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEETS

                                                September 30   December 31
   ASSETS                                       1995           1994
   <S>                                          <C>            <C>
   Investments:
     Debt securities, held-to-maturity         $ 5,354,468    $ 4,329,103
     Equity securities, available-for-sale         172,208        174,709
     Short-term investments, at cost which 
      approximates market value                  5,779,803        320,000

        Total investments                       11,306,479      4,823,812

     Cash and cash equivalents                   3,114,777      1,800,762
     Prepaid reinsurance premiums               12,378,620      7,304,284
     Premium notes receivable                    5,043,386            -  
     Installment premiums receivable 
      (net of allowance for doubtful accounts)   1,831,896      8,284,633
     Reinsurance recoverable                    15,922,592     10,382,311
     Deferred policy acquisition costs           3,219,170      2,113,759
     Excess of cost over net assets acquired, 
      net of accumulated amortization            5,408,053      5,529,936
     Other intangible assets                        17,500         40,000
     Deferred federal income taxes                 506,512           -   
     Accrued investment income                      58,983         41,609
     Other assets                                  793,658        363,810

        Total assets                          $ 59,601,626   $ 40,684,916

        LIABILITIES AND STOCKHOLDERS' EQUITY

   Liabilities: 
     Notes payable                               $ 700,499      $ 882,862
     Unpaid losses and loss adjustment expenses 18,574,294     12,668,306
     Unearned premiums                          16,547,786     10,229,911
     Reinsurance balances payable                5,279,098      2,719,039
     Deferred ceding commissions                 3,704,307      2,191,344
     Drafts outstanding                            655,961        777,585
     Accounts payable and other accrued expenses 3,809,279      2,046,475
     Current federal income taxes payable          278,964         22,245
     Accrued interest and franchise taxes payable   30,307         30,309
         Total liabilities                      49,580,495     31,568,076

   Stockholders' equity:
     Common stock, $.03 par value, authorized 
     100,000,000 shares; (issued 10,962,277 shares 
     in 1995 and 10,917,277 in 1994)               328,868        328,868
     Capital in excess of par value             10,349,665     10,349,665
     Accumulated deficit                          (57,402)      (961,693)
     Treasury stock                              (600,000)      (600,000)
   Total stockholders' equity                   10,021,131     9,116,840 
                                              $ 59,601,626  $  40,684,916
                    The accompanying notes are an integral part
                     of the consolidated financial statements.
   </TABLE>
   <PAGE>
   <TABLE>
                HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                     Unaudited

                            Three Months Ended            Nine Months Ended
                                      September 30             September 30
                            1995           1994      1995           1994
   <S>                      <C>            <C>       <C>            <C>
   Gross premiums written  $14,755,421  $7,710,685   $37,713,656   $21,514,186
   Ceded premiums written (11,057,747) (5,190,092)  (28,249,846)  (14,508,530)
     Net premiums written  $ 3,697,674 $ 2,520,593   $ 9,463,810   $ 7,005,656
   Revenues:
     Premiums earned       $11,788,841  $7,208,513   $31,077,131   $19,922,861
     Premiums ceded        (8,811,801) (4,857,028)  (23,175,509)  (13,233,868)
        Net premiums earned  2,977,040   2,351,485     7,901,622     6,688,993
     Investment income, 
      net of expenses          148,778      60,650       363,662       141,766
     Finance service charges   136,047     172,526       560,975       492,877
     Processing fees           626,598        -          842,031          -   
     Service fees                8,003     417,618        70,173     1,244,773
     Other income               20,581      14,194        71,360        94,819
        Total revenues       3,917,047   3,016,473     9,809,823     8,663,228
   Benefits, losses and expenses:
     Losses and loss 
      adjustment expenses    6,845,301   3,826,714    23,297,876    13,327,848
     Reinsurance recoveries(4,727,172) (2,457,906)  (17,160,101)   (8,594,068)
     Net losses and loss 
      adjustment expenses    2,118,129   1,368,808     6,137,775     4,733,780
     Amortization of acquisition 
      costs                    178,950      51,581       407,552       151,249
     Other acquisition, underwriting 
      and operating expenses   855,863   1,176,810     2,058,979     3,178,190
     Interest expense            9,026      15,074        31,636        49,748
     Amortization expense       46,328      48,254       144,383       139,761
     Total benefits,
      losses and expenses    3,208,296   2,660,527     8,780,325     8,252,728
   Income from operations before 
     federal income taxes      708,751     355,946     1,029,498       410,500
   Federal income tax benefit 
     (Note 3)                (201,351)       7,245     (125,207)         7,245

     Net income               $507,400    $348,701      $904,291      $403,255
   Net income per share 
     of common stock            $  .05     $   .03       $   .08        $  .04
   Weighted average 
     shares outstanding     10,662,277  10,650,935    10,662,277    10,650,935


                    The accompanying notes are an integral part
                     of the consolidated financial statements.
   </TABLE>
   <PAGE>
   <TABLE>
                HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     Nine Months Ended
                                                        September 30     
                                                     1995           1994
   <S>                                         <C>           <C>
   Cash flows from operating activities:
     Net income                                   $904,291       $403,255
     Adjustments to reconcile net income to
       cash provided by operating activities:
       Depreciation and amortization expense       221,393        212,102
       Change in deferred federal income taxes   (506,512)            -  
       Change in prepaid reinsurance premiums  (5,074,336)    (1,274,662)
       Change in premium notes receivable      (5,043,386)           -   
       Change in installment premiums receivable 6,452,737    (1,146,549)
       Change in deferred policy 
        acquisition costs                       (1,105,408)     (528,570)
       Change in ceding income                   1,512,960        679,819
       Change in unpaid losses and 
        loss adjustment expenses                 5,905,988        914,575
       Change in unearned premiums               6,317,875      1,591,324
       Change in reinsurance recoverable       (5,540,281)    (1,080,456)
       Change in reinsurance balances payable    2,560,058        847,872
       Change in all other liabilities           1,641,167        452,890
       Change in all other assets                (372,338)         36,350
       Change in federal income tax payable        256,717           -   

        Net cash provided by operating activities8,130,925      1,107,950

   Cash flows from investing activities:
     Purchases of property and equipment         (151,880)       (29,023)
     Purchases of debt securities              (2,932,347)    (2,377,247)
     Maturities and redemptions of 
      debt securities                            1,906,982      1,598,070
     Maturities and redemptions of common stock      2,501           -   
     Purchase of short-term investments        (7,879,803)      (100,000)
     Maturities of short-term investments        2,420,000           -   

        Net cash used in investing activities  (6,634,547)      (908,200)

   Cash flows from financing activities:
     Repayment of short-term borrowings          (182,363)      (179,296)

        Cash used in financing activities        (182,363)      (179,296)

   Increase (decrease) in cash and 
     cash equivalents                            1,314,015         20,454
   Cash and cash equivalents at beginning 
     of period                                   1,800,762      1,111,893

   Cash and cash equivalents at end of period   $3,114,777     $1,132,347

   Supplemental cash flow information:
     Cash paid during the period for interest      $31,637        $49,748

                    The accompanying notes are an integral part
   </TABLE>          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 to present fairly  the financial position of  Hallmark
   Financial Services, Inc. and subsidiaries (the "Company") as of September 30,
   1995 and  the consolidated  results  of operations  and  cash flows  for  all
   periods presented.  The  accompanying financial statements have been prepared
   by the Company without audit.

        Certain information  and  disclosures  normally  included  in  financial
   statements  prepared   in  accordance  with   generally  accepted  accounting
   principles  have been  condensed  or  omitted.   Reference  is  made  to  the
   Company's  annual  consolidated  financial  statements  for  the  year  ended
   December  31,  1994  for a  description  of  all  other  accounting policies.
   Certain items in the 1994 interim financial statements have been reclassified
   to conform to the 1995 presentation.

        The  results of operations for  the period ended  September 30, 1995 are
   not necessarily indicative  of the operating results  to be expected  for the
   full year.

   Note 2 - Investments
        Debt securities,  held-to-maturity,  for  the reporting  period  include
   investments in U.S. Government securities totaling $5,354,468, which includes
   the reinvestment  of $1,906,982  in matured  securities, and  special revenue
   bonds of  $429,296.   Net proceeds  received are  included in  cash and  cash
   equivalents  at  September   30,  1995.     Short-term   investments  include
   certificates of  deposits and federal  discount notes of  $5,779,803.  Short-
   term investments mature within one year.

        Realized investment gains and losses are recognized in operations on the
   specific identification method.   The Company has the  ability and intent  to
   hold  all  investments  to maturity.    Provisions  for  possible  losses are
   recorded only on other-than-temporary declines in the value of an investment.

   Note 3 - Federal Income Taxes
        The composition of  deferred tax assets and  liabilities and the related
   tax effects as of September 30, 1995 is as follows:

   Deferred Tax Liabilities:
        Deferred acquisition costs, 
          deductible for tax                  ($1,094,518)
          Other                                       (58)
             Total deferred tax liabilities    (1,094,576)
   Deferred Tax Assets:
        Property and equipment basis               $ 7,117
        Unearned premiums                          283,503
        Loss reserve discounting                   127,924
        Deferred ceding commissions, 
          non-deductible for tax                 1,259,641
        Net operating loss carryforward             49,655
        AMT credit                                   6,200
        Other                                       61,183
             Total deferred tax assets         $ 1,795,223
        Net deferred tax assets                  $ 700,647
        Valuation allowance                        194,135
        Net deferred tax asset                   $ 506,512
   <PAGE>
        A reconciliation  of the income  tax provisions based  on the prevailing
   corporate  tax  rate  of  34  percent  to  the  provision  reflected  in  the
   consolidated financial statements for the period  ended September 30, 1995 is
   as follows:

        Computed expected income tax expense 
          at statutory regulatory tax rate        $350,029
        Amortization of excess cost                 41,440
        Tax-exempt interest                        (2,954)
        Change in valuation allowance            (273,065)
        Other                                        9,757
        Deferred tax benefit                    ($125,207)

        The Company has  available, for federal income  tax purposes, unused net
   operating  losses of  $146,044 at September 30,  1995, which  may be  used to
   offset  future taxable  income.   The net  operating losses  will  expire, if
   unused, as follows:

             Year
             2002                                    1,325
             2003                                   96,237
             2007                                   48,482
                                                 $ 146,044

   Note 4 - Warrants Outstanding

        In October 1992, the  Company issued warrants to purchase 981,333 shares
   of its Common Stock ("Guaranty Warrants") to executive officers and directors
   in consideration  for the recipients' agreement  to pledge outstanding shares
   of the  Company's common stock they owned  as security for a  working capital
   line of  credit the Company proposed  to obtain from a  commercial bank.  The
   Company subsequently abandoned its efforts to obtain the working capital line
   of credit.   Each  Guaranty Warrant  covered the  same number  of shares  the
   recipient agreed to  pledge.  No value  has been assigned  to these warrants.
   The Guaranty Warrants were  initially exercisable between October 2, 1992 and
   October 1, 1994, and were subsequently extended to October 1,  1996, at which
   time they will  expire to the  extent not exercised.   The exercise  price is
   $.50 per share, an amount equal to the last reported sale price of the Common
   Stock on the American  Stock Exchange's Emerging Company Marketplace prior to
   October 2, 1992.   The Guaranty  Warrants are  not transferrable, but  may be
   exercised only by their recipients  (or by a recipient's estate in the  event
   of his/her death).

   Note 5 - Reinsurance
          
        The Company's insurance subsidiary, American Hallmark Insurance  Company
   of Texas  ("Hallmark"), is involved in  various reinsurance arrangements with
   other  companies.   Most  significant of  these  arrangements  is  Hallmark's
   affiliation with a  county mutual insurance company,  State and County Mutual
   Fire  Insurance Company  ("State  and  County").     Under  this arrangement,
   Hallmark underwrites the risk and the Company's subsidiary, American Hallmark
   General Agency, Inc., formerly Brokers General, Inc., manages the issuance of
   State and  County policies  by  Company-owned and  unaffiliated,  independent
   agents.    Hallmark  assumes  100% of  the  risk from  State  and  County and
   retrocedes  75% to  Vesta Insurance  Group, Inc.,  formerly known  as Liberty
   National Fire  Insurance Company, under a  quota share reinsurance agreement.
   Hallmark's retained percentage is 25%.
   <PAGE>
   Item 2.  Management's Discussion and Analysis or Plan of Operation.

        Introduction.  Hallmark  Financial Services,  Inc. (HFS) engages  in the
   sale of consumer  products and services  on credit terms, primarily  to lower
   and middle income  customers.  Its target  market encompasses the substantial
   number of  Americans who  either are denied  credit from  banks, credit  card
   companies and other conventional  credit sources, or have never established a
   bank account or credit  history.  Currently, the Company's business primarily
   involves  marketing,  underwriting  and  premium  financing  of  non-standard
   automobile insurance.   Secondarily,  the Company  provides fee-based  claims
   adjusting and  related services for affiliates  and third parties.   (HFS and
   its  wholly owned  subsidiaries are  collectively referred  to herein  as the
   "Company").

        The Company conducts  these activities  through an  integrated insurance
   group,  the members of which  are a property  and casualty insurance company,
   American Hallmark Insurance Company of Texas ("Hallmark"); a managing general
   agent,  American  Hallmark  General  Agency,  Inc.  ("AHGA");  a  network  of
   affiliated  insurance  agencies  known  as  the  American  Hallmark  Agencies
   ("Hallmark   Agencies");  a   premium   finance  company,   Hallmark  Finance
   Corporation ("HFC");  and a  claims handling  and  adjustment firm,  Hallmark
   Claims Service, Inc., ("HCS").  The Company operates only in Texas.  

        The Company markets,  underwrites and  finances non-standard  automobile
   liability  and  physical  damage  insurance  policies.    Currently, Hallmark
   provides  insurance through  reinsurance arrangements  with  two unaffiliated
   companies, State  & County Mutual  Fire Insurance Company  ("State & County")
   and  Vesta Fire  Insurance Corporation  ("Vesta").   Through State  & County,
   Hallmark  provides insurance  primarily  for  high risk  drivers  who  do not
   qualify  for  standard-rate   insurance  ("Hallmark  policies").     Under  a
   supplementary quota-share reinsurance  agreement, Hallmark  cedes 75%  of its
   risks to Vesta.  Premium financing to policyholders is provided through HFC's
   premium finance  program or  Hallmark's  direct-billing program.    Effective
   January  1, 1995,  HFC resumed  its premium  finance operations  (after being
   dormant  since early  1992),  and currently  finances most  of  the Company's
   annual policy  production.  AHGA  manages the marketing  of Hallmark policies
   through  a network  of  retail insurance  agencies which  operates  under the
   American Hallmark  Insurance Agencies of Texas  name, and through independent
   agents operating under their own respective names.  

   Financial Condition and Liquidity

        The  Company's sources of funds are principally derived from   insurance
   related operations.  Major  sources of funds are from premiums collected (net
   of policy  cancellations and  premiums  ceded), ceding  commissions,  premium
   finance service  charges and investment  activities.  Despite  the January 1,
   1995  cancellation of  a significant  third  party administrative  and claims
   handling contract  (through HCS), net  cash flow provided  from the Company's
   consolidated operations  for the  nine months  ended September  30, 1995, was
   $8,130,925  as compared  to  $1,107,950 for  the same  period  in  1994.   As
   described below, 1995 net  cash flow increased significantly primarily due to
   increased premium volumes. 
   <PAGE>
        On a consolidated basis,  the Company's liquidity improved significantly
   during the nine months ended September 30, 1995, with bonds, equities, short-
   term  investments  and cash  totalling  $14,421,256  at  September  30, 1995,
   compared to $6,624,574 at December 31,  1994 and $5,642,282 at  September 30,
   1994.  The Company's increased  liquidity during 1995 is primarily due to  an
   approximate 75% increase in Hallmark's gross premiums written of  $37,713,656
   during  the first  nine months  of  1995 versus  $21,514,186 during  the same
   period of  1994, an approximate  95% increase in ceding  commission income to
   $8,474,954 during the first  nine months of  1995 versus $4,352,559 in  1994,
   and more timely funding of annual policy premiums under HFC's premium finance
   program  than  under Hallmark's  direct-bill  program.   Under HFC's  premium
   finance program, premiums for annual policies due Hallmark are funded-in-full
   in approximately  30 days.   However,  under  Hallmark's direct-bill  program
   which is being phased out,  the Company generally receives a 10% to  20% down
   payment  and the remaining annual  premium in  ten monthly installments.   As
   expected, net  installment premiums  receivable decreased  and premium  notes
   receivable increased  in light of  the commencement of  HFC's premium finance
   operations on January 1, 1995.  The Company reported net installment premiums
   receivable of $1,831,896 at  September 30, 1995 versus $8,284,633 at December
   31, 1994, and premium  notes receivable of  $5,043,386 at September 30,  1995
   versus -0- at December 31, 1994.  During  the first nine months of 1995,  the
   Company received external  funds, net  of cancellations, of  $9,011,658 under
   premium notes generated by the Company.

        The Company's  liquidity continued its  improvement due to lower  losses
   during the third quarter,  and despite weather-related catastrophe losses, as
   well  as higher  than usual non-catastrophe losses  during the  first half of
   1995.   During the  six months  ended  June 30,  1995,  the Company  incurred
   approximately $1.2 million in weather-related losses which are generally paid
   to  the  insureds  shortly  after the  loss  is reported.    Of  this amount,
   approximately $900,000 (75%)  was ceded under the  Company's principal quota-
   share agreement,  and approximately  $125,000 has  been or  will be recovered
   under the Company's excess-of-loss catastrophe coverage agreement.  

        At September 30,  1995, the Company reported  $700,499 in notes payable,
   $441,525 of which is  due before December 31,  1995.  The Company  expects to
   repay these notes with cash from operations.  However, the amount to  be paid
   in 1995 may be less than the $441,525 reflected in the notes payable balance.
   Included  in this amount is  a disputed obligation of  $380,000 in connection
   with  a  financing   transaction  which  occurred  prior   to  the  Company's
   acquisition  of  the  insurance  group.    Further,  if  any  portion of  the
   approximately $380,000 is ultimately deemed owing, the Company believes  that
   it  has  the right  of  offset against  a related  receivable  in the  sum of
   $240,000.

        Current Federal  income taxes ("FIT") payable  of $278,964  at September
   30, 1995  increased substantially over  the $22,245 reported  at December 31,
   1994, and the  $45,130 reported at June  30, 1995.   The increases  reflected
   between  these  periods  is  principally   due  to  the  Company's  increased
   profitability  and the  fact  that  the Company  has  utilized  most  of  its
   available operating loss carryforwards in prior years (See Note 3  -  Federal
   Income Taxes).  The increase reflected between the second and  third quarters
   of 1995 is  primarily the result of increases  in the accrual of  FIT payable
   related to the third quarter 1995 earnings, partially offset by a payment for
   estimated  FIT  of  $125,000 during  the  third  quarter.  Since  the Company
   currently has limited operating loss carryforwards remaining to offset future
   FIT, liquidity generated  by any future earnings  would be adversely affected
   by payment of FIT obligations.
   <PAGE>
        A  substantial  portion  of the  Company's  liquid  assets  are  held by
   Hallmark and are not  available for general corporate purposes; however, non-
   restricted cash continues to  increase.  Of the Company's consolidated liquid
   assets at  September  30, 1995,  $1,720,760  represents  non-restricted  cash
   (compared   to   $665,503   at   December   31,   1994   and    $231,400   at
   September 30, 1994).   Since state  insurance regulations  restrict financial
   transactions between an insurance  company and its affiliates, the Company is
   limited in its  ability to  use Hallmark  funds for  its own  working capital
   purposes.  Furthermore,  dividends and loans by  Hallmark to the  Company are
   restricted and  subject to  Texas Department of  Insurance ("TDI")  approval.
   However, TDI has  sanctioned the payment of  management fees, commissions and
   claims handling fees by Hallmark  to the Company and affiliates.  During  the
   third  quarter  of  1993,  the  Company   initiated  measures  to  strengthen
   Hallmark's surplus.    At that  time,  Hallmark's  premium-to-surplus  ratios
   exceeded TDI's guidelines  of 3 to  1.  These measures included,  among other
   things,  a  temporary  abatement  of  management  fees  and  a  reduction  in
   commissions payable  by  Hallmark to  the  Company  and  AHGA,  respectively.
   However, during the third  quarter of 1994, the  Company reinstated a portion
   of the management fees.  During  the first nine months of 1995, Hallmark paid
   or accrued $475,000  in management fees to the  Company.  For the  year ended
   December 31,  1994, Hallmark  paid the  Company $100,000  in management fees.
   Management anticipates  that  Hallmark may  pay  additional  management  fees
   during the fourth quarter of 1995, and thus, these fees could be a continued,
   moderate source of unrestricted liquidity. 

        Commissions  from  an  annual  policy  program  for  independent  agents
   initiated during  the first quarter of 1994 continue to represent a source of
   unrestricted liquidity for the Company.  Under this program, AHGA is offering
   independent agents the  ability to write annual  policies, but commissions to
   independent  agents  are  paid  monthly  on  an  "earned"  basis.    However,
   consistent  with  customary  industry  practice,  Hallmark  is  paying  total
   commissions up-front  to AHGA  based on  the entire  annual premiums written.
   Independent agent production of annual policies was approximately $19 million
   for  the nine months ended September 30,  1995.  During the first nine months
   of 1995, AHGA received $3,454,985 in commissions related to this program from
   Hallmark, of which $2,591,239 will be paid  to independent agents as  earned.
   During  1994, AHGA  received  $1,487,660 in  annual policy  commissions  with
   $1,115,745 to be paid to independent agents as earned.

        Ceding commission income represents a significant source of funds to the
   Company.   During the  first nine  months of  1995, and  during 1994,  ceding
   commission  income  exceeded  agent  commissions  and  other  direct expenses
   associated with the cost  of producing new business (i.e., policy acquisition
   costs).   Ceding commission income  for the  nine months ended September  30,
   1995 increased $4,122,395  up to $8,474,954 representing  a 95% increase when
   compared  to the  first nine  months of  1994.   In accordance  with GAAP,  a
   portion of ceding commission  income and policy acquisition costs is deferred
   and recognized  over future periods  as income and  expense, respectively, as
   related  net premiums  are earned.   Deferred  ceding commission  income also
   increased to $3,704,307 from  $2,191,344 at December 31, 1994.  This increase
   is principally due  to an  increase in  the Company's  premium volume  (which
   includes  annual policies that are earned over a  12-month period).  In light
   of the  growth in  premium  volume  during the  first  nine months  of  1995,
   deferred policy acquisition costs of $3,219,170  as of September 30, 1995 was
   some  52%  higher  than at  December  31,  1994.   However,  deferred  policy
   acquisition costs were $485,137  less than deferred ceding commission  income
   at September 30, 1995.  
   <PAGE>
   The Company is earning more in  ceding commission income than it is incurring
   in  agent commissions  and  other direct  policy acquisition  costs.   Excess
   earned ceding commission income  over policy acquisition costs is principally
   attributable to the  combined effect of the 75% cession of  increased premium
   volumes  during 1995 and the  Company's practice of dealing directly with its
   independent agents, thus eliminating additional commission expense associated
   with using third-party managing general agents as intermediaries.  

        At September 30, 1995,  Hallmark reported statutory capital  and surplus
   of  $4,427,483, which  shows  an  increase of  $820,341  over  the $3,607,142
   reported  at  September  30, 1994,  and  an  increase  of  $594,499  over the
   $3,832,984 reported at  December 31, 1994.   On an annualized-premiums basis,
   Hallmark's  premium-to-surplus ratio at September  30, 1995 was  2.85 to 1 as
   compared  to 2.53 to 1 at  December 31, 1994, and 2.59 to  1 at September 30,
   1994.  The narrowing  of Hallmark's premium-to-surplus ratio in comparison to
   December 31, 1994 and September 30, 1994, respectively, is principally due to
   the combined effect of  high catastrophic weather-related losses, higher than
   usual non-catastrophic losses and  increased premium volumes, particularly of
   annual policies, during the nine months ended September 30, 1995.  The impact
   on surplus  of high losses  during the first half  of the year  was partially
   offset  by lower losses during the third quarter  which is typically a strong
   quarter for Hallmark.   Management believes that  Hallmark should not require
   additional capital  during 1995.   Management  anticipates that  Hallmark  is
   positioned to maintain and strengthen statutory surplus through earnings from
   insurance operations.   Despite lower  loss ratios during  the third quarter,
   the loss experience of the first  half of year indicated the need  for a rate
   adjustment in  certain territories.  Hallmark imposed a rate increase for new
   business written effective late-September  1995.  In addition, based upon the
   resumption of high losses in October, 1995, Hallmark is planning another rate
   adjustment of selected  coverages and territories to  be effective January 1,
   1996.  Loss  ratios during 1995  should be  brought back to  desirable levels
   with the  implemented and proposed  rate revisions.   However, increased 1995
   loss ratios may have  a negative impact on Hallmarks reinsurance treaties for
   1996.

        Management continues to believe that development of enhanced statistical
   data during the last two years to further refine rate-setting procedures  and
   to  promptly  identify   high-loss  ratio  books  of  business   produced  by
   independent agents, as well as a continued emphasis on direct appointments of
   independent agents should continue  to positively affect profitability during
   1995.

        Prepaid reinsurance premiums and  reinsurance balances payable generally
   increased as expected in relation to increased premium writings.
   <PAGE>
        Management believes that the Company, absent any material adverse claims
   experience,  will  not  require  additional  capital to  support  its current
   operations during  1995.   However, external  funding is  required to finance
   HFC's reactivation of  its premium finance operations.   Effective January 1,
   1995,  the Company,  through HFC,  began financing  premiums produced  by the
   Hallmark Agencies  and effective May 1, 1995, began  offering its independent
   agents this premium finance program.   The program is designed to replace the
   direct-bill program  currently provided by  Hallmark.  The  finance charges a
   premium finance company may  impose under a premium finance note are  subject
   to state regulation, but  the permissible rates are substantially higher than
   those an insurance company may now charge (as set by  the Texas Department of
   Insurance)  under  a  direct-bill  program.    To  fund  its premium  finance
   operations, HFC  entered into a  financing and servicing  arrangement with an
   unaffiliated  premium  finance  company,   Peregrine  Premium  Finance   L.C.
   ("Peregrine").    Under  the agreement,  Peregrine    agreed to  fund  up  to
   $10,500,000 in premium finance notes (the "Notes") generated by the financing
   of State  & County  policies produced  by AHGA.   Peregrine  has obtained  an
   external  credit facility  for the purpose of  funding such  Notes.   HFC, in
   turn, processes  and services  the Notes  on behalf  of Peregrine  for a  fee
   approximating  the operating  profit  to  Peregrine from  the  Notes,  net of
   imputed  borrowing  costs  and  after  deducting  certain  expenses.   As  of
   September  30,  1995,  $8,773,271  has  been  used  under  Peregrine's credit
   facility to fund  the Notes.  Based  upon projections of anticipated  premium
   finance activity, an increase in the lines of credit to  fund premium finance
   notes will be required by the end of 1995.   As of October 31, 1995 Peregrine
   has  formally  increased  its  funding  commitment  to  $12,000,000, and  has
   verbally  indicated that  a formal  commitment increasing  the  commitment to
   $13,500,000  should  be  finalized  during  November  1995.     In  addition,
   management is exploring other financing opportunities.

        Management expects that Company liquidity will continued to be favorably
   impacted by a continued focus on increasing and strengthening the performance
   of  the Company's core State & County business  during the remainder of 1995.
   This focus has  included and  will continue  to include  not only  an ongoing
   emphasis on systems, effective rate-setting procedures and a close monitoring
   of agent performance (followed  by corrective action, as necessary), but also
   on marketing and expanding premium finance subsidiary operations.  

        The  Company  continues  to  pursue  third  party  claims  handling  and
   administrative contracts.   HCS has  recently entered into  a claims-handling
   and consulting  contract with an  unaffiliated independent agent.   Fees from
   this contract were not material during  the first nine months of 1995, and it
   is  not  anticipated that  this contract  will have  a significant  impact on
   liquidity during 1995.   Effective January 1, 1995, the contract  between the
   Company,  Vesta and  an unaffiliated  agency governing  claims  adjusting and
   certain administrative services was canceled.  However, the Company continues
   to earn fees for handling claims-related litigation.  Although the Company is
   actively pursuing additional third  party claims handling business, it is not
   anticipated that  any of these  potential contracts will  be effective during
   1995.

        In addition, the Company  plans to enter into the commercial excess-and-
   surplus-lines  ("E & S") market  during late-1995  or early 1996  through its
   marketing  arm,  AHGA.    Our  investigation  suggests  that  entry into  the
   commercial E &  S market could be  a future source of  commission and premium
   finance income.      
   <PAGE>
   Results of Operations

           Gross premiums  written (prior  to  reinsurance) of  $14,755,421  and
   $37,713,656 for  the three  and  nine months  ended September  30, 1995  were
   $7,044,736 (91%) and $16,199,470  (75%) higher than the same periods in 1994.
   The increases  in premiums written in both  the third quarter and  first nine
   months of 1995,  as compared to 1994, are due to  increased production of the
   Company's  core  State  &  County  business  by  independent  agents.   These
   significant increases  are partially offset by  decreases in assumed premiums
   written of  $699,181 and  $1,932,708, respectively,  in the  quarter and nine
   months,  pursuant to  the January  1, 1995  cancellation of an April  1, 1993
   reinsurance agreement  with Vesta.   Under this  agreement, Hallmark  assumed
   from Vesta  10% of  the premiums  produced by  an unaffiliated  agency.   Net
   written premiums  (after reinsurance)  for the  third quarter  and first nine
   months of 1995 were  $3,697,674 and $9,463,810, respectively,  which reflects
   increases of 47% and 35%  over the same 1994 periods.  The smaller percentage
   increase  in  net  written  premiums  versus gross  written  premiums between
   periods  is primarily  due to the inclusion  in the  1994 periods  of assumed
   premiums  related to  the  April  1, 1993  reinsurance  contract  with Vesta.
   Comparable  assumed  premiums  were  not  recorded  during  1995  due to  the
   cancellation of the contract effective January 1, 1995.  Net written premiums
   for 1995  were more significantly  impacted (than gross  written premiums) by
   the cancellation  of this  contract, since  assumed premiums  pursuant to the
   contract were not subject to the  Company's principal quota-share reinsurance
   agreement.

        Premiums earned (prior  to reinsurance)  of $11,788,841  and $31,077,131
   for  the three and nine  months ended September 30,  1995, respectively, were
   $4,580,328 and  $11,154,270 higher than  for the comparable  periods in 1994.
   For  the three and nine months ended September  30, 1995, net earned premiums
   (after  reinsurance) of  $2,977,040 and  $7,901,621, respectively,  increased
   $625,555  (27%) and  $1,212,628  (18%)  in relation  to  the  same respective
   periods of  1994.  The  disproportionate increases in  premiums earned before
   and  after reinsurance in relation to gross premiums written and net premiums
   written is primarily  the result of  the absence of assumed premiums  in 1995
   under the April 1, 1993 reinsurance contract canceled January 1, 1995.  

        The  net incurred  loss  ratio (computed  on net  premiums  earned after
   reinsurance) for both the three and nine months ended September  30, 1995 was
   71.1% and 77.7%  as compared to 58.2% and 70.8%  for the same respective 1994
   periods.   The  increase  in  the  1995  loss  ratio is  principally  due  to
   significant  1995 hail  losses, particularly  during the  second  quarter, to
   higher  than normal  non-catastrophic  losses  in the  first  six  months, to
   adverse runoff of the now-canceled 10% assumed treaty with Vesta and to lower
   salvage and subrogation recoveries.  

        Investment income  of $363,662 for  the nine months  ended September 30,
   1995 increased over the same period in 1994 by approximately 157% principally
   due  to an  increase  in the  company's funds  available  for investment,  an
   increase in the percentage of funds invested, and higher market rates  during
   the  first nine months of  1995 than in  1994.  Processing  fees of $842,031,
   reported for the  first time, represent  fees earned  by HFC pursuant  to the
   commencement of premium finance operations January  1, 1995.  Service fees of
   $70,173 decreased by approximately 94% primarily due  to the January 1,  1995
   cancellation of  a  claims adjustment  and  cash  control  services  contract
   pursuant to the April 1, 1993 reinsurance agreement with Vesta.       
   <PAGE>
        Other acquisition, underwriting  and operating expenses  of $855,862 and
   $2,058,978 for the three and nine months  ended September 30, 1995, decreased
   27% and  35%, respectively, as compared  to the prior year.   As discussed in
   the Financial  Condition and Liquidity section,  ceding commission  income of
   $8,474,974 during the  first nine months of  1995 increased approximately 95%
   over ceding commission income of $4,122,395 for the same period in 1994.  The
   increase in ceding commission  income during 1995, which was partially offset
   by  increases  in  volume-sensitive   expenses  such  as  agent  commissions,
   allowances  for  doubtful accounts,  postage and  salaries, is  the principal
   reason for  the significant decrease  in other acquisition, underwriting  and
   operating expenses.      


                                      PART II
                                 OTHER INFORMATION

   Item 1.   Legal Proceedings.

        Except for routine litigation incidental to the business of the Company,
        neither  the  Company, nor  any  of the  properties of  the  Company was
        subject to  any material pending  or threatened legal  proceedings as of
        the date of this report.  

   Item 2.   Changes in Securities.

        None

   Item 3.   Defaults upon Security Securities.

        None

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

        None

   Item 5.   Other Information.

        None

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

        (a)  No exhibits are filed herewith.

        (b)  The Company did not file a Current Report on Form 8-K to report any
             events which occurred during the quarter ended September 30, 1995.

   <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)


                                 (Signature)
   Date:  November 14, 1995      Ramon D. Phillips, President 
                                      (Chief Executive Officer)



   Date:  November 14, 1995      (Signature)
                                 John J. DePuma, Chief Financial Officer