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 June 30, 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 August 14, 2002.

<PAGE>
                                      PART I
                               FINANCIAL INFORMATION

 Item 1.   Financial Statements


                     INDEX TO FINANCIAL STATEMENTS

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


 Consolidated Balance Sheets at June 30, 2002                3
 (unaudited) and December 31, 2001

 Consolidated Statements of Operations (unaudited)           4
 for the three and six months ended June 30, 2002

 Consolidated Statements of Cash Flows (unaudited)           5
 for the six months ended June 30, 2002 and June

 Notes to Consolidated Financial Statements                  6
 (unaudited)

<PAGE>

            HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                              (In thousands)
                                 --------
                                                     June 30      December 31
                     ASSETS                            2002          2001
                                                    -----------   -----------
                                                    (Unaudited)
 Investments:
    Debt securities, held-to-maturity,
      at amortized cost                            $      3,876  $        876
    Equity securities, available-for-sale,
      at market value                                       144           144
    Short-term investments, at cost which
      approximates market value                          10,460        15,203
                                                    -----------   -----------
             Total investments                           14,480        16,223

 Cash and cash equivalents                                5,901         5,533
 Restricted cash                                          1,584         1,990
 Prepaid reinsurance premiums                            10,238        11,611
 Premiums receivable from lender for
   financed premiums (net of allowance
   for doubtful accounts of $167 in
   2002 and $208 in 2001)                                13,120        13,740
 Premiums receivable                                        880           414
 Reinsurance recoverable                                 13,778        16,871
 Deferred policy acquisition costs                        1,211           761
 Excess of cost over net assets acquired                  4,431         4,431
 Current federal income tax recoverable                     678           696
 Deferred federal income taxes                              268           425
 Accrued investment income                                   25             6
 Other assets                                               447           904
                                                    -----------   -----------
                                                   $     67,041  $     73,605
                                                    ===========   ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
 Liabilities:
    Notes payable                                  $     13,271  $     13,933
    Unpaid losses and loss adjustment expenses           17,804        20,089
    Unearned premiums                                    16,625        16,793
     Reinsurance balances payable                         3,641         4,426
     Drafts outstanding                                     673           890
     Accrued ceding commission refund                     1,722         4,598
     Accounts payable and other accrued expenses          2,599         2,508
                                                    -----------   -----------
          Total liabilities                              56,335        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                                      518           180
     Treasury stock, 806,477 shares in 2002
       and 2001, at cost                                 (1,043)       (1,043)
                                                    -----------   -----------
          Total stockholders' equity                     10,706        10,368
                                                    -----------   -----------
                                                   $     67,041  $     73,605
                                                    ===========   ===========

              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)

                                                 Three Months Ended             Six Months Ended
                                                      June 30                      June 30
                                                ---------------------       ----------------------
                                                  2002         2001           2002          2001
                                                --------     --------       --------      --------
 <S>                                           <C>          <C>            <C>           <C>
 Gross premiums written                        $  11,468    $  14,087      $  25,420     $  29,834
 Ceded premiums written                           (6,583)      (9,704)       (15,129)      (20,263)
                                                --------     --------       --------      --------
       Net premiums written                    $   4,885    $   4,383      $  10,291     $   9,571
                                                ========     ========       ========      ========

 Revenues:
    Gross premiums earned                         13,176       13,062         25,488        25,493
    Ceded premiums earned                         (8,239)      (8,731)       (16,403)      (16,787)
                                                --------     --------       --------      --------
       Net premiums earned                         4,937        4,331          9,085         8,706

    Investment income, net of expenses               146          232            272           543
    Finance charges                                  635          862          1,290         1,694
    Processing and service fees                       72          306            215           729
    Other income                                      90           60            166           106
                                                --------     --------       --------      --------
        Total revenues                             5,880        5,791         11,028        11,778
                                                --------     --------       --------      --------
 Benefits, losses and expenses:
    Losses and loss adjustment expenses            9,305       13,278         17,268        24,169
    Reinsurance recoveries                        (5,491)      (8,447)       (10,275)      (15,531)
                                                --------     --------       --------      --------
       Net losses and loss adjustment expenses     3,814        4,831          6,993         8,638

 Acquisition costs, net                              (31)        (147)          (450)          (90)
 Other acquisition and underwriting expenses
   (net of ceding commission of $4,107 in 2002
   and $5,566 in 2001)                             1,091          984          2,376         1,822
 Operating expenses                                  572          901          1,171         2,010
 Interest expense                                    221          256            426           550
 Amortization of intangible assets                     -           39              -            79
                                                --------     --------       --------      --------
         Total benefits, losses and expenses       5,667        6,864         10,516        13,009
                                                --------     --------       --------      --------
 Income (loss) from operations before federal
   income taxes                                      213       (1,073)           512        (1,231)

 Federal income tax expense (benefit)                 70         (363)           174          (422)
                                                --------     --------       --------      --------
 Net income (loss)                             $     143    $    (710)     $     338     $    (809)
                                                ========     ========       ========      ========

 Basic and diluted earnings (loss) per share   $    0.01    $   (0.06)     $    0.03     $   (0.07)
                                                ========     ========       ========      ========

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

                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
                                                    -------------------------
                                                        2002          2001
                                                    -----------   -----------
 Cash flows from operating activities:
    Net income (loss)                              $        338   $      (809)

    Adjustments to reconcile net income (loss) to
    cash (used in) provided by operating activities:
       Depreciation and amortization expense                 83           143
       Change in deferred Federal income taxes              157          (104)
       Change in prepaid reinsurance premiums             1,373        (3,476)
       Change in premiums receivable                       (466)          681
       Change in deferred policy acquisition costs         (450)          (90)
       Change in unpaid losses and loss
         adjustment expenses                             (2,285)          839
       Change in unearned premiums                         (168)        4,341
       Change in reinsurance recoverable                  3,093        (1,521)
       Change in reinsurance balances payable              (785)        2,323
       Change in current federal income
         tax payable/recoverable                             18          (227)
       Change in litigation cost                              -        (1,386)
       Change in accrued ceding commission refund        (2,876)        1,492
       Change in all other liabilities                     (126)           44
       Change in all other assets                           450           (63)
                                                    -----------   -----------
           Net cash (used in) provided
             by operating activities                     (1,644)        2,187
                                                    -----------   -----------
 Cash flows from investing  activities:
    Purchases of property and equipment                     (95)         (134)
    Premium finance notes originated                    (22,502)      (29,408)
    Premium finance notes repaid                         23,122        25,156
    Change in restricted cash                               406         1,662
    Purchases of debt securities                         (5,105)            -
    Maturities and redemptions
      of investment securities                            2,105         4,914
    Purchase of short-term investments                  (16,497)      (10,440)
    Maturities of short-term investments                 21,240         4,500
                                                    -----------   -----------
       Net cash provided by (used in)
         investing activities                             2,674        (3,750)
                                                    -----------   -----------
 Cash flows from financing activities:
     Repayment of borrowings                                  -          (364)
     Net advances from lender                              (662)          761
                                                    -----------   -----------
         Net cash (used in) provided
           by financing activities                         (662)          397
                                                    -----------   -----------
 Increase (decrease) in cash and cash equivalents           368        (1,166)
 Cash and cash equivalents at beginning of period         5,533         6,831
                                                    -----------   -----------
 Cash and cash equivalents at end of period        $      5,901  $      5,665
                                                    ===========   ===========

             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 June  30,
 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  ("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 June  30, 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, upon mutual agreement  with
 Dorinco, may elect on a quarterly basis to retain  30% to 45% of the risk.
 The Company currently retains 40% of the risk and cedes 60% to Dorinco.  For
 the period of January 1, 2002  through March 31, 2002, the Company  retained
 35% of the risk  and ceded 65% to  Dorinco.  Prior to  January 1, 2002,  the
 Company retained 30% of the risk and ceded 70% to Dorinco.


 Note 3 - Intangible Assets

     When the  Company's primary operating  subsidiaries were purchased,  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
 June 30, 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  No. 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  and  immediately  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 six  months ended
 June 30, 2002 and 2001 is as follows:

                                           Three Months         Six Months
                                           Ended June 30       Ended June 30
    (In thousands except for earnings      2002     2001       2002     2001
    per share amounts)                     -----   -----       -----   -----

    Reported net income (loss)            $  143  $ (710)     $  338  $ (809)
    Add back:  Goodwill amortization           -      39           -      79
                                           -----   -----       -----   -----
    Adjusted net income (loss)            $  143  $ (671)     $  338  $ (730)
                                           =====   =====       =====   =====

    Basic and diluted earnings per share:
    Reported net income (loss)            $ 0.01  $(0.06)     $ 0.03  $(0.07)
    Add back:  Goodwill amortization           -       -           -       -
                                           -----   -----       -----   -----
    Adjusted net income (loss)            $ 0.01  $(0.06)     $ 0.03  $(0.07)
                                           =====   =====       =====   =====


     SFAS 142 requires that goodwill be tested  annually for impairment using
 a  two-step process.  The  first step is  to determine  reporting units  and
 compare the fair value  of each reporting  unit as of  the beginning of  the
 fiscal  year  with  its  carrying  amount  (including  goodwill) to identify
 any potential impairment.  The  Company has completed this  first  step  and
 determined that an impairment of goodwill exists.

      The second step of  the goodwill impairment test  under SFAS 142 is  to
 quantify the amount of any impairment loss as of the beginning of the fiscal
 year.  This  process must be completed not later than the  end of the fiscal
 year.  In accordance with SFAS 142, the Company presently expects  to record
 a significant  charge to  earnings resulting  from  the completion  of  this
 transitional impairment  test. Although  the amount  of  such charge  cannot
 presently  be  reasonably  estimated,  the  Company  anticipates   that  the
 implementation of this mandatory change in accounting principles will have a
 material adverse impact on net income in the quarter recognized and for 2002
 as a whole.

                       [This space left blank intentionally]

<PAGE>


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


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

     The  Company  pursues its  business  activities  through  an  integrated
 insurance group, (collectively, the "Insurance Group"), the members of which
 are an authorized  Texas property and  casualty insurance company,  American
 Hallmark Insurance Company of Texas ("Hallmark"); a managing general 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 adjustment  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 and 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  with Dorinco  Reinsurance Company  ("Dorinco"),
 Hallmark, upon mutual agreement with its reinsurer, may elect on a quarterly
 basis to retain 30% to 45% of the risk while ceding the remaining percentage
 to its  reinsurer.     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 and premium finance  charges.  Other sources  of funds are  from
 financing and investment activities, as well as service fees.

     On a consolidated basis, the Company's total cash, cash equivalents  and
 investments (excluding restricted cash)  at June 30,  2002 and December  31,
 2001 were  $20.4  million and  $21.8  million, respectively.  The  Company's
 liquidity decreased 6% during  the first six months  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.

     Net cash  used by the  Company's consolidated  operating activities  was
 $1.6 million for the first six months of 2002 compared to net cash  provided
 by operating  activities of  approximately $2.2  million for  the first  six
 months 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  by the  increase  in  the
 Company's retention of State & County  business to 40% (from 35% at  January
 1, 2002 and 30% prior to 2002)  effective April 1, 2002 under the  Company's
 quota share retrocession agreement with Dorinco.

     Cash provided  by investing activities  during the first  six months  of
 2002 increased by $6.4 million as compared to the same period of 2001.  This
 increase in cash provided by investing activities was primarily the combined
 result of increased maturities of short-term investments and an increase  in
 repayments of  premium finance  notes when  netted against  originations  of
 premium finance notes during the first six months of 2002 as compared to the
 first  six  months  of  2001.    This  increase  was  partially  offset   by
 reinvestment in both long  and short-term investments  during the first  six
 months of 2002.

     Cash used by  financing activities increased approximately $1.1  million
 during the first six months of 2002 as  compared to the first six months  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  six months  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 June 30, 2002,  and
 $21.8  million  at  December  31,  2001,  $1.6  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.  These steps were taken to  preserve
 Hallmark's surplus. During the  first six months  of 2002, Hallmark  accrued
 $93,000 of management fees to HFS.  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 six  months of  2002
 decreased $1.5  million (representing  a 26%  decrease) as  compared to  the
 similar 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 core State & County premium volume,  and
 (3) an increase in Hallmark's risk retention to 40% effective April 1,  2002
 and to 35% effective January 1, 2002 from 30% prior to January 1, 2002.   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  $1.2
 million at  June 30,  2002 from  $0.8 million  at December  31, 2001.    The
 increase in  net  deferred acquisition  costs  was principally  due  to  the
 decrease in ceding commission partially offset by a decrease in underwriting
 expenses.

     At June  30, 2002, Hallmark  reported statutory capital  and surplus  of
 approximately $6.3 million, which reflects an increase of approximately $0.3
 million since December 31, 2001. Hallmark's premium to surplus ratio for the
 twelve months ended June 30, 2002 was 2.64 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 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 June 30, 2002 was 2.89 to 1 as compared to 2.83 to 1 for
 the year ended December 31, 2001.

     The  Company  provides   on-going  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  provided  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 service to
 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 six  months of  2002
 principally due to its focus on  rate adequacy, underwriting discipline  and
 agent management.  For the first six months ended June 30, 2002, net  income
 was $0.3 million compared to a net loss of $0.8 million for the same  period
 of 2001.  Gross premiums written for the first six months of 2002  decreased
 approximately 15% as compared  to 2001, while net  premiums written for  the
 first six months of 2002 increased by approximately 8% to $10.3 million  for
 2002 compared to $9.6 million in the first six months of 2001.  Net premiums
 earned of $9.1  million for the  first six months  of 2002  increased 4%  in
 relation to net premiums earned of $8.7 million for the comparable period of
 2001.

     The Company's  net incurred loss  ratios declined to  77% for the  first
 six months of 2002 from 99.2% for the first six months of 2001.  Certain key
 financial operational ratios follow:


                                                First six     First six
                                                Months of     Months of
                                                   2002          2001
                                                   ----          ----
 GAAP Incurred Loss Ratio (excluding storm         66.2%         90.5%
   and loss corridor)
 GAAP Loss Corridor Incurred Loss Ratio  (1)        8.8%          4.9%
 GAAP Storm\Flood Incurred Loss Ratio  (2)          2.0%          3.8%
                                                   ----          ----
 GAAP Incurred Loss Ratio                          77.0%         99.2%
 GAAP Expense Ratio  (3)                           20.9%         17.7%
                                                   ----         -----
      GAAP Combined Ratio                          97.9%        116.9%
                                                   ====         =====

 (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 corridors for the six months ended June 30, 2002 and 2001
      were $0.8 million and $0.4 million, respectively.

 (2)  Net storm losses retained by the Company were approximately
      $0.2 million and $0.3 million for the six months ended  June 30,
      2002 and 2001, respectively.

 (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 18.3%,
      as discussed in the Financial Condition and Liquidity section.

 Analysis

     Gross premiums  written (prior  to reinsurance)  for the  three and  six
 months ended June 30, 2002 decreased 19% and 15%, respectively, in  relation
 to gross premiums written during the  same periods 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.  Net premiums written (after reinsurance) for the three and  six
 months ended June 30, 2002 increased 11% and 8%, respectively, over the same
 periods in  2001.  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  and further to  40%
 effective April 1, 2002.

     Despite the  decrease in  gross premiums  written compared  to the  same
 period of the prior year, gross  premiums earned (prior to reinsurance)  for
 the three and six months ended June 30, 2002 remained relatively the same as
 compared to the  same periods  of 2001.   This  was principally  due to  the
 combined effect of a shift in policy mix from annual to monthly policies and
 the continued earnings of annual premiums  written at a higher volume  level
 during 2001.  For the three and six months ended June 30, 2002, net premiums
 earned (after reinsurance) increased 14%  and 4%, respectively, as  compared
 to the same periods of 2001.  The disproportionate change in premiums earned
 prior to  and  after reinsurance  is  due to  the  impact of  the  increased
 retention of core  State &  County premium  volume which  has reduced  ceded
 premiums and ultimately increased net premiums written.

     Net  incurred  loss  ratios  (computed  on  net  premiums  earned  after
 reinsurance) for the three and six months ended June 30, 2002 were 77.3% and
 77.0%, respectively, compared to  111.6% and 99.2% for  the same periods  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 had not been in place during the first six months of  2002
 and the second quarter of 2001, the net incurred loss ratios would have been
 68.2% and 94.3%, respectively.  Additionally, severe storms occurring in the
 spring of 2002 and the Houston flood of May 2001 impacted the 2002 and  2001
 loss ratios.  Excluding the impact of storms and the loss corridor, the loss
 ratios for 2002 and 2001 would have been 66.2% and 90.5%, respectively.  The
 significant improvement  in the  loss  ratio in  2002  compared to  2001  is
 principally the result  of the  Company's increasing  focus on  underwriting
 profitability during 2001 which is now reflected in 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 fast  payment  of
 claims.

     Investment  income decreased  approximately  50% during  the  first  six
 months of  2002 compared  to the  same  period of  2001.   The  decrease  is
 attributable to the combined effect  of decreased yield currently  available
 in the marketplace and maturities/calls of higher yield investments.

     Finance  charges, which  decreased $0.4  million  during the  first  six
 months of 2002 as  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 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 six  months of 2002 decreased $0.5 million  (71%)
 compared to the  same period of  2001, as a  result of  cancellation of  the
 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  $0.4
 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  for the  three  and  six
 months ended June 30, 2002 increased 11% and 30%, respectively, as  compared
 to the  same  periods  of 2001.    The  increase in  expenses  is  primarily
 attributable to decreased ceding commission income as a result of  increases
 in the Company's retention  of its core business  since year end 2001,  less
 favorable reinsurance  terms,  and decreased  core  State &  County  premium
 volume.  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   37%
 and 42%, respectively, during the three  and six months ended June 30,  2002
 as compared to the same periods 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 $0.1 million during  the first half of  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.


 Recent Developments

     The  Company has  recently negotiated  the  renewal of  its  quota-share
 reinsurance agreement with  Dorinco to be  effective October 1,  2002.   The
 Company believes  the  terms of  the  renewal agreement  are  modestly  more
 beneficial to the Company  than those contained  in the current  quota-share
 reinsurance agreement.


 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,  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.


      ( a )  The Company's Annual Meeting of Shareholders was held on
             May 21, 2002.  Of the 11,049,133 shares of common stock
             of the Company entitled to vote at the meeting, 9,721,506
             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                          Votes Received

                     Mark E. Schwarz                          9,720,456

                     Linda H. Sleeper                         9,720,306

                     James H. Graves                          9,720,456

                     George R. Manser                         9,720,456

                     Scott T. Berlin                          9,720,456


      ( 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 exhibit listed in the Exhibit Index appearing on page 16
             is filed herewith.


        (b)  The Company did not file any Form 8-K Current Reports during
             the second quarter of 2002.


<PAGE>

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


  Exhibit                       Description
  Number                        -----------
  ------
    99           Certification Pursuant to 18 U.S.C. 1350 Enacted by
                 Section 906 of the Sarbanes-Oxley Act of 2002.



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

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

*******************************************************************************

                                  Exhibit 99


                                CERTIFICATION
                      PURSUANT TO 18 U.S.C. SECTION 1350
           ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


 In  connection  with  the  Quarterly   Report   on Form 10-QSB of   Hallmark
 Financial Services, Inc. (the "Company") for the period ended June 30, 2002,
 as filed with the Securities and  Exchange Commission as of the date  hereof
 (the "Report"), and pursuant to 18 U.S.C. 1350 as enacted by Section 906  of
 the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer  and
 Chief Financial Officer of the Company hereby certify as follows:

      (1)  The Report fully complies with  the requirements of Section  13(a)
           or 15(d) of the Securities Exchange Act of 1934; and

      (2)  The information contained  in the Report  fairly presents, in  all
           material  respects,  the  financial   condition  and  results   of
           operations of the Company.




 Dated:    August 14, 2002        /s/ Linda H. Sleeper
                                  ---------------------------
                                  Linda H. Sleeper
                                  Chief Executive Officer




 Dated:    August 14, 2002        /s/ John J. DePuma
                                  ---------------------------
                                  John J. DePuma
                                  Chief Financial Officer