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, 1997



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 - 10,662,277 shares outstanding as of August 13,
1997.

<PAGE>
                                 PART I
                          FINANCIAL INFORMATION

Item 1.   Financial Statements

                       INDEX TO FINANCIAL STATEMENTS


                                                  Sequential Page

Consolidated balance sheets at June 30, 1997
(unaudited) and December 31, 1996                        3

Consolidated statements of income
(unaudited) for the three and six months
ended June 30, 1997 and June 30,1996                     4

Consolidated statements of cash flows
(unaudited) for the six months ended
June 30, 1997 and June 30, 1996                          5

Notes to consolidated financial statements
(unaudited)                                              6


Item 2.  Management's Discussion and Analysis or Plan of Operation
<PAGE>
         HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
<TABLE>                                           
                                           June 30     December 31
            ASSETS                           1997          1996
                                          (Unaudited)
             <S>                             <C>           <C>
Investments:
  Debt securities, held-to-maturity     $ 4,003,293    $ 5,160,137
  Equity securities, available-for-sale     149,428        152,246
  Short-term investments, at cost which
   approximates market value              1,247,531      3,380,059
        Total investments                 5,400,252      8,692,442

  Cash and cash equivalents               9,033,125      4,749,388
  Prepaid reinsurance premiums            8,539,892      8,480,257
  Premiums receivable                     2,716,188      2,524,938
  Note receivable                         6,513,156          -    
  Reinsurance recoverable                17,201,095     20,058,062
  Deferred policy acquisition costs       2,885,968      2,536,564
  Excess of cost over net assets
   acquired, net of accumulated
   amortization                           5,137,397      5,215,905
  Deferred federal income taxes             197,356        330,718
  Accrued investment income                  25,479         46,606
  Other assets                            1,092,944      1,128,882
        Total assets                    $58,742,852    $53,763,762

   LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities: 
  Notes payable                         $ 7,564,851    $   590,853
  Unpaid losses and loss adjustment
   expenses                              17,559,401     20,697,393
  Unearned premiums                      11,539,118     11,310,250
  Reinsurance balances payable            2,981,711      2,946,034
  Deferred ceding commissions             2,224,665      2,368,264
  Drafts outstanding                      1,093,014        838,007
  Accounts payable and other accrued
   expenses                               3,929,246      3,591,597
       Total liabilities                $46,892,006    $42,342,398

Stockholders' equity:
  Common stock, $.03 par value,
  authorized 100,000,000 shares; 
  issued 10,962,277 shares in
  1997 and 1996                             328,868        328,868 
  Capital in excess of par value         10,349,665     10,349,665 
  Retained earnings                       1,772,313      1,342,831 
  Treasury stock, 300,000 shares,   
   at cost                                 (600,000)      (600,000)
     Total stockholders' equity          11,850,846     11,421,364 
     Total liabilities and stockholders'
     equity                             $58,742,852    $53,763,762 
 
                   The accompanying notes are an integral part
                    of the consolidated financial statements.
</TABLE>
<PAGE>
              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
                         Three Months Ended       Six Months Ended
                               June 30                 June 30
                          1997        1996         1997        1996
       <S>                <C>         <C>          <C>         <C>
Gross premiums written $9,667,920 $11,796,531  $20,808,399 $22,254,930 
Ceded premiums written (6,748,087)( 8,842,954) (14,594,550)(16,688,519)
Net premiums written   $2,919,833 $ 2,953,577  $ 6,213,849 $ 5,566,411 
     
Revenues:
 Premiums earned      $10,090,779 $12,504,832  $20,271,292 $24,581,742 
 Premiums ceded        (7,025,705) (9,371,690) (14,226,676)(18,420,120)
  Net premiums earned   3,065,074   3,133,142    6,044,616   6,161,622
 Investment income,
  net of expenses        214,725      232,595     399,280     447,084
 Interest income -
  note receivable        157,791         -        190,245        -
 Processing fees         345,631      558,256     709,005   1,054,250 
 Service fees            136,929       15,792     187,262      45,295 
 Other income            118,891       19,103     184,970      49,548 
   Total revenues      4,039,041    3,958,888   7,715,378   7,757,799 

Benefits, losses and
expenses:
 Losses and loss
  adjustment expenses   7,052,495    8,334,514  13,729,218  16,416,618
 Reinsurance
  recoveries           (5,148,573)  (6,292,650)(10,187,448)(12,366,288)
  Net losses and loss
   adjustment expenses  1,903,922    2,041,864    3,541,770   4,050,330  

  Acquisition costs,
   net                 (  213,692) (   38,180) (   493,003)(   143,501)
  Other acquisition and
   underwriting
   expenses             1,492,607     960,922    2,837,620   1,918,315 
  Operating expenses      369,212     488,802      843,787     923,451
  Interest expense        154,509      10,783      198,573      21,859 
  Amortization of
   intangible assets       81,122      41,399      124,493      82,798
  Total benefits, losses
  and expenses          3,787,680   3,505,590    7,053,240   6,853,252
Income from operations
  before federal income
  taxes                   251,361     453,298      662,138     904,547
Federal income tax        127,792     166,682      232,655     315,342
   Net income          $  123,569  $  286,616    $ 429,483 $   589,205

Net income per share of  
 common stock          $      .01  $      .02   $      .04 $       .05
Weighted average shares
  outstanding          11,608,531   2,103,411   11,608,531  12,103,411
</TABLE>
                     The accompanying notes are an integral part
                      of the consolidated financial statements.
<PAGE>
              HALLMARK FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
<TABLE>                                             Six Months Ended
                                                        June 30
                                                 1997             1996   
                 <S>                             <C>              <C>
Cash flows from operating activities:
  Net income                               $   429,483      $   589,205
  Adjustments to reconcile net income to
   cash provided by operating activities:
  Depreciation and amortization expense        190,502          138,949
  Change in deferred federal income taxes      133,362           28,776
  Change in prepaid reinsurance premiums      ( 59,635)       1,731,600
  Change in premium receivable                (191,250)       2,613,927
  Change in deferred policy acquisition
   costs                                      (349,404)         130,378
  Change in deferred ceding commissions       (143,599)        (273,879)
  Change in unpaid losses and loss
   adjustment expenses                      (3,137,992)       3,068,239 
  Change in unearned premiums                  228,868       (2,326,812)
  Change in reinsurance recoverable          2,856,967       (3,206,066)
  Change in reinsurance balances payable        35,677          244,985
  Change in all other liabilities              592,656          125,573
  Change in all other assets                    80,309          169,886
   Net cash provided by operating activities   665,944        3,034,761

Cash flows from investing activities:
  Purchases of property and equipment       (   44,537)      (  264,723)
  Purchase of note receivable               (6,513,156)            -
  Purchases of debt securities                   -           (  520,182)
  Maturities, redemptions and capital
   distributions of investment securities    1,159,661          468,689
  Purchase of short-term investments        (3,013,345)      (4,460,155)
  Maturities of short-term investments       5,145,873        3,139,555
   Net cash used in investing activities    (3,265,504)      (1,636,816)

Cash flows from financing activities:
  Proceeds from note payable                 7,000,000             -
  Payment of borrowing cost                 (   90,701)            -
  Repayment of short-term borrowings        (   26,002)      (   23,535)
    Cash provided by (used in) financing
    activities                               6,883,297       (   23,535)

Increase in cash and cash equivalents        4,283,737        1,374,410
Cash and cash equivalents at beginning
 of period                                   4,749,388        4,257,755

Cash and cash equivalents at end of period  $9,033,125       $5,632,165

Supplemental cash flow information:
 Interest paid                              $  143,144       $   21,859

</TABLE>
                   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, 1997 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 generally accepted accounting
principles ("GAAP") have been condensed or omitted.  Reference is made
to the Company's annual consolidated financial statements for the year
ended December 31, 1996 for a description of all other accounting
policies.  Certain items in the 1996 interim financial statements have
been reclassified to conform to the 1997 presentation.

     The results of operations for the period ended June 30, 1997 are
not necessarily indicative of the operating results to be expected for
the full year.

Recognition of Premium Revenues

     Insurance premiums are earned pro rata over the terms of the
policies.  Policy fees are recognized when received.  Premiums written
include gross policy fees of $2,140,935 and $2,584,070 and policy fees
of $1,338,020 and $647,676, net of reinsurance, for the six months ended
June 30, 1997 and 1996, respectively.

New Accounting Pronouncements

     In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share."  SFAS No. 128 is designed to improve the earnings per share
information provided in financial statements by simplifying the existing
computation guidelines provided for in APB Opinion No. 15, "Earnings Per
Share".  SFAS No. 128 is effective for financial statement periods
ending after December 15, 1997.  Management does not anticipate that
SFAS No. 128 will have any effect on the Company's consolidated
financial statements.

     In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure."  SFAS 129 is applicable to all
entities and requires that disclosure about an entity's capital
structure include a brief discussion of rights and privileges for
securities outstanding.  SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997.

     In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income".  SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.  SFAS
<PAGE>
No. 130 is effective for financial statement periods ending after
December 15, 1997.  Management does not anticipate that SFAS No. 130
will have any effect on the Company s consolidated financial statements.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information".  SFAS No. 131
establishes standards for reporting information about operating segments
in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued
to stockholders.  It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. 
SFAS No. 131 is effective for financial statement periods ending after
December 15, 1997.  Management does not anticipate that SFAS No. 131
will have any effect on the Company s consolidated financial statements.

Note 2 - Investments

     Debt securities, held-to-maturity, as of June 30, 1997 include
investments in U.S. Government securities of $1,935,096 and special
revenue bonds of $2,068,197.  Short-term investments consist of U.S.
Government agency securities of $1,247,531.  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 - Notes Payable

     A summary of the Company s notes payable as of June 30, 1997 is as
follows:

     Note payable to Dorinco                          $ 7,000,000
     Note payable to unaffiliated finance company         380,187
     Note payable to individual                           184,664
       Total                                          $ 7,564,851

     Effective March 11, 1997, the Company entered into a loan agreement
with Dorinco Reinsurance Company ("Dorinco"), an unaffiliated company,
whereby the Company borrowed $7,000,000 to contribute to its premium
finance subsidiary, Hallmark Finance Corporation ("HFC").  Proceeds from
this loan are intended to be used by HFC to fund premium finance notes. 
(See Notes 4 and 8.)  The loan agreement provides for a seven-year term
at a fixed interest rate of 8.25%.  Interest is payable monthly through
February 28, 1999, with principal and interest payments commencing March
31, 1999 through March 31, 2004.  A penalty ranging from $80,000 to
$120,000 is charged for prepaying the loan prior to the fourth
anniversary date except that after the second anniversary date, up to
40% of the outstanding balance may be prepaid without penalty.

     As long as certain financial covenants defined as "triggering
events" are maintained, collateral for the loan is limited to the stock
of HFC and a covenant by the Company not to pledge the stock of American
Hallmark Insurance Company of Texas ("Hallmark") and American Hallmark
General Agency, Inc. ("AHGA").  To avoid a triggering event, Hallmark
<PAGE>
must (1) maintain a combined ratio and loss ratio which do not exceed
107% and 83%, respectively; (2) maintain statutory surplus of $4,200,000
and experience no decreases to surplus in any one year that exceeds 15%
of the prior year surplus; and (3) cause HFC to maintain a certain
interest coverage ratio and stockholders  equity levels as defined in
the agreement.  If a triggering event should occur, the Company has ten
days to pledge the stock of AHGA and Hallmark as additional collateral
for the Dorinco loan.  The loan agreement also contains covenants which
require the Company to satisfy certain financial ratios which are less
restrictive than the triggering event ratios and, among other things,
restrict capital expenditures, payment of dividends, and incurring of
additional debt.  For the six month period ending  June 30, 1997, the
Company is in compliance with the covenants of the loan.

     The note payable to unaffiliated finance company with interest at
prime plus one percent was due March 31, 1993.  The Company has not made
payments on the note since November 1992, and is in technical default. 
The note provides for an interest rate after maturity of the maximum
statutory interest rate.  The Company believes it has the right to
offset $240,000 which is on deposit with a subsidiary of the
unaffiliated finance company.  The total principal and interest in
arrears aggregates $799,771, at June 30, 1997.  Both the lender and its
subsidiary are currently in bankruptcy proceedings.  Upon final
settlement, management believes the cost, if any, to the Company will
not exceed amounts accrued in these financial statements.

     The note payable to an individual is collateralized by most assets
of AHGA and requires monthly principal and interest payments of $6,000
through May 1, 2000, with interest at 10%.


Note 4 - Note Receivable

     Proceeds of $5,915,109 from the Dorinco loan (discussed in Note 3)
were loaned to Peregrine Premium Finance L.C. ("Peregrine") to repay
external borrowing incurred by Peregrine to fund premium finance notes
pursuant to the financing and servicing arrangement between HFC and
Peregrine.  In addition, $598,047 of internally generated funds were
loaned to Peregrine to fund new premium finance notes.  As a result, at
June 30, 1997, the Company had a $6,513,156 note receivable from
Peregrine.  The Peregrine note principal varies in proportion to the
amount used by Peregrine to fund premium finance notes, but is not to
exceed $7,500,000.  The note is collateralized by the premium finance
notes and bears interest at prime plus 1% (9.5% at June 30, 1997).


Note 5 - Federal Income Taxes

     The composition of deferred tax assets and liabilities and the
related tax effects as of June 30, 1997 and December 31, 1996 is as
follows:
<PAGE>
<TABLE>
                                                 1997          1996
      <S>                                        <C>           <C>
Deferred Tax Assets:
 Property and equipment basis              $    28,203    $    32,607
 Unearned premiums                             203,947        192,439
 Loss reserve discounting                       62,127         65,207  
Deferred ceding commissions,
  non-deductible for tax                     ( 224,843)      ( 57,222)
 Net operating loss carryforward                33,171         33,171 
 Other                                         127,922         97,694
   Net deferred tax assets                     230,527        363,896 

 Valuation allowance                         (  33,171)      ( 33,178)
 Net deferred tax asset                     $  197,356     $  330,718
</TABLE>

     A reconciliation of the income tax provisions based on the
prevailing corporate tax rate of thirty-four percent (34%) to the
provision reflected in the consolidated financial statements for the six
month period ended June 30, 1997 and 1996 is as follows:
<TABLE>
                                                 1997          1996
             <S>                                 <C>           <C>
 Computed expected income tax
  expense at statutory regulatory
  tax rate                                   $ 203,027     $  307,546 
 Amortization of excess cost                    26,799         26,841
 Tax-exempt interest                          (    985)    (      985)
 Change in valuation allowance                    -        (   26,827)
 Other                                           3,814          8,767
 Income tax expense                          $ 232,655     $  315,342 
</TABLE>

     The Company has available, for federal income tax purposes, unused
net operating losses of $97,562 at June 30, 1997, which may be used to
offset future taxable income.  The operating losses will expire, if
unused, as follows:    
    
    Year
    2002                                              $   1,325 
    2003                                                 96,237 
                                                      $  97,562 

Note 6 - Warrants Outstanding

     The Company has two stock option plans for key employees, the 1991
Key Employee Stock Option Plan and the 1994 Key Employee Long Term
Incentive Plan, and a non-qualified plan for non-employee directors. 
The number of shares reserved for future issuance under the 1991
employee plan, the 1994 employee plan and the non-employee director plan
are 500,000, 1,500,000 and 1,350,000, respectively.  The option prices
under the plans are not to be less than the closing price of the common
stock on the day preceding the grant date.  Pursuant to the stock option
plans, the Company has granted incentive stock options under Section 422
of the Internal Revenue Code of 1986.  The stock options granted to
employees vest over a 3 year period on a graded schedule, 40% in the
first 6 months and 20% on each anniversary date of the grant date.  The
<PAGE>
stock options granted to the directors vest over a 6 year period on a
graded schedule, 40% in the first 6 months and 10% on each anniversary
date of the grant date.  In accordance with APB No. 25, the Company has
not recognized compensation expense for the stock options granted in
1996 and 1995.

     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 was assigned to these warrants.  The Guaranty Warrants were fully
exercisable between October 2, 1992 and October 1, 1996, at which time
they would have expired to the extent not exercised.  On March 28, 1996,
the Board of Directors extended the exercisability of the Guaranty
Warrants through October 1, 1998.  This resulted in a new exercise
period from October 1, 1996 (new measurement date) to October 1, 1998. 
The value of the warrants of $107,000 is being amortized over the new
exercise period.  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 7 - Reinsurance

     Hallmark 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, Hallmark 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 AHGA and written on State & County policies. 
The arrangement was supplemented by a separate retrocession agreement
between Hallmark and Vesta Fire Insurance Corporation ("Vesta"). 
Hallmark and Vesta shared the risk on the State & County policies with
Hallmark retaining 25%.  This retrocession agreement with Vesta was
terminated on a run-off basis effective June 30, 1996.

     Effective July 1, 1996, Hallmark renewed its reinsurance
arrangement with State & County and entered into a new retrocession
agreement with Kemper Reinsurance Company ("Kemper"), Dorinco and
Odyssey Reinsurance Corporation ("Odyssey").  Under the new retrocession
agreement, Hallmark continues to retain 25%.

     Effective July 1, 1997, the retrocession agreement was renewed with
Kemper and Dorinco under substantially the same terms and conditions,
except that  Kemper and Dorinco will each assume a 50% pro rata share of
the business under the retrocession agreement to replace Odyssey's
share.

<PAGE>
Note 8 - Commitments and Contingencies

  Effective March 17, 1997, HFC entered into a loan agreement (Bank
Credit Line ) with a bank whereby the bank committed to provide a
revolving credit facility of $8,000,000 for funding of up to 60% of
premium finance notes outstanding for State and County policies. 
Beginning late-June 1997, upon completion of the 90-day cancellation
notification period to Peregrine, HFC commenced funding all new notes
issued by HFC with proceeds from both the Dorinco loan as discussed in
Note 3 and the Bank Credit Line.

     The Bank Credit Line provides for an eighteen-month term which
expires September 17,1998.  Fundings under this line are limited to a
60% advance rate against a borrowing base of eligible premium finance
notes receivable as defined in the agreement.  The agreement provides
for monthly interest payments with interest rate options of prime plus
three-eighths floating or the London Interbank Offered Rate ( LIBOR )
plus two and eight-tenths with fixed rate tranches of three, six and/or
twelve months in $250,000-minimum increments up to a total of twelve
tranches.  A one-fourth of one percent per annum usage fee is payable on
any unused portion of the Bank Credit Line.  To collateralize advances
under the line, HFC must grant the bank a security interest in the
premium finance notes and the Company must   guarantee HFC s
indebtedness.  The Bank Credit Line agreement also contains covenants
which, among other things, require the Company to satisfy the same
financial ratios as in the Dorinco loan agreement, and includes, but is
not limited to, restrictions on capital expenditures, payment of
dividends, and incurring of additional debt, and requires that the
Company be in compliance with all terms and covenants of the Dorinco
loan agreement.

     In March 1997, a jury returned a verdict against the Company and in
favor of a former director and officer of Hallmark in the amount of
approximately $517,000 on the basis of contractual and statutory
indemnification claims.  The court subsequently granted the plaintiff's
motion for attorneys' fees of approximately $271,000, court costs of
approximately $39,000 and pre-judgment and post-judgment interest, and
rendered final judgment on the verdict.  The Company believes the
judgment in this case was both legally and factually incorrect and has
filed a motion for new trial.  If the motion for new trial is denied,
the Company intends to appeal the judgment.  However, the Company is
presently unable to determine the likelihood of an unfavorable outcome
to such motion or appeal.


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 insurance products 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.
<PAGE>
     The Company conducts these activities through an integrated
insurance group, the dominant 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 commercial
excess and surplus lines affiliated managing general agency, Hallmark
Underwriters, Inc. ("HUI"); 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 reinsurance arrangements with several
unaffiliated companies.  Through arrangements with State & County Mutual
Fire Insurance Company ("State & County"), Hallmark provides insurance
primarily for high risk drivers who do not qualify for standard-rate
insurance. Under supplementary quota-share reinsurance agreements,
Hallmark cedes a substantial portion of its risk and retains the
balance.  From March 1, 1992 through June 30, 1996, Hallmark ceded a
portion of its risk to Vesta Fire Insurance Corporation ("Vesta") (60%
between March 31, 1992 and July 31, 1993 and 75% between August 1, 1993
and June 30, 1996).  Effective July 1, 1996, Hallmark entered into a new
reinsurance treaty with Kemper Reinsurance Company ("Kemper"), Dorinco
Reinsurance Company ("Dorinco)"), and Odyssey Reinsurance Corporation
("Odyssey"), ceding a total of 75% of its risk.  Effective July 1, 1997,
the treaty was renewed with Kemper and Dorinco under substantially the
same terms and conditions except that the Company will be allowed to
retain 100% of the policy fees on a new six-month program commencing in
late-July 1997 (versus 62.5% for monthly and annual programs). 
Additionally, effective July 1, 1997 Kemper and Dorinco will each assume
a 50% pro-rata share of the business under the treaty to replace
Odyssey's 25% share.  HFC offers premium financing to Hallmark
policyholders through a financing and servicing arrangement with an
unaffiliated premium finance company.  Beginning late-June 1997, HFC
began issuing its own premium finance notes funded by $15 million in
funds available pursuant to agreements executed in March 1997.  (See
Notes 3 and 8 to the Consolidated Financial Statements.) AHGA manages
the marketing of Hallmark policies through a network of retail insurance
agencies which operate under the American Hallmark Agencies name, and
through independent agents operating under their own respective names.

     HUI, formed to market and produce commercial excess and surplus
lines ("E&S") insurance on behalf of unaffiliated E&S insurers, began
operations in late April 1996.  HUI generates commission income by
producing E&S insurance business through the network of the Company's
fourteen retail agencies, certain agents from the Company's current
independent agent group, and other selected independent agents.


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), external
funding of premium notes, ceding commissions, processing fees, premium
finance service charges and investment activities.  Net cash flow from
the Company s consolidated operations for the six months ended June 30,
1997 and 1996 was $665,944 and $3,034,761, respectively.  While premiums
<PAGE>
receivable at June 30, 1997 and 1996 are approximately the same, the
year-end premiums receivable balances preceding each respective quarter
varied significantly.  Premiums receivable at December 31, 1996 were
almost 50% lower than at December 31, 1995 principally due to unusually
high annual premium volume during 1995.  As a result, cash received
under the Company's premium finance program during the first six months
of 1997 was considerably less than cash received during the same period
of 1996. 
   
     On a consolidated basis, the Company s liquidity improved somewhat
as of June 30, 1997 as compared to December 31, 1996.  The Company's
total cash and investments increased approximately 7% to $14,433,377 as
of June 30, 1997 from $13,441,830 as of December 31, 1996.  This
increase is due primarily to the cumulative effect of increased cash
flow from the Company's premium finance program commenced during 1995.  

     Under HFC s premium finance program, premiums for annual policies
due Hallmark are funded-in-full in approximately 30 days and immediately
invested.  Any unfunded premium balances are recorded as premiums
receivable.  Premiums receivable at June 30, 1997 and December 31, 1996,
respectively, include unfunded premium balances due of $2,072,554 and
$2,437,024.  Premiums receivable decreased at June 30, 1997 compared to
December 31, 1996 principally due to an 18% decrease in gross premiums
written during the second quarter of 1997 as compared to the prior year. 
During the first six months of 1997 and 1996, respectively, the Company
received external funds, net of cancellations, of $7,442,845 and
$7,938,959 to fund premiums generated by the Company.

     At June 30, 1997, the Company reported $7,564,851 in notes payable
as compared to $590,853 at December 31, 1996.  Effective March 11, 1997,
the Company entered into a loan agreement with Dorinco ("Dorinco Loan
Agreement"), an unaffiliated company and principal reinsurer of
Hallmark, whereby the Company borrowed $7,000,000 to contribute to HFC. 
(See Note 3 to the Consolidated Financial Statements.)  Proceeds from
the Dorinco Loan Agreement were used to repay $5,915,109 off balance
sheet financing of premium notes and to fund additional premium notes
under HFC's financing and servicing arrangement with an unaffiliated
premium finance company.  As a result, the Company recorded notes
receivable in the amount of $6,513,156 as of June 30, 1997.  (See Note 4
to the Consolidated Financial Statements.)  Of the outstanding notes
payable balance, $407,329 is due before December 31, 1997.  The Company
expects to repay these notes with cash from operations.  However, the
amount to be paid in 1997 may be less than the $407,329 reflected in the
notes payable balance.  Included in this amount is a disputed obligation
of $380,000 to an unaffiliated finance company 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 to offset $240,000 which is on deposit with a subsidiary of
the unaffiliated finance company.

     A substantial portion of the Company's liquid assets are held by
Hallmark and are not available for general corporate purposes.  Of the
Company's consolidated liquid assets at June 30, 1997, $1,251,648
represents non-restricted cash (compared to $991,095 at December 31,
1996 and $1,290,812 at June 30, 1996).  Since state insurance
regulations restrict financial transactions between an insurance company
and its affiliates, the Company is limited in its ability to use
<PAGE>
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
first six months of 1997, Hallmark paid or accrued $400,000 in
management fees as compared to $475,000 for the first six months of
1996.  For the year ended December 31, 1996, Hallmark paid or accrued 
$1,050,000 in management fees.  It is anticipated that paid or accrued
management fees for 1997 should be less than the amounts authorized by
TDI.  Management fees from Hallmark should continue to be a moderate
source of unrestricted liquidity.  However, management intends to
continue to restrict payment of management fees, as necessary, to ensure
the surplus strength of Hallmark.

     Commissions from the Company's annual policy program for
independent agents represent a source of unrestricted liquidity.  Under
this program, AHGA  offers 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 $8.0 million for the six months ended
June 30, 1997.  During the first six months of 1997, AHGA received $1.6
million in commissions related to this program from Hallmark, and will
pay earned commissions of $1.2 million to independent agents. During the
twelve months of 1996, AHGA received approximately $2.7 million in
commissions related to this annual policy program from Hallmark, of
which approximately $1.6 million was paid to independent agents in 1996
and approximately $1.1 million is being paid to independent agents
during 1997 as earned. 

     Ceding commission income represents a significant source of funds
to the Company.  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 annual premiums are earned. 
Deferred ceding commission income decreased slightly to $2,224,665 at
June 30, 1997 from $2,368,264 at December 31, 1996.  This decrease is
principally attributable to an approximate 19% decrease in ceding
commission income during the first half of 1997 as compared to the same
period of 1996 primarily due to a change in reinsurance treaty terms
effective July 1, 1996 and to a decrease in premium volume, particularly
in the second quarter of 1997.  Deferred policy acquisition costs of
$2,885,968 as of June 30, 1997 were $349,404 greater than at December
31, 1996 primarily as a result of the  change in reinsurance terms with
regard to front fees and premium taxes.   

     At June 30, 1997, Hallmark reported statutory capital and surplus
of $5,484,614, which shows an increase of $306,620 over the $5,177,994
reported at December 31, 1996.  On an annualized-premium basis,
Hallmark's premium-to-surplus ratio at June 30, 1997 was 2.27 to 1 as
compared to 2.21 to 1 at December 31, 1996, and 2.24 to 1 at June 30,
1996.  Management does not presently expect Hallmark to require
additional capital during 1997.  Management anticipates that Hallmark is
positioned to maintain and strengthen statutory surplus through
increased earnings from insurance operations.  For the six months ended
June 30, 1997, the statutory loss ratio was approximately 63.1% compared
to 64.1% and 81.8% for the twelve months ended December 31, 1996 and
<PAGE>
1995, respectively.  See Results of Operations for discussion of loss
ratio improvement.

     As previously mentioned, effective July 1, 1996, Hallmark entered
into new reinsurance treaties with Kemper, Dorinco, and Odyssey. 
Certain provisions of the reinsurance treaty could impact the Company's
liquidity.  Under the agreement between Hallmark and the reinsurers,
Hallmark retains 62.5% and cedes only 37.5% of the policy fees (rather
than ceding 75% of the policy fees as under the Vesta treaty), pays
premium taxes and front fees on 100% of the business produced (rather
than premium taxes and front fees on only its retained business under
the Vesta treaty), and receives a 30% provisional commission on the
portion of the business ceded (rather than a guaranteed 30% ceding
commission under the Vesta treaty).  Policy fees are up-front, fully
earned fees that the Company is permitted by law to charge in addition
to premiums to cover or defray certain costs associated with producing
policies.  Terms of the   July 1, 1996 agreement include that the
provisional commission paid under the new treaty will be adjusted
annually over a three-year rating period on a sliding scale based on
annual loss ratios.  Under the July 1, 1997 renewal, the first of the
three-year annual adjustment periods as defined under the original
agreement has been extended to two years.  Based upon its loss
experience, Hallmark can earn a maximum commission of 33.5% and is
guaranteed a minimum commission of 26% regardless of loss experience. 
Pursuant to the loan agreement dated March 11, 1997 between the Company
and Dorinco (as discussed above), effective January 1, 1997, the
commission structure of  Dorinco s  pro rata share of the July 1, 1996
reinsurance treaty was amended to include terms that allows Hallmark to
earn an additional 1% commission at a higher loss ratio than under the
previous structure and also increases the maximum ceding commission that
Hallmark may earn by 1% up to 34.5%, but reduces the minimum ceding
commission from 26% to 23%. Based on current loss experience, the
Company is currently recognizing ceding commission percentages of 30% on
business ceded to Dorinco and 29% on the cessions to Kemper and Odyssey. 
In addition, the Dorinco Loan Agreement requires that effective July 1,
1997, Hallmark increase future volume of business ceded to Dorinco under
the July 1, 1996 reinsurance treaty and satisfy certain annual volume
levels ceded over the seven year term of the loan agreement.   

     Unpaid losses and loss adjustment expenses ("LAE") decreased
approximately 15% due to the combined effect of a continued decrease in
average claim payments during the first six months of 1997 as compared
to the first six months of 1996 as well as a decrease in the number of
days to process and pay new and pending claims.  Accordingly,
reinsurance recoverable decreased proportionately.  

     During 1997, management expects that the Company's liquidity will
continue to be favorably impacted by a continued focus on the
performance of the Company's core State & County business with emphasis
on claims operations.  The Company has increased its claims staff and
hired additional experienced claims adjusters and supervisory personnel
that, in turn, have contributed to lower loss and LAE payments and
favorably impacted the Company s profitability.  However, changing
market conditions in the non-standard industry have adversely impacted
premium volumes during the second quarter of 1997. Although management
has taken steps to stimulate premium volumes, any decrease in premium
volume could negatively impact liquidity.  Among other things, the
Company has expanded its contingent commission program to certain
<PAGE>
independent agents, has rolled out a new six-month program in late-July
1997, continues to appoint and retain quality independent agents and is
implementing a reduction in physical damage rates effective early-
September 1997.  Additionally, revised reinsurance terms related to the
Dorinco financing, as well as reduced borrowing costs for the Company's
premium finance program from both the Dorinco financing and bank credit
line, should positively impact liquidity and earnings beginning late-
1997.  Management also anticipates that an integrated cash management
system implemented in late-1995 will continue to positively impact 1997
liquidity.

     The Company continues to pursue third party claims handling and
administrative contracts. Effective January 1, 1997, the Company entered
into a new agreement with an unaffiliated managing general agency (the
 MGA ).  Under this three-year contract, the Company, as program
administrator, performs certain administrative functions, including but
not limited to, cash management, underwriting and rate-setting reviews,
and claims handling.  In addition, Hallmark assumes a 10% pro-rata share
of the business produced under the MGA s program.  Effective July 1,
1997, Hallmark is increasing its pro-rata share of business assumed
under this contract to 20%.  Effective July 1, 1997, the remaining 80%
share of this business is being reinsured by Hallmark's principal
reinsurers, Dorinco and Kemper.  The related premium volume will be
considered as part of Hallmark's premium volume commitments to its
principal reinsurers.  It is anticipated that fees under this contract
could positively impact liquidity increasingly throughout the year.     

Beginning late-April 1996, the Company began marketing E&S
insurance through HUI.  This business is produced by the Hallmark
Agencies and certain independent agents, and some portion of the
premiums are financed by HFC.  No entity within the Company bears any
underwriting risk.  The E&S policies are written on behalf of A-rated
(A.M. Best rating) unaffiliated insurance companies.  HFC offers premium
financing for E&S business produced by HUI, and is currently financing
E&S premium notes with internally generated funds.  As anticipated, the
growth of this business has been gradual due, in part, to increased
competition from the standard insurance market.  Management remains
committed to the development of its E&S program, and HUI is increasing
its appointments of qualified independent agents.  In addition, HUI
recently entered into a relationship with a London broker and has begun
producing business on behalf of two London-based carriers.  HCS will
perform claims handling functions on a fee basis.  Nonetheless, it is
not anticipated that the E&S program will significantly impact liquidity
during 1997.

     Management intends to continue to investigate opportunities for
future growth and expansion.  However, the Company currently has no
growth plans which would require significant external funding during
1997.

Results of Operations

     Gross premiums written (prior to reinsurance) for the three and six
months ended June 30, 1997  decreased 18% and 7%, respectively, in
relation to gross premiums written during the same period in 1996.  The
respective  decreases in gross premiums written were primarily due to
changing market conditions in the non-standard industry which have
adversely impacted premium volumes during the second quarter of 1997.
<PAGE>
Net written premiums (after reinsurance) for the three months ended June
30, 1997, remained relatively constant as the same period in 1996, while
net written premiums (after reinsurance) for the six months ended June
30, 1997, increased approximately 12% over the same period in 1996.  The
increase in net written premiums for the six months ended June 30, 1997,
in relation to the same period of 1996, is due to (1) higher gross
premiums written during the first quarter of 1997 as compared to the
first quarter of 1996 and (2) higher retention of policy fees to 62.5%
during the first six months of 1997 as compared to 25% during the same
period of 1996.

     Premiums earned (prior to reinsurance) for the three and six months
ended June 30, 1997 were $2,414,053 and $4,310,450, respectively, lower
than for the comparable periods in 1996 representing decreases of 19%
and 18%, respectively.  For the three and six months ended June 30,
1997, net premiums earned (after reinsurance) of $3,065,074 and
$6,044,616, respectively, remained relatively the same as the same
periods in 1996.   During the first six months of 1996, premiums earned
(prior to reinsurance) were high due to the 1996 earning of premium
written during high-volume months of late 1995 as well as the increase
in monthly policy production during 1996 from 39% in 1995 to 52% in
1996.  Hallmark did not experience any unusually high-volume months
during 1996 and additionally, annual policy production has been on the
rise during the first six months of 1997 (52% for 1997 as compared to
48% for the same period of 1996).  The disproportionate decrease between
premiums earned (prior to and after reinsurance) resulted from the
change discussed in the paragraph above.

     Net incurred loss ratios (computed on net premiums earned after
reinsurance) for the three and six months ended June 30, 1997 were
approximately 62% and 59%, respectively, as compared to approximately
65% for both of the same 1996 periods.  The decrease in the loss ratios
between 1997 and 1996 was primarily attributable to a continued emphasis
on effective claims handling procedures, adequate rates, responsive
rate-setting procedures and the increase in retention of policy fees. 
Reinsurance recoveries decreased accordingly.     

     Acquisition costs, net represents the amortization of acquisition
costs (and credits) deferred over the past twelve months and the
deferral of acquisition costs (and credits) incurred in the current
period.  The increase in the credit balance of acquisition costs, net is
primarily due to deferral of increased premium taxes and reduced ceding
commission income during the first half of 1997 as compared to the same
period in 1996.

     Other acquisition and underwriting expenses increased $531,686 and
$919,307 for the three and six months ended June 30, 1997 as compared to
the same respective periods of 1996.  This increase is primarily due to
an increase in the Company s share of premium taxes and front fees paid
under the July 1, 1996 reinsurance treaty as previously discussed, and a
decrease in ceding commission income (especially in the second quarter)
due to the combined effect of lower premium volumes during the first
half of 1997 and to a change in treaty terms effective July 1, 1996. 
These adverse fluctuations are partially offset by decreases in bad debt
expense, commissions paid, salaries, contract labor and related costs,
as well as other underwriting expense categories.  
<PAGE>
     Operating expenses decreased during the three and six months ended
June 30, 1997 as compared to the same respective periods in 1996
primarily due to decreases in salary and related expenses, particularly
in the second quarter.

     Interest expense for the three and six months ended June 30, 1997
increased in relation to the same periods in 1996 as a result of the
Dorinco loan which closed early-March to fund premium finance
operations.  Previous premium financing was through an unaffiliated
premium finance company and thus did not result in interest expense on
the Company s financial statements.  (See Note 3 to the Consolidated
Financial Statements.)

     Investment income decreased approximately 8% and 11% for the three
and six months ended June 30, 1997 in relation to the comparable periods
of 1996 primarily as a result of a decrease in funds available for
investment (due to decreased premium volumes) and the maturity of some
higher-yielding long-term investments.  Long-term invested funds have
decreased principally due to recent maturities and to changing market
conditions whereby long-term rates were less favorable for 1997 as
compared to 1996.

     Interest income on note receivable represents income received from
Peregrine in connection with the Company's use of proceeds from the
Dorinco loan to lend funds to Peregrine to extinguish its premium
finance bank debt.  Interest expense on the Dorinco loan accounts for
the significant increase in interest expense for the three and six
months ended June 30, 1997.      

     Processing fees decreased approximately 38% and 33% for the three
and six months ended June 30, 1997 over the same respective periods of
1996.  These fees represent income earned by HFC pursuant to its premium
finance program.  The decrease in processing fees is due, in part, to
the large volume of notes generated in connection with unusually high
premium volumes during the third quarter of 1995 (that, in turn,
generated notes that were still outstanding as of June 30, 1996).  Lower
annual premiums written in 1997 than in 1996 also contributed to reduced
processing fees.  At June 30, 1997, there were 26,417 premium notes
totaling $8,685,730, and at June 30, 1996, there were 33,166 notes
totaling $11,144,594.

     Service and consulting fees for the three and six months ended June
30, 1997, increased by $121,137 and $141,967, respectively, in relation
to the comparable periods of 1996.  These increases are primarily due to
fees earned in connection with the Company's contract to act as program
administrator for the MGA.

     Other income for the three and six months ended June 30, 1997,
increased by $99,788 and $135,422, respectively, as compared to the same
periods of 1996 principally as a result of additional outside
commissions earned by the Hallmark Agencies and HUI, the Company's
excess and surplus lines agency.

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

                                 PART II
                           OTHER INFORMATION

Item 1.Legal Proceedings.

     In March 1997, a jury returned a verdict against the Company and in
favor of a former director and officer of Hallmark in the amount of
approximately $517,000 on the basis of contractual and statutory
indemnification claims.  The court subsequently granted the plaintiff's
motion for attorneys' fees of approximately $271,000, court costs of
approximately $39,000 and pre-judgment and post-judgment interest, and
rendered final judgment on the verdict.  The Company believes the
judgment in this case was both legally and factually incorrect and has
filed a motion for new trial.  If the motion for new trial is denied,
the Company intends to appeal the judgment.  However, the Company is
presently unable to determine the likelihood of an unfavorable outcome
to such motion or appeal.

     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 other 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.<PAGE>
Item 4.   Submission of Matters to a Vote of Security-Holders.

(a)  The Company's Annual Meeting of Shareholders was held on May 29,
1997.  Of the 10,662,277 shares of common stock of the Company entitled
to vote at the meeting, 6,171,204 shares were present in person or by
proxy.

(b)  The following individuals were elected to serve as directors for
the Company: Ramon D. Phillips, Linda H. Sleeper, Raymond A. Kilgore,
Jack R. Daugherty, Kenneth H. Jones, Jr., Samuel W. Rizzo, A.R. Dike,
James H. Graves, George R. Manser and C. Jeffrey Rogers.

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


Item 5.   Other Information.

     None.

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

(a)  The exhibits listed in the Exhibit Index which appears on
sequential page 18 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 June 30, 1997.
<PAGE>
                                                             Sequential
Exhibit                     Description                       Page No.

10(a)     Form of Endorsement No. 1, effective July 1, 1996,     ______
          to the 100% Quota Share Reinsurance Agreement between
          State & County Mutual Fire Insurance Company and
          American Hallmark Insurance Company of Texas,
          effective July 1, 1996.

10(b)     Form of Endorsement No. 1, effective July 1, 1997, to  ______
          the  Guaranty of Performance and Hold Harmless Agreement
          between Hallmark Financial Services, Inc. and Skandia
          America Reinsurance Corporation, effective July 1, 1996.

10(c)     Form of Endorsement No. 1, effective July 1, 1997, to  ______
          Guaranty Agreement provided by Skandia America              
          Reinsurance Corporation in favor of State & County 
          Mutual Fire Insurance Company, effective July 1, 1996.

10(d)     Form of Endorsement No. 1, effective July 1, 1997,     ______
          to the Guaranty Agreement provided by Dorinco Rein-
          surance Corporation in favor of State & County
          Mutual Fire Insurance Company, effective July 1,
          1996.

10(e)     Form of Endorsement No. 1 - Termination, effective     ______
          January 1, 1997, to the Quota Share Retrocession
          Agreement between American Hallmark Insurance
          Company of Texas and the Reinsurers (Dorinco
          Reinsurance Company and Odyssey Reinsurance
          Corporation), effective July 1, 1996.

10(f)     Form of Quota Share Retrocession Agreement between     ______
          American Hallmark Insurance Company of Texas and
          Dorinco Reinsurance Company, effective January 1,
          1997.

10(g)     Form of Endorsement No. 1, effective January 1, 1997,  ______
          to the Quota Share Retrocession Agreement between          
          American Hallmark Insurance Company of Texas and 
          Dorinco Reinsurance Company, effective January 1,
          1997.

10(h)     Form of Endorsement No. 1, effective July 1, 1997,     ______
          to the Quota Share Retrocession Agreement between
          American Hallmark Insurance Company of Texas and 
          the Reinsurer (Dorinco Reinsurance Company),
          effective July 1, 1996.
<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 13, 1997                 /s/ Ramon D. Phillips
                                      Ramon D. Phillips, President
                                      (Chief Executive Officer)

Date: August 13, 1997                 /s/ John J. DePuma
                                      John J. DePuma,
                                      Chief Financial Officer