Schedule II – Condensed Financial Information of Registrant (Parent Company Only)

HALLMARK FINANCIAL SERVICES, INC.

BALANCE SHEETS

December 31, 2019 and 2018

(In thousands)


	2019		2018
ASSETS
Debt securities, available-for-sale, at fair value (amortized cost; $150 in 2019 and $150 in 2018)	$	1,024	$	786
Cash and cash equivalents		19,637		10,159
Investment in subsidiaries		358,436		344,904
Deferred federal income taxes		1,053		442
Federal income tax recoverable		5,904		6,133
Other assets		21,278		3,784
Total assets	$	407,332	$	366,208

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Senior unsecured notes due 2029 (less unamortized debt issuance cost of $942 in 2019)	$	49,058	$	—
Revolving credit facility payable		—		30,000
Subordinated debt securities (less unamortized debt issuance cost of $846 in 2019 and $898 in 2018)		55,856		55,804
Accounts payable and other accrued expenses		39,136		24,872
Total liabilities		144,050		110,676

Stockholders’ equity:
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2019 and in 2018		3,757		3,757
Additional paid-in capital		123,468		123,168
Retained earnings		160,570		161,195
Accumulated other comprehensive income (loss)		688		(6,660)
Treasury stock (2,749,738 shares in 2019 and 2,846,131 in 2018), at cost		(25,201)		(25,928)

Total stockholders’ equity		263,282		255,532
Total liabilities and stockholders’ equity	$	407,332	$	366,208

See accompanying report of independent registered public accounting firm.

Schedule II (Continued) – Condensed Financial Information of Registrant (Parent Company Only)

HALLMARK FINANCIAL SERVICES, INC.

STATEMENTS OF OPERATIONS

For the years ended December 31, 2019 and 2018

(In thousands)


	2019		2018
Investment income, net of expenses	$	47	$	290
Dividend income from subsidiaries		15,500		5,525
Net realized gains		830		—
Management fee income		16,044		14,736
Total revenues		32,421		20,551

Operating expenses		14,185		11,395
Interest expense		5,410		4,545

Total expenses		19,595		15,940

Income before equity in undistributed earnings of subsidiaries and income tax benefit		12,826		4,611

Income tax benefit		(732)		(306)

Income before equity in undistributed earnings of subsidiaries		13,558		4,917
Equity in undistributed share of (loss) earnings in subsidiaries		(14,183)		5,430

Net (loss) income	$	(625)	$	10,347

Comprehensive income	$	6,723	$	5,827

See accompanying report of independent registered public accounting firm.

Schedule II (Continued) – Condensed Financial Information of Registrant (Parent Company Only)

HALLMARK FINANCIAL SERVICES, INC.

STATEMENTS OF CASH FLOWS

For the years ended December 31, 2019 and 2018

(In thousands)


	2019		2018
Cash flows from operating activities:
Net (loss) income	$	(625)	$	10,347

Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
Depreciation and amortization expense		381		377
Deferred income tax (benefit) expense		(611)		51
Net realized gains		(830)		—
Undistributed share of loss (earnings) of subsidiaries		14,183		(5,430)
Change in current federal income tax payable (recoverable)		229		(2,219)
Change in all other liabilities		994		(3,075)
Change in all other assets		(2,339)		(466)
Net cash provided by (used in) operating activities		11,382		(415)

Cash flows from investing activities:
Purchases of property and equipment		(1,211)		(55)
Purchase of investment securities		(1,259)		—
Maturities, sales and redemptions of investment securities		1,405		—
Capital contribution to subsidiaries		(20,000)		—
Net cash used in investing activities		(21,065)		(55)

Cash flows from financing activities:
Proceeds from exercise of employee stock options		1,520		242
Payment of revolving credit facility		(30,000)		—
Payment of debt issuance costs		(979)		—
Proceeds from senior unsecured note offering		50,000		—
Purchase of treasury shares		(1,380)		(1,807)
Net cash used provided by (used in) financing activities		19,161		(1,565)

Increase (decrease) in cash and cash equivalents		9,478		(2,035)
Cash and cash equivalents at beginning of year		10,159		12,194
Cash and cash equivalents at end of year	$	19,637	$	10,159

Supplemental cash flow information:
Interest paid	$	4,289	$	4,842

Income taxes (recovered) paid	$	(448)	$	1,996

See accompanying report of independent registered public accounting firm.