Schedule II – Condensed Financial Information of Registrant

Condensed Balance Sheets

FEDERATED NATIONAL HOLDING COMPANY (Parent Company Only)

December 31, 2016 and 2015



	December 31,
	2016		2015
ASSETS	(in thousands)
Investments in subsidiaries	$	283,669	$	282,504
Investments securities, available-for-sale, at fair value		31,750		25,649
Cash and cash equivalents		7,786		2,397
Deferred income taxes, net		—		485
Income taxes receivable		9,811		10,471
Other assets		2,030		1,506
Total assets	$	335,046	$	323,012

LIABILITIES AND SHAREHOLDERS’ EQUITY
Due to subsidiaries	$	93,653	$	70,079
Deferred income taxes, net		1,642		—
Other liabilities		1,895		2,174
Total liabilities		97,190		72,253

Preferred stock		—		—
Common stock		134		138
Additional paid-in capital		136,779		131,998
Accumulated other comprehensive income		1,941		3,985
Retained earnings		80,275		96,461
Total shareholders’ equity attributable Federated National Holding Company shareholders		219,129		232,582
Noncontrolling interest		18,727		18,177
Total shareholders’ equity		237,856		250,759
Total liabilities and shareholders’ equity	$	335,046	$	323,012

See accompanying note to condensed financial statements.

Schedule II – Condensed Financial Information of Registrant (continued)

Condensed Statements of Earnings

FEDERATED NATIONAL HOLDING COMPANY (Parent Company Only)



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Revenue:
Management fees	$	2,492	$	2,489	$	2,387
Net investment income		623		609		417
Equity in income of consolidated subsidiaries		9,480		71,905		61,653
Total revenue		12,595		75,003		64,457

Costs and expenses:
General and administrative expenses		9,862		9,810		7,150
Total costs and expenses		9,862		9,810		7,150

Income before income taxes		2,733		65,193		57,307
Income taxes		2,683		24,753		20,108
Net income		50		40,440		37,199
Net income (loss) attributable to noncontrolling interest		246		(445)		—

Net (loss) income attributable to Federated National Holding Company shareholders	$	(196)	$	40,885	$	37,199

See accompanying note to condensed financial statements.

Schedule II – Condensed Financial Information of Registrant (continued)

Condensed Statements of Cash Flows

FEDERATED NATIONAL HOLDING COMPANY (Parent Company Only)



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Cash flow from operating activities:
Net income	$	50	$	40,440	$	37,199
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of consolidated subsidiaries		(9,480)		(71,905)		(61,653)
Depreciation and amortization		73		64		92
Share-based compensation		4,420		4,527		2,140
Changes in operating assets and liabilities:
Deferred income taxes, net of other comprehensive (loss) income		2,127		(153)		674
Income taxes receivable, net		2,978		24,352		16,521
Capital contribution payable		—		(18,501)		2,501
Due to subsidiaries		23,574		6,430		(2,069)
Other, net		3,786		2,057		4,460
Net cash provided by (used in) operating activities		27,528		(12,689)		(135)

Cash flow from investing activities:
Capital contributions to consolidated subsidiaries, net		—		(32,743)		(18,501)
Sales, maturities and redemptions of investments securities		76,928		38,612		22,414
Purchases of investment securities		(83,724)		(21,354)		(36,949)
Purchases from property and equipment		(299)		(113)		(391)
Net cash used in investing activities		(7,095)		(15,598)		(33,427)
Cash flow from financing activities:
Noncontrolling interest equity investment		—		18,743		—
Tax benefit related to share-based compensation		589		1,564		480
Issuance of common stock for share-based awards		361		171		1,555
Issuance of common stock in public offering		—		—		43,109
Purchases of FNHC common stock		(11,317)		—		—
Dividends paid		(4,677)		(1,847)		(1,672)
Net cash (used in) provided by financing activities		(15,044)		18,631		43,472
Net (decrease) increase in cash and cash equivalents		5,389		(9,656)		9,910
Cash and cash equivalents at beginning of period		2,397		12,053		2,143
Cash and cash equivalents at end of period	$	7,786	$	2,397	$	12,053

See accompanying note to condensed financial statements.

Schedule II – Condensed Financial Information of Registrant (continued)

Note to Condensed Financial Statements

FEDERATED NATIONAL HOLDING COMPANY (Parent Company Only)

(1) ORGANIZATION AND BASIS OF PRESENTATION

FNHC, the Parent Company, is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents.

The accompanying condensed financial statements include the activity of the Parent Company and, on an equity basis, its consolidated subsidiaries. Accordingly, these condensed financial statements have been presented for the parent company only. These condensed financial statements should be read in conjunction with the consolidated financial statements and related notes of FNHC and subsidiaries set forth in Part II, Item 8 “Financial Statements and Supplemental Data” of this Form 10-K.

In applying the equity method to our consolidated subsidiaries, we record the investment at cost and subsequently adjust for additional capital contributions, distributions and proportionate share of earnings or losses.

Certain amounts in prior year’s condensed financial statements have been reclassified to conform to the 2016 presentation.