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EX-31.2 - EXHIBIT 31.2 - MMA Capital Holdings, Inc.v416702_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - MMA Capital Holdings, Inc.v416702_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - MMA Capital Holdings, Inc.v416702_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - MMA Capital Holdings, Inc.v416702_ex32-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from __________________ to __________________

 

Commission File Number 001-11981

MMA CAPITAL MANAGEMENT, LLC

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

52-1449733

(I.R.S. Employer Identification No.)

621 East Pratt Street, Suite 600

Baltimore, Maryland

(Address of principal executive offices)

21202

(Zip Code)

 

(443) 263-2900

(Registrant's telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Shares, no par value

Name of each exchange on which registered

NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o Accelerated filer o
   
Non-accelerated filer o Smaller reporting company þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

 

There were 6,709,834 shares of common shares outstanding at August 6, 2015.

 

 

 

 

MMA Capital Management, LLC

TABLE OF CONTENTS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 1
   
Part I – FINANCIAL INFORMATION 2
     
Item 1. Financial Statements 2
     
  (a) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 2
     
  (b) Consolidated Statement of Operations for the three months and six months ended June 30, 2015 and 2014 3
     
  (c) Consolidated Statements of Comprehensive Loss for the three months and six months ended June 30, 2015 and 2014 5
     
  (d) Consolidated Statements of Equity for the six months ended June 30, 2015 6
     
  (e) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 7
     
  (f) Notes to Consolidated Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
     
Item 4. Controls and Procedures 53
     
PART II – OTHER INFORMATION 53
     
Item 1. Legal Proceedings 53
     
Item 1A. Risk Factors 53
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
     
Item 3. Defaults Upon Senior Securities 54
     
Item 4. Mine Safety Disclosures 54
     
Item 5. Other Information 54
     
Item 6. Exhibits 54
     
SIGNATURES S-1
   
EXHIBITS E-1

 

 i 

 

 

Cautionary Statement Regarding Forward Looking Statements

 

This Quarterly Report on Form 10-Q for the period ended June 30, 2015 (this “Report”) contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future operating or financial performance.

 

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements. There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report. They include the factors discussed in Part 1, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”).

 

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. “Risk Factors” of the 2014 Form 10-K in evaluating these forward-looking statements. We have not undertaken to update any forward-looking statements.

 

 1 

 

 

Part I – FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

MMA Capital Management, LLC

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

   June 30, 2015
(Unaudited)
   December 31,
2014
 
ASSETS          
Cash and cash equivalents  $58,123   $29,619 
Restricted cash (includes $22,043 and $24,186 related to CFVs)   51,260    50,189 
Bonds available-for-sale (includes $164,233 and $144,611 pledged as collateral)   207,662    222,899 
Investments in real estate partnerships (includes $201,301 and $231,204 related to CFVs)   229,063    259,422 
Investment in preferred stock (includes $25,000 and $31,371 pledged as collateral)   31,371    31,371 
Other assets (includes $91 and $161 pledged as collateral and $10,081 and $11,128 related CFVs)   44,827    75,246 
Total assets  $622,306   $668,746 
           
LIABILITIES AND EQUITY          
Debt (includes $6,712 and $6,712 related to CFVs)  $271,197   $290,543 
Accounts payable and accrued expenses   3,908    5,538 
Unfunded equity commitments to Lower Tier Property Partnerships related to CFVs   8,947    9,597 
Other liabilities (includes $26,622 and $31,831 related to CFVs)   40,761    41,870 
Total liabilities  $324,813   $347,548 
           
Commitments and contingencies          
           
Equity          
Noncontrolling interests in CFVs and IHS (net of zero and $575 of subscriptions receivable)  $202,214   $229,714 
Common shareholders’ equity:          
Common shares, no par value (6,738,834 and 7,162,221 shares issued and outstanding and 68,314 and 66,106 non-employee directors’ and employee deferred shares issued at June 30, 2015 and December 31, 2014, respectively)   36,859    35,032 
Accumulated other comprehensive income   58,420    56,452 
Total common shareholders’ equity   95,279    91,484 
Total equity   297,493    321,198 
Total liabilities and equity  $622,306   $668,746 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 2 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
   2015   2014   2015   2014 
Interest income                    
Interest on bonds  $3,270   $2,629   $6,602   $7,789 
Interest on loans and short-term investments   803    216    1,544    361 
Total interest income   4,073    2,845    8,146    8,150 
                     
Interest expense                    
Bond related debt   379    759    705    1,764 
Non-bond related debt   132    186    280    384 
Total interest expense   511    945    985    2,148 
Net interest income   3,562    1,900    7,161    6,002 
                     
Non-interest revenue                    
Income on preferred stock investment   1,311    1,312    2,608    2,609 
Asset management fees and reimbursements   1,245    81    2,475    482 
Other income   1,140    823    2,054    1,275 
Revenue from CFVs   133    5,610    200    10,660 
Total non-interest revenue   3,829    7,826    7,337    15,026 
Total revenues, net of interest expense   7,391    9,726    14,498    21,028 
                     
Operating and other expenses                    
Interest expense   1,708    3,489    4,904    7,062 
Salaries and benefits   3,911    3,096    7,183    6,425 
General and administrative   773    894    1,636    1,857 
Professional fees   881    983    2,025    2,365 
Other expenses   1,722    854    1,829    1,655 
Expenses from CFVs   9,014    12,659    18,330    24,308 
Total operating and other expenses   18,009    21,975    35,907    43,672 
                     
Net gains on sale of real estate   5,622        5,622     
Net gains on bonds   3,792    768    4,375    768 
Net gains on derivatives and loans   928    383    1,913    18 
Net gains on extinguishment of liabilities       402        402 
Net gains transferred into net income from AOCI due to real estate foreclosure               2,003 
Equity in income (losses) from unconsolidated funds and ventures   20    (144)   93    (254)
Net (losses) gains related to CFVs       (657)       4,152 
Equity in losses from Lower Tier Property Partnerships of CFVs   (6,654)   (7,038)   (12,347)   (14,466)
Net loss from continuing operations before income taxes   (6,910)   (18,535)   (21,753)   (30,021)
Income tax (expense) benefit   (278)   1,194    (132)   1,748 
Net income (loss) from discontinued operations, net of tax   89    (441)   161    14,038 
Net loss   (7,099)   (17,782)   (21,724)   (14,235)
Loss allocable to noncontrolling interests:                    
Net losses allocable to noncontrolling interests in CFVs and IHS:                    
Related to continuing operations   14,168    15,364    28,472    25,274 
Related to discontinued operations               150 
Net income (loss) to common shareholders  $7,069   $(2,418)  $6,748   $11,189 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 3 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)

(Unaudited)

(in thousands, except per share data)

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
   2015   2014   2015   2014 
Basic income (loss) per common share:                    
Income (loss) from continuing operations  $1.01   $(0.25)  $0.93   $(0.38)
Income (loss) from discontinued operations   0.01    (0.06)   0.02    1.79 
Income (loss) per common share  $1.02   $(0.31)  $0.95   $1.41 
                     
Diluted income (loss) per common share:                    
Income (loss) from continuing operations  $1.01   $(0.25)  $0.93   $(0.38)
Income (loss) from discontinued operations   0.01    (0.06)   0.02    1.79 
Income (loss) per common share  $1.02   $(0.31)  $0.95   $1.41 
                     
Weighted-average common shares outstanding:                    
Basic   6,955    7,792    7,084    7,916 
Diluted   6,955    7,792    7,084    7,916 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 4 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
   2015   2014   2015   2014 
                 
Net income (loss) to common shareholders  $7,069   $(2,418)  $6,748   $11,189 
Net loss allocable to noncontrolling interests   (14,168)   (15,364)   (28,472)   (25,424)
Net loss  $(7,099)  $(17,782)  $(21,724)  $(14,235)
                     
Other comprehensive income allocable to common shareholders:                    
Bond related changes:                    
Unrealized net gains  $3,005   $2,908   $5,745   $7,814 
Reversal of net unrealized gains on sold or redeemed bonds   (3,395)   (778)   (3,866)   (778)
Reclassification of unrealized losses to operations due to impairment   179        179     
Reversal of unrealized gains from AOCI to Net Income due to foreclosure               (2,003)
Net change in other comprehensive income due to bonds   (211)   2,130    2,058    5,033 
Income tax benefit (expense)   211    (329)       (458)
Foreign currency translation adjustment   42    (89)   (90)   (87)
Other comprehensive income allocable to common shareholders  $42   $1,712   $1,968   $4,488 
                     
Other comprehensive loss allocable to noncontrolling interests:                    
Foreign currency translation adjustment  $   $(346)  $   $(1,334)
                     
Comprehensive income (loss) to common shareholders  $7,111   $(706)  $8,716   $15,677 
Comprehensive loss to noncontrolling interests   (14,168)   (15,710)   (28,472)   (26,758)
Comprehensive loss  $(7,057)  $(16,416)  $(19,756)  $(11,081)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 5 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands)

 

   Common Equity Before
AOCI
       Total Common
Shareholders’
   Noncontrolling
Interest in CFVs 
   Total 
   Number   Amount   AOCI   Equity   and IHS   Equity 
Balance, January 1, 2015   7,228   $35,032   $56,452   $91,484   $229,714   $321,198 
Net income (loss)       6,748        6,748    (28,472)   (21,724)
Other comprehensive income           1,968    1,968    24    1,992 
Contributions                   575    575 
Purchases of shares in a subsidiary (including price adjustments on prior purchases)       (547)       (547)   373    (174)
Common shares (restricted and deferred) issued under employee and non-employee director share plans   28    294        294        294 
Common share repurchases   (449)   (4,668)       (4,668)       (4,668)
Balance, June 30, 2015   6,807   $36,859   $58,420   $95,279   $202,214   $297,493 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 6 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   For the six months ended
June 30,
 
   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(21,724)  $(14,235)
Adjustments to reconcile net loss to net cash used in operating activities:          
Provisions for credit losses and impairment (1)   14,753    11,807 
Net equity in losses from equity investments in partnerships (1)   12,254    14,720 
Net gains on bonds   (4,375)   (768)
Net gains on real estate   (5,770)   (15,300)
Net gains (losses) on derivatives and loans   (67)   452 
Advances on and originations of loans held for sale   (4,243)    
Net gains related to CFVs       (3,352)
Net gains due to initial real estate consolidation and foreclosure       (2,003)
Subordinate debt effective yield amortization and interest accruals   2,163    3,517 
Depreciation and other amortization (1)   1,188    4,774 
Foreign currency (gain) loss   (113)   569 
Stock-based compensation expense   1,374    1,721 
Change in asset management fees payable related to CFVs   (5,209)   (170)
Other   (3,108)   (4,725)
Net cash used in operating activities   (12,877)   (2,993)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Principal payments and sales proceeds received on bonds and loans held for investment   16,740    8,391 
Advances on and originations of loans held for investment   (418)   (6,917)
Advances on and purchases of bonds       (3,080)
Investments in property partnerships and real estate (1)   (1,120)   (20,356)
Proceeds from the sale of real estate and other investments   29,662    37,972 
(Increase) decrease in restricted cash and cash of CFVs   (819)   1,225 
Capital distributions received from investments in property partnerships (1)   6,135    13,149 
Net cash provided by investing activities   50,180    30,384 
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from borrowing activity   25,585     
Repayment of borrowings   (30,004)   (44,256)
Payment of debt issuance costs   (128)    
Contributions from holders of noncontrolling interests   575     
Distributions paid to holders of noncontrolling interests   (159)   (1,622)
Purchase of treasury stock   (4,668)   (4,648)
Net cash used in financing activities   (8,799)   (50,526)
Net increase (decrease) in cash and cash equivalents   28,504    (23,135)
Cash and cash equivalents at beginning of period   29,619    66,794 
Cash and cash equivalents at end of period  $58,123   $43,659 

 

(1)Majority of the activity was related to CFVs.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 7 

 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS– (continued)

(Unaudited)

(in thousands)

 

   For the six months ended
June 30,
 
   2015   2014 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Interest paid  $3,983   $7,313 
Income taxes paid   139    166 
           
Non-cash investing and financing activities:          
Unrealized losses included in other comprehensive income   1,992    3,154 
Debt and liabilities extinguished through sales and collections on bonds and loans   16,672    3,598 
Increase in real estate assets and decrease in bond assets due to foreclosure or initial consolidation of funds and ventures       11,058 
Decrease in common equity and increase in noncontrolling equity due to purchase of noncontrolling interest   397    3,112 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 8 

 

 

MMA Capital Management, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1—description of the business and BASIS OF PRESENTATION

 

MMA Capital Management, LLC, the registrant, was organized in 1996 as a Delaware limited liability company.  When used in this Quarterly Report on Form 10-Q for the period ended June 30, 2015 (this “Report”), the “Company,” “MMA,” “we,” “our,” or “us” may refer to the registrant, the registrant and its subsidiaries, or one or more of the registrant’s subsidiaries depending on the context of the disclosure.

 

Description of the Business

 

The Company uses its experience and expertise to partner with institutional capital to create attractive and impactful alternative investment opportunities, to manage them well and to report on them effectively. Beginning in 2015, the Company operates through three reportable segments – United States (“U.S.”) Operations, International Operations and Corporate Operations.

 

U.S. Operations

 

Our U.S. Operations consists of three business lines: Leveraged Bonds, Low-Income Housing Tax Credits (“LIHTCs”) and Other Investments and Obligations.

 

The Leveraged Bonds business line finances affordable housing and infrastructure in the U.S. This business line manages the vast majority of the Company’s bonds and bond related investments (“bonds”) and associated financings. The bond portfolio is comprised primarily of multifamily tax-exempt bonds, but also includes other real estate related bond investments.

 

Our LIHTC business consists primarily of a secured loan receivable from Morrison Grove Management, LLC (“MGM”) and an option to purchase MGM beginning in 2019.

 

The Other Investments and Obligations business line includes legacy assets targeted for eventual disposition and serves as our research and development unit for new business opportunities in the U.S., which has resulted in the creation of a renewable energy capital business that operates as MMA Energy Capital, LLC (“MEC”).

 

International Operations

 

We manage our International Operations through a wholly owned subsidiary, International Housing Solutions S.à r.l. (“IHS”). IHS’s strategy is to raise, invest in, and manage private real estate funds.  IHS currently manages three funds: the South Africa Workforce Housing Fund (“SAWHF”), which is a multi-investor fund and is fully invested; IHS Residential Partners I, which is a single-investor fund targeted at the emerging middle class in South Africa; and IHS Fund II, which is a multi-investor fund targeting investments in affordable housing, including green housing projects, within South Africa and Sub-Saharan Africa. During the second quarter of 2015, IHS and a South African property management company formed a company in South Africa, IHS Property Management Proprietary Limited (“IHS PM”), to provide property management services to the properties of the IHS managed funds and ventures. IHS owns 60% of IHS PM and the third party property manager owns the remaining 40%.

 

Corporate Operations

 

Our Corporate Operations segment is responsible for accounting, reporting, compliance and planning, which are fundamental to our success as a global fund manager and publicly traded company in the U.S.

 

Use of Estimates

 

The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, commitments and contingencies, and revenues and expenses. Management has made significant estimates in certain areas, including the determination of fair values for bonds, derivative financial instruments, guarantee obligations, and certain assets and liabilities of consolidated funds and ventures (“CFVs”). Management has also made significant estimates in the determination of impairment on bonds and real estate investments. Actual results could differ materially from these estimates.

 

Basis of Presentation and Significant Accounting Policies

 

The consolidated financial statements include the accounts of the Company and of entities that are considered to be variable interest entities in which the Company is the primary beneficiary, as well as those entities in which the Company has a controlling financial interest, including wholly owned subsidiaries of the Company. All intercompany transactions and balances have been eliminated in consolidation. Equity investments in unconsolidated entities where the Company has the ability to exercise significant influence over the operations of the entity, but is not considered the primary beneficiary, are accounted for using the equity method of accounting.

 

 9 

 

 

New Accounting Guidance

 

Accounting for Debt Issuance Costs

 

On April 7, 2015, the Company adopted ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This guidance provides an amendment to the accounting guidance related to the presentation of debt issuance costs and is effective for fiscal years beginning after December 15, 2015 with early adoption allowed. This guidance is applied retrospectively to all prior periods. Under the new guidance, debt issuance costs are to be presented as a direct reduction from the related debt liability rather than as an asset. As a result of adopting this guidance, the Company reclassified $2.9 million of debt issuance costs at December 31, 2014, from “Other Assets” to “Debt” on the consolidated balance sheet.

 

Note 2—BONDs available-for-sale

 

Bonds Available-for-Sale

 

The Company’s bond portfolio is comprised primarily of mortgage revenue bonds, but also includes other real estate related bond investments.

 

Mortgage revenue bonds are issued by state and local governments or their agencies or authorities to finance multifamily rental housing; typically however, the only source of recourse on these bonds is the collateral, which is either a first mortgage or a subordinate mortgage on the underlying properties. The Company’s rights under the mortgage revenue bonds are defined by the contractual terms of the underlying mortgage loans, which are pledged to the bond issuer and assigned to a trustee for the benefit of bondholders to secure the payment of debt service (any combination of interest and/or principal as set forth in the trust indenture) on the bonds. At June 30, 2015, the Company had $190.9 million (unpaid principal balance (“UPB”) of mortgage revenue bonds with a fair value of $169.5 million. Included in this amount were subordinate bonds ($10.3 million of UPB and $10.6 million fair value) where the payment of debt service occurs only after payment of senior obligations held by third parties that have priority to the cash flow of the underlying collateral.

 

The weighted average pay rate on the Company’s bond portfolio was 5.3% and 5.2% at June 30, 2015 and December 31, 2014, respectively. Weighted average pay rate represents the cash interest payments collected on the bonds as a percentage of the bonds’ average UPB for the preceding 12 months for the population of bonds at June 30, 2015 and December 31, 2014, respectively.

 

The following table summarizes the Company’s bonds and related unrealized losses and unrealized gains at June 30, 2015 and December 31, 2014, respectively.

 

   June 30, 2015 
(in thousands)  UPB   Amortized
Cost (1)
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses (2), (3)
   Fair
Value
 
Mortgage revenue bonds  $190,927   $123,567   $46,521   $(554)  $169,534 
Other bonds   39,340    24,803    13,325        38,128 
Total  $230,267   $148,370   $59,846   $(554)  $207,662 

 

   December 31, 2014 
(in thousands)  UPB   Amortized
Cost (1)
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses (4), (5)
   Fair
Value
 
Mortgage revenue bonds  $192,068   $126,897   $41,145   $(858)  $167,184 
Other bonds   57,056    38,768    16,947        55,715 
Total  $249,124   $165,665   $58,092   $(858)  $222,899 

 

(1)Consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairments (“OTTI”) recognized in earnings.

 

(2)At June 30, 2015, $0.6 million represents the non-credit loss component of unrealized losses associated with bonds that were deemed to be OTTI.

 

(3)Comprised of bonds in a gross unrealized loss position for less than 12 consecutive months that had a fair value of $2.0 million at June 30, 2015, as well as bonds in a gross unrealized loss position for more than 12 consecutive months that had a fair value of $6.1 million at June 30, 2015.

 

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(4)At December 31, 2014, $0.6 million represents the non-credit loss component for certain unrealized losses deemed to be other-than-temporarily impaired and $0.3 million represents unrealized losses that were not considered other-than-temporarily impaired.

 

(5)Comprised of bonds in a gross unrealized loss position for less than 12 consecutive months that had a fair value of $1.8 million at December 31, 2014, as well as bonds in a gross unrealized loss position for more than 12 consecutive months that had a fair value of $6.0 million at December 31, 2014.

 

See Note 9, “Fair Value Measurements” which describes the factors contributing to the $15.2 million decrease in the Company’s reported bond fair value.

 

Maturity

 

Principal payments on bonds are based on amortization tables set forth in the bond documents. If no principal amortization is required during the bond term, the outstanding principal balance is required to be paid in a lump sum payment at maturity or at such earlier time as may be provided under the bond documents. At June 30, 2015, seven bonds (amortized cost of $16.3 million and fair value of $24.0 million) were non-amortizing with principal due in full between February 2030 and August 2048. The remaining bonds are amortizing with stated maturity dates between September 2017 and June 2056.

 

Bonds with Prepayment Lockouts, Premiums or Penalties

 

Substantially all of the Company’s bonds include provisions that allow the borrowers to prepay the bonds at a premium or at par after a specified date that is prior to the stated maturity date.  The following table provides the UPB, amortized cost and fair value of bonds that were prepayable without restriction, premium or penalty at June 30, 2015, as well as the year in which the remaining portfolio becomes prepayable without restriction, premium or penalty at each period presented.

 

(in thousands)  UPB   Amortized Cost   Fair Value 
June 30, 2015  $44,429   $24,803   $40,947 
July 1 through December 31, 2015            
2016            
2017            
2018   10,365    7,275    8,347 
2019            
Thereafter   175,202    116,021    158,089 
Bonds that may not be prepaid   271    271    279 
Total  $230,267   $148,370   $207,662 

 

Non-Accrual Bonds

 

The fair value of bonds on non-accrual was $45.0 million and $43.6 million at June 30, 2015 and December 31, 2014, respectively.  During the period in which these bonds were on non-accrual, the Company recognized interest income on a cash basis of $0.5 million and $0.7 million for the three months ended June 30, 2015 and 2014, respectively, and $1.1 million and $3.6 million for the six months ended June 30, 2015 and 2014, respectively. Interest income not recognized during the period in which these bonds were on non-accrual was $1.1 million and $1.7 million for the three months ended June 30, 2015 and 2014, respectively, and $2.2 million and $3.0 million for the six months ended June 30, 2015 and 2014, respectively.

 

Bond Aging Analysis

 

The following table provides the fair value of bonds available-for-sale that were current with respect to principal and interest payments, as well as the fair value of those bonds that were past due with respect to either principal or interest payments at June 30, 2015 and December 31, 2014.

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Total current  $162,659   $179,315 
30-59 days past due        
60-89 days past due        
90 days or greater   45,003    43,584 
Total  $207,662   $222,899 

 

Bond Sales and Redemptions

 

The Company recorded cash proceeds on sales and redemptions of bonds of $1.4 million and $6.4 million for the six months ended June 30, 2015 and 2014, respectively.

 

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The following table provides realized gains recognized on bonds at the time of sale or redemption reported through “Net gains on assets and derivatives.”

 

   For the three months
ended June 30,
   For the six months
ended June 30,
 
(in thousands)  2015   2014   2015   2014 
Net impairment recognized on bonds held at each period-end  $(179)  $   $(179)  $ 
Gains recognized at time of sale or redemption   3,793    768    4,376    768 
Total net gains on bonds  $3,614   $768   $4,197   $768 

 

Note 3—INVESTMENTS IN PREFERRED STOCK

 

These investments are prepayable at any time and are comprised of preferred stock investments in a private national mortgage lender and servicer specializing in affordable and market rate multifamily housing, senior housing and healthcare. At June 30, 2015, the carrying value of the preferred stock investments was $31.4 million and the UPB and estimated fair value was $36.6 million with a weighted average pay rate of 14.4%. The Company accounts for the preferred stock using the cost method and tests for impairment at each balance sheet date. An impairment loss is recognized if the carrying amount of the preferred stock is not deemed recoverable. The Company did not recognize impairments on the preferred stock for the six months ended June 30, 2015 and 2014.

 

As of June 30, 2015, $25.0 million (principal) of the preferred stock investment was the reference asset for two total return swap (“TRS”) agreements with a maturity date of March 31, 2016. See Note 6, “Debt” for more information.

 

Note 4—INVESTMENTS IN REAL ESTATE PARTNERSHIPS

 

The following table provides the carrying value of investments in real estate partnerships at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Investments in U.S. real estate partnerships  $22,538   $22,529 
Investments in IHS-managed funds and ventures   5,224    5,689 
Investments in Lower Tier Property Partnerships (“LTPPs”) related to CFVs (1)   201,301    231,204 
Total investments in real estate partnerships  $229,063   $259,422 

 

(1)See Note 15, “Consolidated Funds and Ventures” for more information.

 

Investments in U.S. Real Estate Partnerships

 

At June 30, 2015, $16.3 million of the reported balance represents the Company’s interest in a real estate venture that was formed during the fourth quarter of 2014. The Company accounts for this investment as an equity investment and does not consolidate the real estate venture because it is not deemed to be the primary beneficiary. The Company made an initial contribution of $8.8 million (representing 80% of the real estate venture’s initial capital). The Company has rights to a preferred return on its capital contribution, as well as rights to share in excess cash flows of the real estate venture.

 

At June 30, 2015, the majority of the remaining balance ($6.2 million) represents a 33% interest in a partnership that was formed to take a deed-in-lieu of foreclosure on land that was collateral for a loan held by the Company. The Company accounts for its interest as an equity investment and does not consolidate the partnership because the Company is not deemed to be the primary beneficiary.

 

The following table displays the total assets and liabilities held by the U.S. real estate partnerships in which the Company held an equity investment at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
 2015
   December 31,
2014
 
Investment in U.S. real estate partnerships:          
Total assets (primarily real estate)  $85,086   $83,021 
Total liabilities   37,626    34,856 

 

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The following table displays the net loss for the three months ended and six months ended June 30, 2015 and 2014, for the U.S. real estate partnerships:

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Net loss  $(546)  $(310)  $(395)  $(496)

 

Investments in IHS-managed Funds and Ventures

 

At June 30, 2015, the Company held equity co-investments ranging from 2% to 4.25% in three IHS-managed funds and ventures (SAWHF, IHS Residential Partners I and IHS Fund II). IHS provides asset management services to each of these investment vehicles in return for asset management fees. For each investment vehicle, IHS also has rights to investment returns on its equity co-investment as well as carried interest which is contingent upon the investment returns generated by each investment vehicle.

 

The Company accounts for its interest in SAWHF, IHS Residential Partners I and IHS Fund II as equity investments pursuant to the equity method of accounting because the Company is not deemed to be the primary beneficiary of such funds and ventures. At June 30, 2015, the carrying basis of the Company’s investment in SAWHF and IHS Residential Partners I was $3.6 and $1.6 million, respectively. At June 30, 2015, the Company had no equity investment basis in IHS Fund II because no capital had been called.

 

The following table displays the total assets and liabilities held by the three IHS-managed funds and ventures in which the Company held an equity investment at June 30, 2015 and December 31, 2014, respectively:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Total assets  $276,493   $276,007 
Total liabilities   111,106    104,863 

 

The following table displays the net income (loss) for the three months and six months ended June 30, 2015 for the three IHS-managed funds and ventures. The net income (loss) for the three months and six months ended June 30, 2014 was related only to IHS Residential Partners I because at that time the Company consolidated SAWHF and thus its equity investment in SAWHF was eliminated in consolidation.

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Net income (loss)  $1,586   $(995)  $3,332   $(894)

 

Note 5—OTHER ASSETS

 

The following table summarizes other assets at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Other assets:          
Loans receivable held-for-investment  $8,053   $22,392 
Loans receivable held-for-sale   4,932     
Real estate owned   6,179    28,562 
Asset management fees and reimbursements receivable   3,523    2,454 
Derivative assets   3,400    2,726 
Solar facilities (includes other assets such as cash and other receivables)   2,959    3,093 
Accrued interest and dividends receivable   2,944    2,672 
Other assets   2,756    2,219 
Other assets held by CFVs (1)   10,081    11,128 
Total other assets  $44,827   $75,246 

 

(1)For more information see Note 15, “Consolidated Funds and Ventures.”

 

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Loans Held-for-Investment

 

We report the carrying value of loans that are held for investment (“HFI”) at their UPB, net of unamortized premiums, discounts and other cost basis adjustments and related allowance for loan losses.

 

The following table summarizes the amortized cost and allowance for loan losses for loans that were classified as HFI at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Amortized cost  $25,824   $40,163 
Allowance for loan losses   (17,771)   (17,771)
Loans held for investment, net  $8,053   $22,392 

 

At June 30, 2015 and December 31, 2014, loans held for investment had an UPB of $26.4 million and $40.9 million, respectively, as well as deferred fees and other basis adjustments of $0.6 million and $0.7 million, respectively. At June 30, 2015 and December 31, 2014, loans that were specifically impaired had an UPB of $18.4 and were not accruing interest.

 

At June 30, 2015 and December 31, 2014, no loans that were 90 days or more past due in either principal or interest were still accruing interest.

 

During the second quarter of 2015, the $17.3 million (UPB) bridge loan (“Bridge Loan”) to MGM was repaid in full. The book basis of the Bridge Loan was $14.4 million at payoff. The remaining $2.9 million of principal due related to the seller financing provided to MGM, which was off-balance sheet at the time of payoff because the Company was not able to meet sale accounting. As a result of the payoff, the Company recorded a $14.4 million reduction to the Bridge Loan and a $2.9 million increase to Other liabilities.

 

In addition, the previously-issued term loan (“Term Loan”) to MGM was restructured into a subordinate loan (“Subordinate Loan”). Just prior to the restructuring, the Term Loan had a legal principal balance due of $13.2 million of which $13.0 million was restructured into a Subordinated Loan and the remaining $0.2 million (comprised of capitalized extension fees) was repaid during the third quarter of 2015. The Subordinate Loan, designated as held for investment, has a maturity date of June 30, 2025 and an annual fixed interest rate of 11% with contingent interest up to an additional 13%. The contingent interest will decline to 2% per annum after December 31, 2019. The Subordinate Loan is non-amortizing; however, $1.5 million can be prepaid prior to December 31, 2019.

 

At June 30, 2015, the Company’s off-balance sheet loan receivable relating to the seller financing provided to MGM was the $13.0 million Subordinate Loan.

 

Interest collected during the three months and six months ended June 30, 2015 on the seller financing was $0.3 million and $0.6 million, respectively, which was recorded as a deferred gain through “Other liabilities.”

 

At June 30, 2015, the deferred gain recorded on the seller financing was $3.9 million ($2.9 million of principal collected and $1.0 million of interest collected).

 

Loans Held-for-Sale

 

During the second quarter of 2015, MEC entered into five loans for the late stage development and construction of solar projects. While these loans were designated as held for sale, the Company elected the fair value option for these loans and, as a result, such assets are subsequently measured on a fair value basis through earnings. At June 30, 2015, these solar loans had an aggregate UPB and fair value of $4.9 million.

 

At June 30, 2015, there were no solar loans 90 days or more past due, and there were no solar loans on non-accrual status.

 

Interest income on the solar loans was $0.1 million for the three and six months ended June 30, 2015 recognized on an accrual basis through "Interest on loans and short-term investments".

 

During the third quarter of 2015, the Company sold the five solar loans to Solar Construction Lending, LLC at par, resulting in no gain or loss. On July 21, 2015 the Company announced that one of its wholly owned subsidiaries, MEC, entered into a venture with a third party to provide capital for development and construction of solar power projects throughout the U.S.  The venture will operate under the name Solar Construction Lending, LLC and will be administered by MEC.  MEC and the third party each have a 50% interest in the venture and each have a capital commitment of $25 million.  The Company expects to account for its interest in the venture using the equity method of accounting.

 

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Unfunded Loan Commitments

 

Unfunded loan commitments are agreements to fund construction or renovation of properties securing certain loans. At June 30, 2015, there were unfunded loan commitments of $10.3 million on our solar loans which as mentioned above were sold during the third quarter of 2015. There were no unfunded loan commitments at December 31, 2014.

 

Real Estate Owned

 

The following table summarizes the carrying value of the Company’s investments in real estate at June 30, 2015 and December 31, 2014.

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Real estate held-for-sale  $3,560   $10,145 
Real estate held-for-use   2,619    18,417 
Total real estate  $6,179   $28,562 

 

During the second quarter of 2015, the Company sold two affordable multifamily properties with a combined carrying basis of $21.1 million. These two sales resulted in a gain on sale of $5.6 million.

 

Asset Management Fees and Reimbursements Receivable

 

At June 30, 2015, the Company had a $3.5 million asset management fees and reimbursements receivable of which $3.2 million was due from IHS-managed funds and ventures. 

 

Derivative Assets

 

At June 30, 2015, the Company had $3.4 million in derivative assets related primarily to TRSs. See Note 7, “Derivative Financial Instruments” for more information.

 

Solar Facilities

 

At June 30, 2015, the Company owned five solar facilities that were classified as held for investment. These facilities generate energy that is sold under long-term power purchase agreements to the owner or lessee of the properties on which the projects are built. The useful life of these solar facilities is generally 20 years.

 

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Note 6—DEBT

 

As previously discussed in Note 1, “Description of the Business and Basis of Presentation,” the Company made reclassifications to other assets and debt on its previously issued 2014 consolidated balance sheet as a result of early adoption of ASU No. 2015-03. We have reclassified $2.9 million of debt issuance costs at December 31, 2014, from “Other Assets” to “Debt”.

 

The table below summarizes outstanding debt balances and the associated weighted-average interest rate based on amounts due within one year or after one year at June 30, 2015 and December 31, 2014:

 

(dollars in thousands)  June 30,
 2015
   Weighted-Average
Effective Interest
Rate at
June 30, 2015
   December 31,
2014
   Weighted-Average
Effective Interest
Rate at 
December 31, 2014
 
Asset Related Debt (1)                    
Notes payable and other debt – bond related (2)                    
Due within one year  $1,117    1.6%  $776    1.4%
Due after one year   94,955    1.5    86,499    1.4 
Notes payable and other debt – non-bond related                    
Due within one year   1,256    9.8    1,753    9.8 
Due after one year   3,766    10.0    4,374    10.0 
                     
Total asset related debt  $101,094    1.9   $93,402    2.0 
                     
Other Debt (1)                    
Subordinate debentures (3)                    
Due within one year  $2,926    3.4   $14,088    7.0 
Due after one year   131,176    2.9    133,893    7.2 
Notes payable and other debt                    
Due within one year   25,000    4.3    37,811    4.4 
Due after one year   4,289    2.7    4,637    2.8 
                     
Total other debt  $163,391    3.1   $190,429    6.5 
                     
Total asset related debt and other debt  $264,485    2.7   $283,831    5.0 
                     
Debt related to CFVs                    
Due within one year  $6,712    5.3   $6,712    5.3 
Due after one year                
Total debt related to CFVs  $6,712    5.3   $6,712    5.3 
                     
Total debt  $271,197    2.7   $290,543    5.0 

 

(1)Asset related debt is debt which finances interest-bearing assets and the interest expense from this debt is included in “Net interest income” on the consolidated statements of operations. Other debt is debt which does not finance interest-bearing assets and the interest expense from this debt is included in “Interest expense” under “Operating and other expenses” on the consolidated statements of operations.

 

(2)Included in notes payable and other debt – bond related are unamortized debt issuance costs of $0.2 million and less than $0.1 million at June 30, 2015 and December 31, 2014, respectively.

 

(3)The subordinate debt balances include a net adjustment of $9.4 million and $7.2 million at June 30, 2015 and December 31, 2014, respectively. These adjustments are comprised of net premiums due to effective interest adjustments of $12.2 million and $10.1 million at June 30, 2015 and December 31, 2014, respectively, offset by debt issuance costs of $2.8 million at June 30, 2015 and December 31, 2014.

 

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Covenant Compliance and Debt Maturities

 

The following table summarizes principal payment commitments across all debt agreements at June 30, 2015:

 

(in thousands)  Asset Related Debt
and Other Debt
   CFVs
Related Debt
   Total Debt 
2015  $2,331   $6,712   $9,043 
2016   30,227        30,227 
2017   16,374        16,374 
2018   68,986        68,986 
2019   13,360        13,360 
Thereafter   123,973        123,973 
Net premium and debt issue costs   9,234        9,234 
Total  $264,485   $6,712   $271,197 

 

During the second quarter of 2015, the Company paid $1.1 million of debt that was due and payable and operating under a forbearance agreement. At June 30, 2015, the Company was not in default under any of its debt arrangements.

 

Asset Related Debt

 

Notes Payable and Other Debt – Bond Related

 

At June 30, 2015, this debt was comprised of TRS financing agreements on bonds available-for-sale.

 

During the second quarter of 2015, the Company entered into a TRS financing agreement with a notional amount of $8.1 million using an existing bond as the reference asset. Under the terms of the TRS agreement, the counterparty is required to pay the Company an amount equal to the interest payments received on the underlying bonds (UPB of $7.4 million with a pay rate of 6.60% at June 30, 2015) and the Company is required to pay the counterparty a rate of Securities Industry and Financial Markets Association (“SIFMA”) 7-day municipal swap index plus a 100 basis points (“bps”) spread. At June 30, 2015, the pay rate was 107 bps.

 

At June 30, 2015, the aggregate UPB and the weighted average pay rate of the bonds underlying the TRS financing agreements were $94.6 million and 5.8%, respectively and the notional amount of the associated TRS financing agreements was $96.2 million with a weighted average pay rate of 140 bps.

 

Interest expense on notes payable and other debt – bond related totaled $0.7 million and $1.8 million for the six months ended June 30, 2015 and 2014, respectively.

 

Other Debt

 

Subordinate Debt

 

The table below provides a summary of the key terms of the subordinate debt issued by MMA Financial Inc. (“MFI”) and MMA Financial Holdings, Inc. (“MFH”) and held by third parties at June 30, 2015:

 

(dollars in thousands)                 
Issuer  Principal   Net Premium
and Debt
Issuance Costs
   Carrying
Value
   Interim
Principal
Payments
  Maturity Date  Coupon
MFI  $28,312   $(168)  $28,144   Amortizing  December 2027 and December 2033  8.0%
                         
MFH   28,454    2,928    31,382   Amortizing  March 30, 2035  3-month LIBOR plus 2.0%
                         
MFH   25,874    2,673    28,547   Amortizing  April 30, 2035  3-month LIBOR plus 2.0%
                         
MFH   14,914    1,419    16,333   Amortizing  July 30, 2035  3-month LIBOR plus 2.0%
                         
MFH   27,117    2,579    29,696   Amortizing  July 30, 2035  3-month LIBOR plus 2.0%
                         
   $124,671   $9,431   $ 134,102          

 

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On May 12, 2015, the Company made interim principal payments in the aggregate principal amount of $15.4 million which reduced the UPB of MFH tranches to $96.4 million. On May 21, 2015, the Company entered into a series of agreements with certain third party lenders related to the $96.4 million MFH subordinated debt. These agreements included a reduction to the annual interest rate of 3-month London Interbank Offer Rate (“LIBOR”) plus 330 bps to 3-month LIBOR plus 200 bps. In addition, the subordinated debt principal payments changed from a single balloon payment due in 2035 to quarterly principal amortization equal to one-half percent (50 bps) of the then outstanding principal balance and a balloon payment of the remaining outstanding principal balance in 2035.

 

Interest expense on the subordinate debt totaled $4.1 million and $5.1 million for the six months ended June 30, 2015 and 2014, respectively.

 

Notes Payable and Other Debt

 

This debt is mainly comprised of TRS financing arrangements on the Company’s preferred stock investments. This debt is non-amortizing and bears an interest rate of 3-month LIBOR plus 400 bps (4.3% at June 30, 2015), which resets quarterly.

 

Letters of Credit

 

The Company had no letters of credit outstanding at June 30, 2015.

 

Note 7—DERIVATIVE FINANCIAL INSTRUMENTS

 

Changes in the fair value of derivatives are recorded through current period earnings in “Net gains on assets and derivatives” on the consolidated statements of operations. Derivative assets are reported through “Other assets” and derivative liabilities are reported through “Other liabilities.”

 

The following table summarizes the Company’s derivative assets and liabilities at June 30, 2015 and December 31, 2014.

 

   Fair Value 
   June 30, 2015   December 31, 2014 
(in thousands)  Assets   Liabilities   Assets   Liabilities 
Total return swaps  $3,333   $624   $2,539   $35 
Interest rate cap   67        187     
Interest rate swap       736        718 
Total derivative financial instruments  $3,400   $1,360   $2,726   $753 

 

The following table summarizes the derivative notional amounts at June 30, 2015 and December 31, 2014.

 

   Notional 
(in thousands)  June 30,
2015
   December 31,
2014
 
Total return swaps  $100,832   $90,184 
Interest rate cap   45,000    45,000 
Interest rate swap   7,713    7,749 
Total derivative financial instruments  $153,545   $142,933 

 

The following table summarizes realized and unrealized gains (losses) associated with the Company’s derivative instruments that were recognized for the three months and six months ended June 30, 2015 and 2014.

 

   Realized/Unrealized Gains
(Losses) for the three months
ended June 30,
   Realized/Unrealized Gains
(Losses) for the six months
ended June 30,
 
(in thousands)  2015   2014   2015   2014 
Total return swaps (1)  $1,013   $654   $2,204   $654 
Interest rate cap   (41)   (173)   (120)   (425)
Interest rate swap (2)   (44)   (103)   (171)   (208)
Total  $928   $378   $1,913   $21 

 

(1)The cash paid and received on TRSs that were reported as derivative instruments is settled on a net basis and recorded through “Net gains on assets and derivatives.” Net cash received was $1.0 million and $0.6 million for the three months ended June 30, 2015 and 2014, respectively. Net cash received was $2.0 million and $0.6 million for the six months ended June 30, 2015 and 2014, respectively.

 

(2)The cash paid and received on the interest rate swap is settled on a net basis and recorded through “Net gains on assets and derivatives.” Net cash paid was $0.1 million for the three months ended June 30, 2015 and 2014. Net cash paid was $0.2 million for the six months ended June 30, 2015 and 2014.

 

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TRSs

 

During the second quarter of 2015, the Company entered into a TRS agreement with a notional amount of $14.6 million. The underlying bond was $14.6 million (UPB) with a pay rate of 7.76%. The Company is required to pay the counterparty a rate of SIFMA 7-day municipal swap index plus a spread of 425 bps on the TRS.

 

As of June 30, 2015, the Company had 11 bond related TRS agreements accounted for as derivatives. Under the terms of the TRS agreements, the counterparty is required to pay the Company an amount equal to the interest payments received on the underlying bonds (UPB of $99.5 million with a weighted average pay rate of 6.2% at June 30, 2015). The Company is required to pay the counterparty a rate of SIFMA 7-day municipal swap index plus a spread on the TRS (notional amount of $100.8 million with a weighted average pay rate of 1.9% at June 30, 2015).

 

Interest rate cap

 

At June 30, 2015 and December 31, 2014, the Company had one interest rate cap contract that terminates on January 2, 2019. The notional amount on the interest rate cap was $45.0 million at June 30, 2015 and December 31, 2014 and provides us with interest rate protection on $45.0 million of our floating rate debt in the event SIFMA 7-day municipal swap index rises to 250 bps or higher.

 

Interest rate swap

 

At June 30, 2015 and December 31, 2014, the Company had one interest rate swap contract. Under the terms of the agreement, the counterparty is required to pay the Company SIFMA 7-day municipal swap index plus 250 bps (pay rate of 257 bps at June 30, 2015) and the Company is required to pay the counterparty a fixed interest rate of 6.5%.

 

Note 8—Financial Instruments

 

The following table provides information about financial assets and liabilities not carried at fair value at June 30, 2015 and December 31, 2014. This table excludes non-financial assets and liabilities.

 

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. A description of how the Company estimates fair values is provided below. These estimates are subjective in nature, involve uncertainties and significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

As required by generally accepted accounting principles (“GAAP”), assets and liabilities are classified into levels based on the lowest level of input that is significant to the fair value measurement. The determination of which level an asset or liability gets classified into is based on the following fair value hierarchy:

 

·Level 1: Quoted prices in active markets for identical instruments.

 

·Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active markets.

 

·Level 3: Valuations derived from valuation techniques in which significant inputs or significant value drivers are unobservable.

 

   June 30, 2015 
   Carrying   Fair Value 
(in thousands)  Amount   Level 1   Level 2   Level 3 
Assets:                    
Investments in preferred stock  $31,371   $   $   $36,613 
Loans receivable   8,053            7,146 
                     
Liabilities:                    
Notes payable and other debt, bond related   96,072            96,233 
Notes payable and other debt, non-bond related   34,311            30,058 
Notes payable and other debt related to CFVs   6,712             
Subordinate debt issued by MFH   105,958            32,648 
Subordinate debt issued by MFI   28,144            16,428 

 

 19 

 

 

   December 31, 2014 
   Carrying   Fair Value 
(in thousands)  Amount   Level 1   Level 2   Level 3 
Assets:                    
Investments in preferred stock  $31,371   $   $   $36,613 
Loans receivable   22,564            21,689 
                     
Liabilities:                    
Notes payable and other debt, bond related   87,275            87,325 
Notes payable and other debt, non-bond related   48,575            44,085 
Notes payable and other debt related to CFVs   6,712             
Subordinate debt issued by MFH   119,441            44,718 
Subordinate debt issued by MFI   28,540            28,714 

 

Investment in preferred stockThe Company estimates fair value by using the terms and conditions of the preferred stock as compared to other, best available market benchmarks.

 

Loans receivable –The Company estimates fair value by discounting the expected cash flows using current market yields for similar loans. Loans receivable are recorded through “Other assets.”

 

Notes payable and other debt – The Company estimates fair value by discounting contractual cash flows using a market rate of interest or by estimating the fair value of the collateral supporting the debt arrangement, taking into account credit risk.

 

Subordinate debt – At June 30, 2015, the Company estimates the fair value of the subordinate debt by discounting contractual cash flows using an estimated market rate of interest of 20%. As outlined in the table above, at June 30, 2015 the aggregate fair value was estimated at $49.1 million. At June 30, 2015, the estimated fair value of this debt would be $63.1 million and $40.2 million using a discount rate of 15% and 25%, respectively. The estimated fair value of this debt is inherently judgmental and based on management’s assumption of market yields. There can be no assurance that the Company could repurchase the remaining subordinated debt at the estimated fair values reflected in the table above or that the debt would trade at that price.

 

Note 9—FAIR VALUE MEASUREMENTS

 

Recurring Valuations

 

The following tables present assets and liabilities that are measured at fair value on a recurring basis at June 30, 2015 and December 31, 2014.

 

   Fair Value Measurement Levels 
(in thousands)  June 30,
2015
   Level 1   Level 2   Level 3 
Assets:                    
Bonds available-for-sale  $207,662   $   $   $207,662 
Loans receivable   4,932            4,932 
Derivative assets   3,400        67    3,333 
                     
Liabilities:                    
Derivative liabilities  $1,360   $   $   $1,360 

 

 20 

 

 

   Fair Value Measurement Levels 
(in thousands)  December 31,
2014
   Level 1   Level 2   Level 3 
Assets:                    
Bonds available-for-sale  $222,899   $   $   $222,899 
Derivative assets   2,726        187    2,539 
                     
Liabilities:                    
Derivative liabilities  $753   $   $   $753 

 

The following table presents activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three months ended June 30, 2015.

 

(in thousands)  Bonds
Available-
for-sale
   Loans
Receivable
   Derivative
Assets
   Derivative
Liabilities
 
Balance, April 1, 2015  $220,129   $   $3,276   $(1,359)
Net (losses) gains included in earnings   (1,877)       57    (1)
Net change in other comprehensive income (1)   (211)            
Impact from loan originations       4,932         
Impact from redemptions   (9,874)            
Impact from settlements   (505)            
Balance, June 30, 2015  $207,662   $4,932   $3,333   $(1,360)

 

(1)This amount includes the reversal of $3.4 million of unrealized gains related to bonds that were redeemed, offset by $3.0 million of unrealized net holding gains arising during the period and $0.2 million of unrealized bond losses reclassified into operations.

 

The following table provides the amount included in earnings related to the activity presented in the table above, as well as additional realized losses recognized at bond redemption and derivative settlement for the three months ended June 30, 2015.

 

(in thousands)  Net gains on
bonds (1)
   Equity in Losses
from LTPPs
   Net gains on
derivatives (1)
 
Change in unrealized (losses) gains related to assets and liabilities still held at June 30 2015  $(179)  $(1,698)  $56 
Additional realized gains recognized   3,792        913 
Total gains (losses) reported in earnings  $3,613   $(1,698)  $969 

 

(1)Amounts are reflected through “Other expenses” and “Net gains on assets and derivatives” on the consolidated statements of operations.

 

The following table presents activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three months ended June 30, 2014.

 

(in thousands)  Bonds
Available-
for-sale
   Derivative
Assets
   Derivative
Liabilities
 
Balance, April 1, 2014  $184,883   $   $(653)
Net (losses) gains included in earnings   (959)   477    (474)
Net change in other comprehensive income (1)   2,130         
Impact from purchases   3,080         
Impact from redemptions   (5,651)        
Impact from settlements   (1,773)        
Balance, June 30, 2014  $181,710   $477   $(1,127)

 

(1)This amount represents $2.9 million of unrealized net holding gains arising during the period, partially offset by $0.8 million of unrealized bond losses related to bonds that were redeemed.

 

The following table provides the amount included in earnings related to the activity presented in the table above, as well as additional realized losses recognized at bond redemption and derivative settlement for the three months ended June 30, 2014.

 

 21 

 

 

(in thousands)  Net gains on
bonds (1)
   Equity in
losses from
LTPPs
   Net losses on
derivatives (1)
 
Change in unrealized (losses) gains related to assets and liabilities still held at June 30, 2014  $   $(959)  $3 
Additional realized losses recognized   768        547 
Total gains (losses) reported in earnings  $768   $(959)  $550 

 

(1)Amounts are reflected through “Net gains on assets and derivatives” on the consolidated statements of operations.

 

The following table presents activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the six months ended June 30, 2015.

 

(in thousands)  Bonds
Available-
for-sale
   Loans
Receivable
   Derivative
Assets
   Derivative
Liabilities
 
Balance, January 1, 2015  $222,899   $   $2,539   $(753)
Net gains (losses) included in earnings   (2,846)       794    (607)
Net change in other comprehensive income (1)   2,058             
Impact from loan originations       4,932         
Impact from redemptions   (9,874)            
Impact from settlements   (4,575)            
Balance, June 30, 2015  $207,662   $4,932   $3,333   $(1,360)

 

(1)This amount includes $5.7 million of unrealized net holding gains arising during the period plus $0.2 million of unrealized bond losses reclassified into operations, offset by the reversal of $3.9 million of unrealized gains related to bonds that were redeemed.

 

The following table provides the amount included in earnings related to the activity presented in the table above, as well as additional realized losses recognized at derivative settlement for the six months ended June 30, 2015.

 

(in thousands)  Net gains on
bonds (1)
   Equity in Losses
from LTPPs
   Net gains on
derivatives (1)
 
Change in unrealized (losses) gains related to assets and liabilities still held at June 30 2015  $(179)  $(2,667)  $187 
Additional realized gains recognized   4,375        1,846 
Total gains (losses) reported in earnings  $4,196   $(2,667)  $2,033 

 

(1)Amounts are reflected through “Other expenses” and “Net gains on assets and derivatives” on the consolidated statements of operations.

 

The following table presents activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the six months ended June 30, 2014.

 

(in thousands)  Bonds
Available-
for-sale
   Derivative
Assets
   Derivative
Liabilities
 
Balance, January 1, 2014  $195,332   $   $(626)
Net (losses) gains included in earnings   (1,907)   477    (501)
Net change in other comprehensive income (1)   7,036         
Impact from purchases   3,080         
Impact from redemptions   (5,651)        
Bonds eliminated due to real estate consolidation and foreclosure   (11,058)        
Impact from settlements   (5,122)        
Balance, June 30, 2014  $181,710   $477   $(1,127)

 

(1)This amount represents $7.8 million of unrealized net holding gains arising during the period, partially offset by $0.8 million of unrealized bond losses related to bonds that were redeemed.

 

 22 

 

 

The following table provides the amount included in earnings related to the activity presented in the table above, as well as additional realized losses recognized at bond redemption and derivative settlement for the six months ended June 30, 2014.

 

(in thousands)  Net gains on
bonds (1)
   Equity in
losses from
LTPPs
   Net losses on
derivatives (1)
 
Change in unrealized (losses) gains related to assets and liabilities still held at June 30, 2014  $   $(1,907)  $(24)
Additional realized losses recognized   768        469 
Total gains (losses) reported in earnings  $768   $(1,907)  $445 

 

(1)Amounts are reflected through “Net gains on assets and derivatives” on the consolidated statements of operations.

 

The following methods or assumptions were used to estimate the fair value of these recurring financial instruments:

 

Bonds Available-for-sale If a bond is performing and payment of full principal and interest is not deemed at risk, then the Company estimates fair value using a discounted cash flow methodology; specifically, the Company discounts contractual principal and interest payments, adjusted for expected prepayments. The discount rate is based on expected investor yield requirements adjusted for bond attributes such as the expected term of the bond, debt service coverage ratio, geographic location and bond size.  The weighted average discount rate for the performing bond portfolio was 5.9% and 6.2% at June 30, 2015 and December 31, 2014, respectively, for performing bonds still held in the portfolio at June 30, 2015. If observable market quotes are available, the Company will estimate the fair value based on such quoted prices.

 

For non-performing bonds and certain performing bonds where payment of full principal and interest is deemed at risk, the Company estimates fair value by discounting the property’s expected cash flows and residual proceeds using estimated market discount and capitalization rates, less estimated selling costs. The weighted average discount rate was 7.9% and 7.8% at June 30, 2015 and December 31, 2014, for the bonds remaining in our portfolio at June 30, 2015. The weighted average capitalization rate was 6.5% and 6.7% at June 30, 2015 and December 31, 2014, respectively, for the bonds remaining in our portfolio at June 30, 2015. However, to the extent available, the Company may estimate fair value based on a sale agreement, a letter of intent to purchase, an appraisal or other third-party indications of fair value.

 

The discount rates and capitalization rates discussed above are significant inputs to bond valuations and are unobservable in the market. To the extent discount rates and capitalization rates were to increase (decrease) in isolation the corresponding estimated bond values would decrease (increase).

 

The lack of liquidity in the bond markets in which the Company transacts, coupled with the significant judgments that are inherent in our valuation methodologies, results in a risk that if the Company needed to sell bonds, the price it is able to realize may be lower than the carrying value (i.e., the fair value) of such bonds.

 

Loans Receivable – The Company estimates fair value using a discounted cash flow methodology whereby contractual principal and interest payments are discounted at expected investor yield requirements for similar assets.

 

Derivative Financial Instruments – The Company estimates fair value, taking into consideration credit risk, based on internal models and based on third party models using either a Level 2 or a Level 3 approach depending on the nature of the derivative contract.

 

Non-recurring Valuations

 

At June 30, 2015 and December 31, 2014, the Company had no assets that were measured at fair value on a non-recurring basis.

 

Note 10—GUARANTEES AND COLLATERAL

 

Guarantees

 

Guarantee obligations are recorded through “Other liabilities.”

 

The following table summarizes guarantees at June 30, 2015 and December 31, 2014:

 

   June 30, 2015   December 31, 2014 
(in thousands)  Maximum
Exposure
   Carrying
Amount
   Maximum
Exposure
   Carrying
Amount
 
Indemnification contracts  $13,209   $698   $13,209   $864 

 

 23 

 

 

Through the indemnification contracts outlined in the table above, the Company guarantees the investor yields on certain third party LIHTC Funds and property performance on certain third party LTPPs. The Company made no cash payments related to these indemnification agreements for the six months ended June 30, 2015 and 2014. The carrying amount represents the amount of unamortized fees received related to these guarantees with no additional amounts recognized as management does not believe it is probable that the Company will have to make payments under these indemnifications. These guarantees will expire by the end of 2017.

 

The Company’s maximum exposure under its indemnification contracts represents the maximum loss the Company could incur under its guarantee agreements and is not indicative of the likelihood of the expected loss under the guarantee.  The Company also has guarantees associated with certain consolidated LIHTC Funds. See Note 15, “Consolidated Funds and Ventures” for information on these guarantees.

 

Collateral and restricted assets

 

The following table summarizes assets that are either pledged or restricted for the Company’s use at June 30, 2015 and December 31, 2014. This table also reflects certain assets held by CFVs in order to reconcile to the Company’s consolidated balance sheets.

 

   June 30, 2015 
(in thousands)  Restricted
Cash
   Bonds
Available-
for-sale
   Investment
in Preferred
stock
   Other
Assets
   Total
Assets
Pledged
 
Debt and derivatives TRSs  $14,224   $164,233   $25,000   $   $203,457 
Other (1)   14,993            91    15,084 
CFVs (2)   22,043            10,081    32,124 
Total  $51,260   $164,233   $25,000   $10,172   $250,665 

 

   December 31, 2014 
(in thousands)  Restricted
Cash
   Bonds
Available-
for-sale
   Investment
in Preferred
stock
   Other
Assets
   Total
Assets
Pledged
 
Debt and derivatives TRSs  $11,010   $144,611   $31,371   $   $186,992 
Other (1)   14,993            161    15,154 
CFVs (2)   24,186            11,128    35,314 
Total  $50,189   $144,611   $31,371   $11,289   $237,460 

 

(1)The Company pledges collateral in connection with various guarantees that it has provided.  

 

(2)These are assets held by consolidated LIHTC Funds.

 

Note 11—Commitments and Contingencies

 

Operating Leases

 

As of June 30, 2015, the Company had two non-cancelable operating leases, expiring in 2016 and 2020, respectively. These leases require the Company to pay property taxes, maintenance and other costs. The Company recognized rental expense of $0.1 million and $0.2 million for the three months and six months ended June 30, 2015 and 2014, respectively.

 

The following table summarizes the future minimum rental commitments on the two non-cancelable operating leases at
June 30, 2015:

 

(in thousands)    
2015  $242 
2016   159 
2017   139 
2018   151 
2019   164 
Thereafter   56 
Total minimum future rental commitments  $911 

 

 24 

 

 

Litigation

 

From time to time, the Company and its subsidiaries are named as defendants in various litigation matters arising in the ordinary course of business. These proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive or declaratory relief.

 

The Company establishes reserves for litigation matters when a loss is probable and can be reasonably estimated. Once established, reserves may be adjusted when new information is obtained.

 

It is the opinion of the Company’s management that adequate provisions have been made for losses with respect to litigation matters and other claims that existed at June 30, 2015. Management believes the ultimate resolution of these matters is not likely to have a material effect on its financial position, results of operations or cash flows. Assessment of the potential outcomes of these matters involves significant judgment and is subject to change, based on future developments, which could result in significant changes.

 

Shareholder Matters

 

The Company is a defendant in a purported class action lawsuit originally filed in 2008.  The plaintiffs claim to represent a class of investors in the Company’s shares who allegedly were injured by misstatements in press releases and SEC filings between May 3, 2004 and January 28, 2008.  The plaintiffs sought unspecified damages for themselves and the shareholders of the class they purported to represent.  The class action lawsuit was brought in the United States District Court for the District of Maryland. The Company filed a motion to dismiss the class action, and in June 2012, the Court issued a ruling dismissing all of the counts alleging any knowing or intentional wrongdoing by the Company or its affiliates, directors and officers. The plaintiffs appealed the Court’s ruling and on March 7, 2014, the United States Court of Appeals for the Fourth Circuit unanimously affirmed the lower Court’s ruling. As a result of these rulings, the only counts remaining in the class action relate to the Company’s dividend reinvestment plan.

 

The parties have engaged in settlement discussions leading to a settlement agreement. On April 20, 2015, the parties submitted the agreement and related documents to the United States District Court for the Districted of Maryland for approval. The agreement provides for a maximum of $826,820 to cover payments to the class as well as the attorneys for the plaintiffs’ counsel. The settlement is a claims-made settlement, in which payments will be made only to those plaintiffs who submit a claim and whose claim is approved, thus the final settlement amount to the class could be less than the amount stated above. Similarly, the court must approve the plaintiffs’ counsel’s attorneys’ fees, thus the final amount could be less than stated. A hearing to approve the settlement is set for September 24, 2015.

 

The Company does not expect to directly incur any settlement costs, as all costs, including both class payments and plaintiffs’ attorneys’ fees, will be paid directly by its insurance company. As a result, the Company released the litigation reserve of $0.5 million during the first quarter of 2015.

 

Note 12—EQUITY

 

Common Share Information

 

The following table provides a summary of net income to common shareholders as well as information pertaining to weighted average shares used in the per share calculations as presented on the consolidated statements of operations for the three months and six months ended June 30, 2015 and 2014.

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Net income (loss) from continuing operations  $6,980   $(1,977)  $6,587   $(2,999)
Net income (loss) from discontinued operations   89    (441)   161    14,188 
Net income (loss) to common shareholders  $7,069   $(2,418)  $6,748   $11,189 
                     
Basic weighted-average shares (1)   6,955    7,792    7,084    7,916 
Common stock equivalents (2) (3) (4)                
Diluted weighted-average shares   6,955    7,792    7,084    7,916 

 

(1)Includes common shares issued and outstanding, as well as non-employee directors’ and employee deferred shares that have vested, but are not issued and outstanding.

 

(2)At June 30, 2015, 410,000 stock options were in the money and had a potential dilutive share impact of 321,255 and 317,188 for the three months and six months ended June 30, 2015, respectively.  In addition, 19,885 unvested employee deferred shares had a potential dilutive share impact of 9,895 and 15,276 for the three months and six months ended June 30, 2015, respectively. For the three months and six months ended June 30, 2015, the adjustment to net income for the awards classified as liabilities caused the common stock equivalents to be anti-dilutive.

 

 25 

 

 

(3)At June 30, 2014, 410,000 stock options were in the money and had a potential dilutive share impact of 296,449 and 286,039 for the three months and six months ended June 30, 2014, respectively. In addition, 41,667 unvested employee deferred shares had a potential dilutive share impact of 20,833 for the three months and six months ended June 30, 2014. For the three months and six months ended June 30, 2014, the Company had a net loss from continuing operations and thus, any incremental shares would be anti-dilutive.

 

(4)For the three months and six months ended June 30, 2015, the number of options excluded from the calculations of diluted earnings per share was 42,221 either because of their anti-dilutive effect (i.e. options that were not in the money) or because the option had contingency vesting requirements. For the three months and six months ended June 30, 2014, respectively, the number of options excluded from the calculations of diluted earnings per share was 60,211 either because of their anti-dilutive effect (i.e. options that were not in the money) or because the option had contingent vesting requirements.  

 

Common Shares

 

Effective September 29, 2014, the Company executed a one-for-five reverse stock split. All share and per share information has been adjusted to reflect the reverse stock split.

 

As of June 30, 2015, the Board had authorized total stock repurchases of up to 2.05 million shares. Between July 1, 2015 and August 6, 2015, the Company repurchased 29,000 shares at an average price of $12.46. As of August 6, 2015, the Company had repurchased 1.8 million shares at an average price of $8.74 since the plan’s inception. At its August 6, 2015 meeting, the Board amended the maximum price at which management is authorized to purchase shares based on an assessment of the economic benefit of such purchases to the Company. Effective after the filing of this Report and until modified by further action of the Board, that price is $13.92 per share.

 

Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (“Rights Plan”).  In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015.  The rights will not trade apart from the current common shares until the distribution date, as defined in the Rights Plan. Under the Rights Plan, should a new investor acquire greater than a 4.9% stake in the Company, all existing shareholders other than the new 4.9% holder will be provided the opportunity to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person. The Rights Plan will run for a period of five years, or until the Board determines the plan is no longer required, whichever comes first.

 

Noncontrolling Interests

 

The following table summarizes the noncontrolling interests at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
CFVs (LIHTC Funds)  $202,214   $230,111 
IHS       (397)
IHS PM        
Total  $202,214   $229,714 

 

LIHTC Funds

 

At June 30, 2015 and December 31, 2014, the noncontrolling interest holders were comprised of the limited partners as well as the GP in 11 guaranteed LIHTC Funds. The decline in the noncontrolling interest balance was primarily a result of a $23.8 million reduction in the LIHTC Funds’ investment balance due to net operating losses and impairment charges that were recognized during the six months ended June 30, 2015.  

 

IHS

 

At December 31, 2014, 3.7% of IHS was held by a third party. During the second quarter of 2015, the Company purchased the remaining interest held by a third party and now has 100% ownership interest in IHS at June 30, 2015.

 

IHS PM

 

During the second quarter of 2015, IHS formed a company in South Africa, IHS PM, to provide property management services to the properties of the IHS-managed funds and ventures. IHS owns 60% of IHS PM and the third party property manager owns 40%. At June 30, 2015, the assets, liabilities and the equity attributable to the noncontrolling interest holder of IHS PM were inconsequential.

 

 26 

 

 

Accumulated Other Comprehensive Income Allocable to Common Shareholders

 

The following table summarizes the net change in AOCI allocable to common shareholders for the three months ended June 30, 2015.

 

(in thousands)  Bonds
Available-for-
Sale
   Income Tax
Expense
   Foreign
Currency
Translation
   AOCI 
Balance, April 1, 2015  $59,503   $(361)  $(764)  $58,378 
Unrealized net gains   3,005        42    3,047 
Reversal of unrealized gains on redeemed bonds   (3,395)           (3,395)
Reclassification of unrealized losses to operations due to impairment   179            179 
Income tax benefit       211        211 
Net change in other comprehensive income   (211)   211    42    42 
Balance, June 30, 2015  $59,292   $(150)  $(722)  $58,420 

 

The following table summarizes the net change in AOCI allocable to common shareholders for the three months ended June 30, 2014.

 

(in thousands)  Bonds
Available-for-
Sale
   Income Tax
Expense
   Foreign
Currency
Translation
   AOCI 
Balance, April 1, 2014  $39,771   $(129)  $(207)  $39,435 
Unrealized net gains   2,908        (9)   2,899 
Reversal of unrealized gains on redeemed bonds   (778)           (778)
Income tax expense       (329)       (329)
Other (1)           (80)   (80)
Net change in other comprehensive income   2,130    (329)   (89)   1,712 
Balance, June 30, 2014  $41,901   $(458)  $(296)  $41,147 

 

(1)Transfer of unrealized loss from noncontrolling interest due to IHS share purchase.

 

The following table summarizes the net change in AOCI allocable to common shareholders for the six months ended June 30, 2015.

 

(in thousands)  Bonds
Available-for-
Sale
   Income Tax
Expense
   Foreign
Currency
Translation
   AOCI 
Balance, January 1, 2015  $57,234   $(150)  $(632)  $56,452 
Unrealized net gains (losses)   5,745        (90)   5,655 
Reversal of unrealized gains on redeemed bonds   (3,866)           (3,866)
Reclassification of unrealized losses to operations due to impairment   179            179 
Net change in other comprehensive income   2,058        (90)   1,968 
Balance, June 30, 2015  $59,292   $(150)  $(722)  $58,420 

 

The following table summarizes the net change in AOCI allocable to common shareholders for the six months ended June 30, 2014.

 

(in thousands)  Bonds
Available-for-
Sale
   Income Tax
Expense
   Foreign
Currency
Translation
   AOCI 
Balance, January 1, 2014  $36,868   $   $(209)  $36,659 
Unrealized net gains (losses)   7,814        (7)   7,807 
Reversal of unrealized gains on redeemed bonds   (778)           (778)
Reversal of unrealized gains from AOCI to Net Income due to foreclosure   (2,003)           (2,003)
Income tax expense       (458)       (458)
Other (1)           (80)   (80)
Net change in other comprehensive income   5,033    (458)   (87)   4,488 
Balance, June 30, 2014  $41,901   $(458)  $(296)  $41,147 

 

(1)Transfer of unrealized loss from noncontrolling interest due to IHS share purchase.

 

 27 

 

 

Note 13—STOCK-BASED COMPENSATION

 

The Company has stock-based compensation plans (“Plans”) for Non-employee Directors (“Non-employee Directors’ Stock-Based Compensation Plans”) and stock-based incentive compensation plans for employees (“Employees’ Stock-Based Compensation Plans”). All share and per share information has been adjusted to reflect the one-for-five reverse stock split to shareholders on September 29, 2014.

 

Total compensation expense recorded for these Plans was as follows for the three months and six months ended June 30, 2015 and 2014:

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Employees’ Stock-Based Compensation Plans  $1,001   $711   $1,300   $1,652 
Non-employee Directors’ Stock-Based Compensation Plans   74    62    148    138 
Total  $1,075   $773   $1,448   $1,790 

 

Employees’ Stock-Based Compensation Plans

 

As of June 30, 2015, there were 375,134 share awards available to be issued under Employees’ Stock-Based Compensation Plans. While each existing Employees’ Stock-Based Compensation Plan has been approved by the Company’s Board of Directors, not all of the Plans have been approved by the Company’s shareholders. The Plans that have not been approved by the Company’s shareholders are currently restricted to the issuance of only stock options. As a result, of the 375,134 shares available under the plans, only 10,994 are available to be issued in the form of either stock options or shares; all remaining share awards must be issued in the form of stock options.

 

Employee Common Stock Options

 

The Company measures the fair value of unvested options with time-based vesting and all vested options (both time-based and performance based), using a lattice model for purposes of recognizing compensation expense.  The Company believes the lattice model provides a better estimate of the fair value of these options as, according to Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 718, “the design of a lattice model more fully reflects the substantive characteristics of a particular employee share option.” Because options granted with stock price targets contain a “market condition” under FASB’s Accounting Standards Codification Topic 718, a Monte Carlo simulation is used to simulate future stock price movements for the Company.  The Company believes a Monte Carlo simulation provides a better estimate of the fair value for unvested options granted with specific stock price targets as the model’s flexibility allows for the fair value to account for the vesting provisions as well as the different probabilities of stock price outcomes.

 

The following table summarizes option activity under the Employees’ Stock-Based Compensation Plans:

 

(in thousands, except per option data)  Number of
Options
   Weighted-
average
Exercise
Price per
Option
   Weighted-
average
Remaining
Contractual Life
per Option
(in years)
   Aggregate
Intrinsic
Value (1)
   Period End
Liability (2)
 
Outstanding at January 1, 2014   416   $3.52    7.3   $1,644   $1,785 
Forfeited/Expired in 2014                        
Outstanding at December 31, 2014   416    3.52    6.3    3,196    3,281 
Forfeited/Expired in 2015                        
Outstanding at June 30, 2015   416    3.52    5.9    4,434    4,481 
                          
Number of options that were exercisable at:                         
December 31, 2014   325    4.00    6.1           
June 30, 2015   380    3.68    5.8           

 

(1)Intrinsic value is based on outstanding options.

 

(2)Only options that were amortized based on a vesting schedule have a liability balance. These options were 416,211; 412,100; and 378,173; at June 30, 2015, December 31, 2014 and January 1, 2014, respectively.

 

 28 

 

  

The value of employee options increased by $0.9 million and $1.2 million during the three months and six months ended June 30, 2015 due to the increase in market value of our stock price. This increase was recognized as additional compensation expense.

 

Employee Deferred Shares

 

The following table summarizes the deferred shares granted to employees. The grants outstanding at June 30, 2015 have both time and price vesting requirements, with a portion of the shares vesting over the next 12 months and the remainder of the shares vesting if, over a 30-day period, the average share price is at least $12.50.

 

(in thousands, except per share data)  Deferred Share
Grants
   Weighted-
average Grant
Date Share
Price
   Period End
Liability
 
Balance, January 1, 2015    42   $4.40   $336 
Granted in 2015               
Issued in 2015    21    4.40      
Forfeited in 2015    1    4.40      
Balance, June 30, 2015    20    4.40    216 

 

The Company recognized $0.1 million of additional compensation expense related to employee deferred shares during the six months ended June 30, 2015, mainly driven by the increase in MMA’s share price and amortization of existing grants.

 

Non-employee Directors’ Stock-Based Compensation Plans

 

The Non-employee Directors’ Stock-based Compensation Plans authorize a total of 1,130,000 shares for issuance, of which 431,114 were available to be issued at June 30, 2015. The Non-employee Directors’ Stock-based Compensation Plans provide for grants of non-qualified common stock options, common shares, restricted shares and deferred shares.

 

On March 12, 2015, the Board adopted an amendment to the Non-employee Director’s Stock-based Compensation Plans providing directors to be paid $60,000 per year, an increase from $50,000 per year for their services; 50% of their compensation is paid in cash and 50% is paid in share based grants. In addition, the Chairman now receives an additional $20,000 per year, the Audit Committee Chair receives an additional $15,000 per year and the other committee chairs receive an additional $10,000 per year.

 

The table below summarizes director compensation, including cash, vested options and common and deferred shares, for services rendered for the six months ended June 30, 2015 and 2014. The directors are fully vested in the deferred shares at the grant date.

 

   Cash   Common
Shares
Granted
   Deferred
Shares
Granted
   Weighted-
average Grant
Date Share Price
   Options
Vested
   Directors’ Fees
Expense
 
June 30, 2015   $73,750    3,391    3,508   $10.69       $147,500 
June 30, 2014    68,750    5,786    3,228    7.63        137,500 

  

 29 

 

  

Note 14—DISCONTINUED OPERATIONS

 

The table below reflects the activity related to the Company’s discontinued operations.  The discontinued operations activity reported during the three months ended and six months ended June 30, 2015 relates to operations that were disposed of prior to the Company’s adoption of ASU 2014-08.

  

    For the three months ended
June 30,
    For the six months ended
June 30,
 
(in thousands)   2015     2014     2015     2014  
Income from CFVs (primarily rental income)   $     $     $     $ 279  
Income from REO operations           846             1,148  
Expenses from CFVs (primarily operating expenses)                       (244 )
Expenses from REO operations           (661 )           (1,112 )
Other income     84       85       167       168  
Other expense     (1 )     (35 )     (6 )     (63 )
Income tax benefit (expense)     6       (944 )           (1,448 )
Net income (loss) before disposal activity     89       (709 )     161       (1,272 )
Disposal:                                
Net gains related to REO           265             15,302  
Net gains related to CFVs           3             8  
Net income (loss) from discontinued operations     89       (441 )     161       14,038  
Loss from discontinued operations allocable to noncontrolling interests                       150  
Net income (loss) to common shareholders from discontinued operations   $ 89     $ (441 )   $ 161     $ 14,188  

 

Note 15—CONSOLIDATED FUNDS AND VENTURES

 

As previously discussed in our 2014 Form 10-K, the Company no longer consolidates SAWHF or the non-profit entity and its LTPPs as of December 31, 2014. As of December 31, 2014, CFVs was comprised of only LIHTC Funds.

 

LIHTC Funds

 

The Company guarantees the investor yield for 11 LIHTC Funds. At June 30, 2015 and December 31, 2014, the Company’s maximum exposure under these guarantees was estimated to be approximately $558.9 million; however, the Company does not anticipate any losses under these guarantees.

 

The LIHTC Funds’ primary assets are their investments in LTPPs, which are the owners of the affordable housing properties (see Investments in LTPPs in the Asset Summary below). The LIHTC Funds account for these investments using the equity method of accounting.

 

Asset Summary:

 

The following table summarizes the assets of the consolidated LIHTC Funds at June 30, 2015 and December 31, 2014.

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Cash, cash equivalents and restricted cash   $22,043   $24,186 
Investments in LTPPs    201,301    231,204 
Other assets    10,081    11,128 
Total assets of consolidated LIHTC Funds   $233,425   $266,518 

 

All of the assets of the consolidated LIHTC Funds are restricted for use by the specific owner entity and are not available for the Company’s general use.

 

 30 

 

 

Investments in LTPPs

 

The LIHTC Funds’ limited partner investments in LTPPs are accounted for under the equity method because the third party GPs in the LTPPs are deemed to be the primary beneficiary. The following table provides the assets and liabilities of the LTPPs at June 30, 2015 and December 31, 2014:

 

(in thousands)  June 30,
2015
   December 31,
2014
 
Total assets of the LTPPs (1)   $1,243,323   $1,273,903 
Total liabilities of the LTPPs (1)    1,025,467    1,035,695 

  

(1)The assets of the LTPPs are primarily real estate and the liabilities are predominantly mortgage debt.

 

The Company’s maximum exposure to loss from the LIHTC Funds and the underlying LTPPs relate to the guarantee exposure associated with the LIHTC Funds discussed above and the Company’s bonds that represent the primary mortgage debt obligation owed by certain LTPPs of the LIHTC Funds. The fair value of the Company’s reported bonds secured by properties owned by the LTPPs at June 30, 2015 and December 31, 2014, was $121.9 million and $118.9 million, respectively.

 

Liability Summary:

 

The following table summarizes the liabilities of the consolidated LIHTC Funds at June 30, 2015 and December 31, 2014.

 

(in thousands)  June 30,
2015
   December 31, 2014 
Debt (1)   $6,712   $6,712 
Unfunded equity commitments to unconsolidated Lower Tier Property Partnerships    8,947    9,597 
Asset management fee payable    23,546    28,848 
Other liabilities    3,076    2,983 
Total liabilities of consolidated LIHTC Funds   $42,281   $48,140 

 

(1)At June 30, 2015 and December 31, 2014, this debt had a face amount equal to its carrying value, a weighted average effective interest rate of 5.3%, and was due on demand.

 

 31 

 

 

Income Statement Summary:

 

The following section provides more information related to the income statement of the CFVs for the three months and six months ended June 30, 2015 and 2014.

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Revenue:                    
Rental and other income from real estate   $   $3,427   $   $7,051 
Interest and other income    133    2,183    200    3,609 
Total revenue from CFVs    133    5,610    200    10,660 
                     
Expenses:                    
Depreciation and amortization    550    2,173    1,102    4,391 
Interest expense    90    843    178    1,912 
Other operating expenses    1,337    2,884    2,476    5,836 
Foreign currency loss        116        526 
Asset impairments    7,037    6,643    14,574    11,643 
Total expenses from CFVs    9,014    12,659    18,330    24,308 
                     
Net gains (losses) related to CFVs:                    
Investment gains        429        5,296 
Derivative losses        (948)       (1,006)
Net loss on sale of properties        (138)       (138)
Equity in losses from Lower Tier Property Partnerships of CFVs    (6,654)   (7,038)   (12,347)   (14,466)
Net loss    (15,535)   (14,744)   (30,477)   (23,962)
Net losses allocable to noncontrolling interests in CFVs (1)    14,168    15,343    28,472    25,197 
Net (loss) income allocable to the common shareholders related to CFVs   $(1,367)  $599   $(2,005)  $1,235 

 

(1)Excludes $21,004 and $77,326 of net loss allocable to the minority interest holder in IHS for the three months and six months ended June 30, 2014. These amounts are excluded from this presentation because IHS related activity is not included within CFV income statement activity above. There were no losses allocable to the minority interest holder in IHS for the three months and six months ended June 30, 2015.

 

The details of Net (loss) income allocable to the common shareholders related to CFVs for the three months and six months ended June 30, 2015 and 2014 are as follows:

 

   For the three months ended
June 30,
   For the six months ended
June 30,
 
(in thousands)  2015   2014   2015   2014 
Asset management fees   $   $828   $   $1,670 
Interest income        583        926 
Guarantee fees    331    331    662    662 
Equity in losses from Lower Tier Property Partnerships    (1,698)   (961)   (2,667)   (1,910)
Equity in income from SAWHF        14        142 
Other expense        (196)       (255)
Net (loss) income allocable to the common shareholders related to CFVs   $(1,367)  $599   $(2,005)  $1,235 

 

 

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Note 16—SEGMENT INFORMATION

 

Beginning in 2015, the Company operated through three reportable segments: U.S. Operations, International Operations and Corporate Operations. We have revised the presentation for the three months and six months ended June 30, 2014 based on these segments, which had no impact on Net income (loss) to common shareholders.

 

   For the three months ended June 30, 2015 
(in thousands)  U.S.
Operations
   International
Operations
   Corporate   CFVs   Income
Allocation
Reclasses
   MMA
Consolidated
 
Total interest income   $4,041   $15   $17   $   $   $4,073 
Total interest expense    (379)       (132)           (511)
Net interest income    3,662    15    (115)           3,562 
                               
Total fee and other income    2,641    1,386            (331) (1)   3,696 
Revenue from CFVs                133        133 
Total non-interest revenue    2,641    1,386        133    (331)   3,829 
Total revenues, net of interest expense    6,303    1,401    (115)   133    (331)   7,391 
                               
Operating and other expenses:                              
Interest expense    (281)   (29)   (1,398)           (1,708)
Operating expenses    (1,948)   (2,210)   (1,407)           (5,565)
Other expenses, net    (435)   (284)   (1,003)           (1,722)
Expenses from CFVs                (9,345)   331 (1)   (9,014)
Total operating and other expenses    (2,664)   (2,523)   (3,808)   (9,345)   331    (18,009)
Net gains on assets, derivatives and extinguishment of liabilities    10,342                    10,342 
Equity in (losses) income from unconsolidated funds and ventures    (42)   62                20 
Equity in losses from Lower Tier Property Partnerships of CFVs    (1,698) (2)           (4,956) (2)       (6,654)
Income (loss) from continuing operations before income taxes    12,241    (1,060)   (3,923)   (14,168)       (6,910)
Income tax expense            (278)           (278)
Income from discontinued operations, net of tax    83        6            89 
Net income (loss)    12,324    (1,060)   (4,195)   (14,168)       (7,099)
Income allocable to noncontrolling interests:                              
Net losses allocable to noncontrolling interests in CFVs:                              
Related to continuing operations operations                14,168        14,168 
Net income (loss) to common shareholders shareholders   $12,324   $(1,060)  $(4,195)  $   $   $7,069 

 

(1)Represents guarantee fees related to the Company’s LIHTC Funds, which were recognized during the second quarter of 2015 through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, were included in total fee and other income for U.S. Operations.

 

(2)Represents equity in losses from the Lower Tier Property Partnerships that the Company recognized as an allocation (see Note 15, “Consolidated Funds and Ventures”). The Company is allocated equity in losses in situations where the LIHTC Funds’ equity investment in the LTPP has reached zero, but the Company has a bond investment represented by mortgage debt owned by the LTPP. For purposes of the table above, the Company recognized $1.7 million of losses in U.S. Operations and reduced the CFVs losses by the same amount.

 

 33 

 

 

   For the three months ended June 30, 2014 
(in thousands)  U.S.
Operations
   International
Operations
   Corporate   CFVs   Income
Allocation
Reclasses
   MMA
Consolidated
 
Total interest income   $3,417   $11   $   $   $(583) (1)  $2,845 
Total interest expense    (763)       (182)           (945)
Net interest income    2,654    11    (182)       (583)   1,900 
                               
Total fee and other income    2,659    716            (1,159) (2)   2,216 
Revenue from CFVs                5,610        5,610 
Total non-interest revenue    2,659    716        5,610    (1,159)   7,826 
Total revenues, net of interest expense    5,313    727    (182)   5,610    (1,742)   9,726 
                               
Operating and other expenses:                              
Interest expense    (768)   (38)   (2,683)           (3,489)
Operating expenses    (1,726)   (1,710)   (1,537)           (4,973)
Other expenses    (997)   20    (73)       196  (3)   (854)
Expenses from CFVs                (14,219)   1,560  (5)   (12,659)
Total operating and other expenses    (3,491)   (1,728)   (4,293)   (14,219)   1,756    (21,975)
Net gains on assets, derivatives and extinguishment of liabilities    453        1,100            1,553 
Equity in losses from unconsolidated funds and ventures    (122)   (22)               (144)
Net gains related to CFVs                (657)       (657)
Equity in (losses) gains from Lower Tier Property Partnerships of CFVs    (961) (6)   14        (6,077) (6)   (14) (4)   (7,038)
Income (loss) from continuing operations before income taxes    1,192    (1,009)   (3,375)   (15,343)       (18,535)
Income tax benefit            1,194            1,194 
Income (loss) from discontinued operations, net of tax    503        (944)           (441)
Net income (loss)    1,695    (1,009)   (3,125)   (15,343)       (17,782)
Loss allocable to noncontrolling interests:                              
Net losses allocable to noncontrolling interests in CFVs:                              
Related to continuing operations operations        21        15,343        15,364 
Related to discontinued operations operations                         
Net income (loss) to common shareholders shareholders   $1,695   $(988)  $(3,125)  $   $   $(2,418)

  

(1)Represents bond interest income that the Company recognized through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $0.6 million was reflected in total interest income for U.S. Operations.

 

(2)This amount includes $0.6 million of asset management fees recognized by IHS through an income allocation (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $0.6 million was reflected in total fee and other income for International Operations. This amount also includes $0.2 million of asset management fees and $0.3 million of guarantee fees both related to the Company’s LIHTC Funds and both recognized during the second quarter of 2014 through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, both were included in total fee and other income for U.S. Operations.

 

(3)Represents net expenses recognized by the Company through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, these expenses were reflected as additional other expenses for U.S. Operations.

 

(4)Represents the Company’s share of its equity interest in the SAWHF (i.e., 2.7% of the SAWHF’s second quarter of 2014 net income) which was recognized through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $0.01 million was reflected as equity in income of unconsolidated ventures for International Operations.

 

(5)Represents net expenses of CFVs that were eliminated in consolidation because they were payments or income allocations to MMA.

 

(6)Represents equity in losses from the Lower Tier Property Partnerships that the Company recognized as an allocation (see Note 15, “Consolidated Funds and Ventures”). The Company is allocated equity in losses in situations where the LIHTC Funds’ equity investment in the LTPP has reached zero, but the Company has a bond investment represented by mortgage debt owned by the LTPP. For purposes of the table above, the Company recognized $1.0 million of losses in U.S. Operations and reduced the CFVs losses by the same amount.

 

 34 

 

 

   For the six months ended June 30, 2015 
(in thousands)  U.S.
Operations
   International
Operations
   Corporate   CFVs   Income
Allocation
Reclasses
   MMA
Consolidated
 
Total interest income   $8,082   $34   $30   $   $   $8,146 
Total interest expense    (708)       (277)           (985)
Net interest income    7,374    34    (247)           7,161 
                               
Total fee and other income    4,695    2,616    488        (662) (1)   7,137 
Revenue from CFVs                200        200 
Total non-interest revenue    4,695    2,616    488    200    (662)   7,337 
Total revenues, net of interest expense    12,069    2,650    241    200    (662)   14,498 
                               
Operating and other expenses:                              
Interest expense    (796)   (58)   (4,050)           (4,904)
Operating expenses    (3,560)   (4,292)   (2,992)           (10,844)
Other expenses, net    (693)   (30)   (1,106)           (1,829)
Expenses from CFVs                (18,992)   662  (1)   (18,330)
Total operating and other expenses    (5,049)   (4,380)   (8,148)   (18,992)   662    (35,907)
Net gains on assets, derivatives and extinguishment of liabilities    11,910                    11,910 
Equity in (losses) income from unconsolidated funds and ventures    (51)   144                93 
Equity in losses from Lower Tier Property Partnerships of CFVs    (2,667) (2)           (9,680) (2)       (12,347)
Income (loss) from continuing operations before income taxes    16,212    (1,586)   (7,907)   (28,472)       (21,753)
Income tax expense            (132)           (132)
Income from discontinued operations, net of tax    161                    161 
Net income (loss)    16,373    (1,586)   (8,039)   (28,472)       (21,724)
Income allocable to noncontrolling interests:                              
Net losses allocable to noncontrolling interests in CFVs:                              
Related to continuing operations operations                28,472        28,472 
Net income (loss) to common shareholders shareholders   $16,373   $(1,586)  $(8,039)  $   $   $6,748 

 

(1)Represents guarantee fees related to the Company’s LIHTC Funds, which were recognized during the first six months of 2015 through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, were included in total fee and other income for U.S. Operations.

 

(2)Represents equity in losses from the Lower Tier Property Partnerships that the Company recognized as an allocation (see Note 15, “Consolidated Funds and Ventures”). The Company is allocated equity in losses in situations where the LIHTC Funds’ equity investment in the LTPP has reached zero, but the Company has a bond investment represented by mortgage debt owned by the LTPP. For purposes of the table above, the Company recognized $2.7 million of losses in U.S. Operations and reduced the CFVs losses by the same amount.

 

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   For the six months ended June 30, 2014 
(in thousands)  U.S.
Operations
   International
Operations
   Corporate   CFVs   Income
Allocation
Reclasses
   MMA
Consolidated
 
Total interest income   $9,055   $21   $   $   $(926) (1)  $8,150 
Total interest expense    (1,779)       (369)           (2,148)
Net interest income    7,276    21    (369)       (926)   6,002 
                               
Total fee and other income    4,905    1,762    30        (2,331) (2)   4,366 
Revenue from CFVs                10,660        10,660 
Total non-interest revenue    4,905    1,762    30    10,660    (2,331)   15,026 
Total revenues, net of interest expense    12,181    1,783    (339)   10,660    (3,257)   21,028 
                               
Operating and other expenses:                              
Interest expense    (1,573)   (75)   (5,414)           (7,062)
Operating expenses    (3,617)   (3,415)   (3,615)           (10,647)
Other expenses    (1,729)   (13)   (168)       255  (3)   (1,655)
Expenses from CFVs                (27,452)   3,144  (5)   (24,308)
Total operating and other expenses    (6,919)   (3,503)   (9,197)   (27,452)   3,399    (43,672)
Net gains on assets, derivatives and extinguishment of liabilities    88        1,100            1,188 
Net gains transferred into net income from AOCI due to real estate foreclosure    2,003                    2,003 
Equity in losses from unconsolidated funds and ventures    (184)   (70)               (254)
Net gains related to CFVs                4,152        4,152 
Equity in (losses) gains from Lower Tier Property Partnerships of CFVs    (1,910) (6)   142        (12,556) (6)   (142) (4)   (14,466)
Income (loss) from continuing operations before income taxes    5,259    (1,648)   (8,436)   (25,196)       (30,021)
Income tax benefit            1,748            1,748 
Income (loss) from discontinued operations, net of tax    15,636        (1,448)   (150)       14,038 
Net income (loss)    20,895    (1,648)   (8,136)   (25,346)       (14,235)
Loss allocable to noncontrolling interests:                              
Net losses allocable to noncontrolling interests in CFVs:                              
Related to continuing operations operations        78        25,196        25,274 
Related to discontinued operations operations                150        150 
Net income (loss) to common shareholders shareholders   $20,895   $(1,570)  $(8,136)  $   $   $11,189 

 

(1)Represents bond interest income that the Company recognized through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $0.9 million was reflected in total interest income for U.S. Operations.

 

(2)This amount includes $1.3 million of asset management fees recognized by IHS through an income allocation (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $1.3 million was reflected in total fee and other income for International Operations. This amount also includes $0.4 million of asset management fees and $0.6 million of guarantee fees both related to the Company’s LIHTC Funds and both recognized during the first six months of 2014 through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, both were included in total fee and other income for U.S. Operations.

 

(3)Represents net expenses recognized by the Company through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, these expenses were reflected as additional other expenses for U.S. Operations.

 

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(4)Represents the Company’s share of its equity interest in the SAWHF (i.e., 2.7% of the SAWHF’s first quarter of 2014 net income) which was recognized through an allocation of income (see Note 15, “Consolidated Funds and Ventures”) and for purposes of the table above, the $0.1 million was reflected as equity in income of unconsolidated ventures for International Operations.

 

(5)Represents net expenses of CFVs that were eliminated in consolidation because they were payments or income allocations to MMA.

 

(6)Represents equity in losses from the Lower Tier Property Partnerships that the Company recognized as an allocation (see Note 15, “Consolidated Funds and Ventures”). The Company is allocated equity in losses in situations where the LIHTC Funds’ equity investment in the LTPP has reached zero, but the Company has a bond investment represented by mortgage debt owned by the LTPP. For purposes of the table above, the Company recognized $1.9 million of losses in U.S. Operations and reduced the CFVs losses by the same amount.

 

The total assets by segment at June 30, 2015 and December 31, 2014 are presented in the table below:

 

(in thousands)  June 30,
2015