UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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| (Mark One) | |
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly period ended September 30, 2017March 31, 2019
OR
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| o | 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: 001-33549
Tiptree Inc.
(Exact name of Registrant as Specified in Its Charter)
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| | |
| Maryland | | 38-3754322 |
| (State or Other Jurisdiction of | | (IRS Employer |
| Incorporation of Organization) | | Identification No.) |
| | | |
| | | |
780 Third299 Park Avenue, 21st13th Floor, New York, New York | | 1001710171 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(212) 446-1400
(Registrant’s Telephone Number, Including Area Code)Code: (212) 446-1400
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Address: 780 Third Avenue, 21st Floor, New York, New York, 10017
Securities registered pursuant to Section 12(b) of the Act: |
| | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.001 per share | TIPT | Nasdaq Capital Market |
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 x 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”“smaller “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company ¨
Emerging growth company ¨
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
As of November 3, 2017,May 2, 2019, there were 29,805,45334,526,028 shares, par value $0.001, of the registrant’s Class A common stock outstanding (excluding 5,197,551 shares of Class A common stock held by a subsidiary of the registrant) and 8,049,029 shares, par value $0.001, of the registrant’s Class B common stockCommon Stock outstanding.
Tiptree Inc.
Quarterly Report on Form 10-Q
September 30, 2017March 31, 2019
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PART I. FINANCIAL INFORMATION
Forward-Looking Statements
Except for the historical information included and incorporated by reference in this Quarterly Report on Form 10-Q, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements.
Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162018 and in our other public filings with the SEC.
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements.
Market and Industry Data
Certain market data and industry data included in this Quarterly Report on Form 10-Q were obtained from reports of governmental agencies and industry publications and surveys. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data and as such, make no guarantees as to its accuracy, completeness or timeliness.
Note to Reader
In reading this Quarterly Report on Form 10-Q, references to:
“Administrative Services Agreement”A.M. Best” means the Administrative Services Agreement between OperatingA.M. Best Company, (as assignee of TFP) and BackOffice Services Group, Inc., dated as of June 12, 2007 (terminated as of December 31, 2016).
“AUM” means assets under management.
“Care” means Care Investment Trust LLC.
“CLOs” means collateralized loan obligations.
“consolidated CLOs”Common Stock” means Class A common stock $0.001 par value for periods prior to June 7, 2018 and thereafter the 2017 period, Telos 6 and Telos 7 and for the 2016 period, Telos 5, Telos 6 and Telos 7.common stock $0.001 par value.
“Contribution Transactions”Corvid Peak” means the closing on July 1, 2013 of the transactions pursuant to the Contribution Agreement bycollectively, Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP Holdings, LLC and between the Company, Operating Company and TFP, datedCorvid Peak Holdings GP, LLC., formerly known as of December 31, 2012.“Tricadia”.
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.
“Fortegra” means Fortegra Financial Corporation.
“GAAP” means U.S. generally accepted accounting principles.
“Invesque” means Invesque Inc.
“Luxury” means Luxury Mortgage Corp.
“Mariner”NAIC” means Mariner Investment Group LLC.
“MFCA” means Muni Funding Companythe National Association of America LLC.Insurance Commissioners.
“NPL” means nonperforming residential real estate mortgage loans.
“Operating Company” means Tiptree Operating Company, LLC.
“Reliance” means Reliance First Capital, LLC.
“REO” means real estate owned.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Siena” means Siena Capital Finance LLC.
“TAMCO”Tax Act” means Tiptree Asset Management Company, LLC.
“Telos” means Telos Asset Management LLC.
“Telos 1” means Telos CLO 2006-1, Ltd.
“Telos 2” means Telos CLO 2007-2, Ltd.
“Telos 3” means Telos CLO 2013-3, Ltd.
“Telos 4” means Telos CLO 2013-4, Ltd.
“Telos 5” means Telos CLO 2014-5, Ltd.
“Telos 6” means Telos CLO 2014-6, Ltd.
“Telos 7” means Telos CLO 2016-7, Ltd.Public Law no. 115-97, commonly referred to as the Tax Cuts and Jobs Act.
“TFP” means Tiptree Financial Partners, L.P.
“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Operating CompanyTiptree Inc. and its consolidated subsidiaries, together withsubsidiaries.
“Transition Services Agreement” means the standalone net assets held byAmended and Restated Transition Services Agreement between Corvid Peak and Tiptree Inc. (formerly known, effective as Tiptree Financial Inc.)of January 1, 2019.
“Tricadia” means, collectively, Tricadia Holdings, L.P., Tricadia Capital Management, LLC, Tricadia Holdings GP, LLC, Tricadia Holdings and Tricadia GP Holdings LLC.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
Item 1. Financial Statements (Unaudited)
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Assets | | | | |
| Assets: | | | | |
| Investments: | | | | | | |
| Available for sale securities, at fair value | $ | 164,093 |
| | $ | 146,171 |
| $ | 283,929 |
| | $ | 283,563 |
|
| Loans, at fair value | 323,122 |
| | 373,089 |
| 125,145 |
| | 215,383 |
|
| Loans at amortized cost, net | 150,596 |
| | 113,838 |
| |
| Equity securities, trading, at fair value | 28,106 |
| | 48,612 |
| |
| Real estate, net | 371,137 |
| | 309,423 |
| |
| Equity securities | | 122,592 |
| | 122,979 |
|
| Other investments | 27,191 |
| | 25,467 |
| 76,741 |
| | 75,002 |
|
| Total investments | 1,064,245 |
| | 1,016,600 |
| 608,407 |
| | 696,927 |
|
| Cash and cash equivalents | 111,751 |
| | 63,010 |
| 88,079 |
| | 86,003 |
|
| Restricted cash | 23,400 |
| | 24,472 |
| 13,062 |
| | 10,521 |
|
| Notes and accounts receivable, net | 178,726 |
| | 157,500 |
| 231,990 |
| | 223,105 |
|
| Reinsurance receivables | 333,023 |
| | 296,234 |
| 420,996 |
| | 420,351 |
|
| Deferred acquisition costs | 139,471 |
| | 126,608 |
| 170,727 |
| | 170,063 |
|
| Goodwill and intangible assets, net | 176,820 |
| | 178,245 |
| |
| Goodwill | | 91,562 |
| | 91,562 |
|
| Intangible assets, net | | 50,098 |
| | 52,121 |
|
| Other assets | 48,544 |
| | 37,886 |
| 70,465 |
| | 46,034 |
|
| Assets of consolidated CLOs | 372,774 |
| | 989,495 |
| |
| Assets held for sale | | 69,454 |
| | 68,231 |
|
| Total assets | $ | 2,448,754 |
| | $ | 2,890,050 |
| $ | 1,814,840 |
| | $ | 1,864,918 |
|
| | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | |
| Liabilities | | | | |
| Liabilities: | | | | |
| Debt, net | $ | 865,629 |
| | $ | 793,009 |
| $ | 282,798 |
| | $ | 354,083 |
|
| Unearned premiums | 475,047 |
| | 414,960 |
| 589,074 |
| | 599,444 |
|
| Policy liabilities and unpaid claims | 110,928 |
| | 103,391 |
| 130,585 |
| | 131,611 |
|
| Deferred revenue | 53,930 |
| | 52,254 |
| 75,276 |
| | 75,754 |
|
| Reinsurance payable | 81,887 |
| | 70,588 |
| 115,029 |
| | 117,597 |
|
| Other liabilities and accrued expenses | 115,858 |
| | 133,735 |
| 163,224 |
| | 124,190 |
|
| Liabilities of consolidated CLOs | 354,337 |
| | 931,969 |
| |
| Liabilities held for sale | | 64,199 |
| | 62,980 |
|
| Total liabilities | $ | 2,057,616 |
| | $ | 2,499,906 |
| $ | 1,420,185 |
| | $ | 1,465,659 |
|
| Commitments and contingencies (see Note 22) |
| |
| |
| | | | | | |
| Stockholders’ Equity | | | | |
| Stockholders’ Equity: | | | | |
| Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
|
| Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 35,003,004 and 34,983,616 shares issued and outstanding, respectively | 35 |
| | 35 |
| |
| Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 8,049,029 and 8,049,029 shares issued and outstanding, respectively | 8 |
| | 8 |
| |
| Common Stock: $0.001 par value, 200,000,000 shares authorized, 34,505,781 and 35,870,348 shares issued and outstanding, respectively | | 35 |
| | 36 |
|
| Additional paid-in capital | 296,476 |
| | 297,391 |
| 323,334 |
| | 331,892 |
|
| Accumulated other comprehensive income (loss), net of tax | 1,223 |
| | 555 |
| 251 |
| | (2,058 | ) |
| Retained earnings | 28,913 |
| | 37,974 |
| 60,015 |
| | 57,231 |
|
| Class A common stock held by subsidiaries, 5,209,523 and 6,596,000 shares, respectively | (34,664 | ) | | (42,524 | ) | |
| Class B common stock held by subsidiaries, 8,049,029 and 8,049,029 shares, respectively | (8 | ) | | (8 | ) | |
| Total Tiptree Inc. stockholders’ equity | 291,983 |
| | 293,431 |
| 383,635 |
| | 387,101 |
|
| Non-controlling interests (including $74,074 and $76,077 attributable to Tiptree Financial Partners, L.P., respectively) | 99,155 |
| | 96,713 |
| |
| Non-controlling interests - Other | | 11,020 |
| | 12,158 |
|
| Total stockholders’ equity | 391,138 |
| | 390,144 |
| 394,655 |
| | 399,259 |
|
| Total liabilities and stockholders’ equity | $ | 2,448,754 |
| | $ | 2,890,050 |
| $ | 1,814,840 |
| | $ | 1,864,918 |
|
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data)
| |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Revenues: | | | | | | | | | | |
| Earned premiums, net | $ | 96,073 |
| | $ | 47,609 |
| | $ | 272,781 |
| | $ | 138,516 |
| $ | 118,973 |
| | $ | 101,645 |
|
| Service and administrative fees | 24,018 |
| | 25,842 |
| | 70,861 |
| | 84,421 |
| 25,895 |
| | 24,576 |
|
| Ceding commissions | 2,513 |
| | 1,397 |
| | 6,801 |
| | 22,645 |
| 2,504 |
| | 2,283 |
|
| Net investment income | 3,840 |
| | 3,307 |
| | 12,032 |
| | 8,409 |
| 4,301 |
| | 4,205 |
|
| Net realized and unrealized gains (losses) | 7,526 |
| | 26,215 |
| | 35,183 |
| | 65,954 |
| 20,151 |
| | 7,384 |
|
| Rental and related revenue | 19,170 |
| | 15,371 |
| | 54,819 |
| | 43,389 |
| |
| Other income | 11,379 |
| | 12,419 |
| | 33,820 |
| | 31,725 |
| |
| Other revenue | | 12,079 |
| | 7,979 |
|
| Total revenues | 164,519 |
| | 132,160 |
| | 486,297 |
| | 395,059 |
| 183,903 |
| | 148,072 |
|
| | | | | | | | |
| Expenses: | | | | | | | | | | |
| Policy and contract benefits | 31,570 |
| | 25,881 |
| | 94,364 |
| | 72,436 |
| 40,841 |
| | 36,626 |
|
| Commission expense | 63,066 |
| | 24,032 |
| | 176,405 |
| | 91,906 |
| 74,903 |
| | 62,633 |
|
| Employee compensation and benefits | 36,596 |
| | 38,767 |
| | 109,437 |
| | 102,175 |
| 29,153 |
| | 27,788 |
|
| Interest expense | 10,361 |
| | 7,839 |
| | 28,444 |
| | 20,770 |
| 6,920 |
| | 5,946 |
|
| Depreciation and amortization | 7,775 |
| | 6,437 |
| | 23,781 |
| | 21,899 |
| 3,094 |
| | 2,957 |
|
| Other expenses | 23,164 |
| | 21,686 |
| | 73,380 |
| | 68,351 |
| 23,837 |
| | 19,165 |
|
| Total expenses | 172,532 |
| | 124,642 |
| | 505,811 |
| | 377,537 |
| 178,748 |
| | 155,115 |
|
| Income (loss) before taxes from continuing operations | | 5,155 |
| | (7,043 | ) |
| Less: provision (benefit) for income taxes | | 854 |
| | (1,568 | ) |
| Net income (loss) from continuing operations | | 4,301 |
| | (5,475 | ) |
| Discontinued operations: | | | | |
| Income (loss) before taxes from discontinued operations | | — |
| | 624 |
|
| Gain on sale of discontinued operations | | — |
| | 46,184 |
|
| Less: Provision (benefit) for income taxes | | — |
| | 12,327 |
|
| Net income (loss) from discontinued operations | | — |
| | 34,481 |
|
| Net income (loss) before non-controlling interests | | 4,301 |
| | 29,006 |
|
| Less: net income (loss) attributable to non-controlling interests - TFP | | — |
| | 5,392 |
|
| Less: net income (loss) attributable to non-controlling interests - Other | | 376 |
| | 54 |
|
| Net income (loss) attributable to Common Stockholders | | $ | 3,925 |
| | $ | 23,560 |
|
| | | | | | | | | | |
| Results of consolidated CLOs: | | | | | | | | |
| Income attributable to consolidated CLOs | 7,216 |
| | 12,556 |
| | 24,024 |
| | 34,713 |
| |
| Expenses attributable to consolidated CLOs | 4,633 |
| | 8,524 |
| | 14,631 |
| | 24,664 |
| |
| Net income (loss) attributable to consolidated CLOs | 2,583 |
| | 4,032 |
| | 9,393 |
| | 10,049 |
| |
| Income (loss) before taxes | (5,430 | ) | | 11,550 |
| | (10,121 | ) | | 27,571 |
| |
| Less: provision (benefit) for income taxes | (2,052 | ) | | 3,712 |
| | (2,761 | ) | | 5,298 |
| |
| Net income (loss) before non-controlling interests | (3,378 | ) | | 7,838 |
| | (7,360 | ) | | 22,273 |
| |
| Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P. | (595 | ) | | 1,362 |
| | (1,432 | ) | | 4,660 |
| |
| Less: net income (loss) attributable to non-controlling interests - Other | 331 |
| | 571 |
| | 529 |
| | 20 |
| |
| Net income (loss) attributable to Tiptree Inc. Class A common stockholders | $ | (3,114 | ) | | $ | 5,905 |
| | $ | (6,457 | ) | | $ | 17,593 |
| |
| | | | | | | | | |
| Net income (loss) per Class A common share: | | | | | | | | |
| Net income (loss) per Common Share: | | | | |
| Basic, continuing operations, net | | $ | 0.11 |
| | $ | (0.15 | ) |
| Basic, discontinued operations, net | | — |
| | 0.94 |
|
| Basic earnings per share | $ | (0.11 | ) | | $ | 0.20 |
| | $ | (0.22 | ) | | $ | 0.53 |
| $ | 0.11 |
| | $ | 0.79 |
|
|
| |
| | | | | | | |
| Diluted, continuing operations, net | | 0.11 |
| | (0.15 | ) |
| Diluted, discontinued operations, net | | — |
| | 0.94 |
|
| Diluted earnings per share | $ | (0.11 | ) | | $ | 0.19 |
| | $ | (0.22 | ) | | $ | 0.53 |
| $ | 0.11 |
| | $ | 0.79 |
|
| | | | | | | | | | |
| Weighted average number of Class A common shares: | | | | | | | | |
| Weighted average number of Common Shares: | | | | |
| Basic | 29,455,462 |
| | 29,143,470 |
| | 28,908,195 |
| | 32,845,124 |
| 34,673,054 |
| | 29,861,496 |
|
| Diluted | 29,455,462 |
| | 37,230,650 |
| | 28,908,195 |
| | 32,912,516 |
| 34,673,054 |
| | 29,861,496 |
|
| | | | | | | | | | | |
| Dividends declared per common share | $ | 0.030 |
| | $ | 0.025 |
| | $ | 0.090 |
| | $ | 0.075 |
| |
| Dividends declared per Common Share | | $ | 0.040 |
| | $ | 0.035 |
|
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
| | 2017 | | 2016 | | 2017 | | 2016 | Three Months Ended
March 31, |
| | | | | | | | | 2019 | | 2018 |
| Net income (loss) before non-controlling interests | $ | (3,378 | ) | | $ | 7,838 |
| | $ | (7,360 | ) | | $ | 22,273 |
| $ | 4,301 |
| | $ | 29,006 |
|
| | | | | | | | | | | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Unrealized gains (losses) on available-for-sale securities: | | | | | | | | | | |
| Unrealized holding gains (losses) arising during the period | 355 |
| | (553 | ) | | 1,800 |
| | 3,779 |
| 3,128 |
| | (2,293 | ) |
| Related tax (expense) benefit | (124 | ) | | 198 |
| | (635 | ) | | (1,331 | ) | (713 | ) | | 504 |
|
| Reclassification of (gains) losses included in net income | (394 | ) | | (960 | ) | | (367 | ) | | (1,100 | ) | 5 |
| | 527 |
|
| Related tax expense (benefit) | 138 |
| | 336 |
| | 129 |
| | 385 |
| (1 | ) | | (112 | ) |
| Unrealized gains (losses) on available-for-sale securities, net of tax | (25 | ) | | (979 | ) | | 927 |
| | 1,733 |
| 2,419 |
| | (1,374 | ) |
| | | | | | | | | | | |
| Interest rate swaps (cash flow hedges): | | | | | | | | | | |
| Unrealized gains (losses) on interest rate swaps | (33 | ) | | 156 |
| | (411 | ) | | (515 | ) | — |
| | 1,111 |
|
| Related tax (expense) benefit | 19 |
| | (46 | ) | | 115 |
| | 158 |
| — |
| | (276 | ) |
| Reclassification of (gains) losses included in net income | (25 | ) | | 172 |
| | 212 |
| | (56 | ) | |
Reclassification of (gains) losses included in net income (1) | | — |
| | (3,845 | ) |
| Related tax expense (benefit) | 8 |
| | (54 | ) | | (69 | ) | | 30 |
| — |
| | 936 |
|
| Unrealized (losses) gains on interest rate swaps from cash flow hedges, net of tax | (31 | ) | | 228 |
| | (153 | ) | | (383 | ) | — |
| | (2,074 | ) |
| | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | (56 | ) | | (751 | ) | | 774 |
| | 1,350 |
| 2,419 |
| | (3,448 | ) |
| Comprehensive income (loss) | (3,434 | ) | | 7,087 |
| | (6,586 | ) | | 23,623 |
| 6,720 |
| | 25,558 |
|
| Less: Comprehensive income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P. | (620 | ) | | 1,214 |
| | (1,278 | ) | | 4,897 |
| |
| Less: Comprehensive income (loss) attributable to non-controlling interests - TFP | | — |
| | 4,829 |
|
| Less: Comprehensive income (loss) attributable to non-controlling interests - Other | 409 |
| | 604 |
| | 481 |
| | (9 | ) | 387 |
| | (382 | ) |
| Comprehensive income (loss) attributable to Tiptree Inc. Class A common stockholders | $ | (3,223 | ) | | $ | 5,269 |
| | $ | (5,789 | ) | | $ | 18,735 |
| |
| Comprehensive income (loss) attributable to Common Stockholders | | $ | 6,333 |
| | $ | 21,111 |
|
| |
(1) | Deconsolidated as part of the sale of Care. See Note (3) Dispositions, Assets Held for Sale & Discontinued Operations. |
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Par Value | | Additional paid in capital | | Accumulated
other
comprehensive
income (loss) | | Retained
earnings | | Shares held by subsidiaries | | Total stockholders’ equity to Tiptree Inc. | | Non-controlling
interests - TFP | | Non-controlling
interests - Other | | Total stockholders' equity |
| | Common Stock | | Class B | | Common Stock | | Class B | | | | | Common Stock | | Common Stock Amount | | Class B Shares | | Class B Amount | | | | |
| Balance at December 31, 2017 | 35,003,004 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 295,582 |
| | $ | 966 |
| | $ | 38,079 |
| | (5,197,551 | ) | | $ | (34,585 | ) | | (8,049,029 | ) | | $ | (8 | ) | | $ | 300,077 |
| | $ | 77,494 |
| | $ | 19,203 |
| | $ | 396,774 |
|
| Amortization of share based incentive compensation | — |
| | — |
| | — |
| | — |
| | 585 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 585 |
| | — |
| | 648 |
| | 1,233 |
|
| Vesting of share-based incentive compensation | — |
| | — |
| | — |
| | — |
| | (1,003 | ) | | — |
| | — |
| | 145,973 |
| | 949 |
| | — |
| | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (2,449 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,449 | ) | | (563 | ) | | (436 | ) | | (3,448 | ) |
| Non-controlling interest distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (241 | ) | | — |
| | (241 | ) |
| Shares purchased under stock purchase plan | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29,365 | ) | | (187 | ) | | — |
| | — |
| | (187 | ) | | — |
| | — |
| | (187 | ) |
| Net changes in non-controlling interest | — |
| | — |
| | — |
| | — |
| | (486 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (486 | ) | | — |
| | (14,039 | ) | | (14,525 | ) |
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (898 | ) | | — |
| | — |
| | — |
| | — |
| | (898 | ) | | — |
| | — |
| | (898 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,560 |
| | — |
| | — |
| | — |
| | — |
| | 23,560 |
| | 5,392 |
| | 54 |
| | 29,006 |
|
| Balance at March 31, 2018 | 35,003,004 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 294,678 |
| | $ | (1,483 | ) | | $ | 60,741 |
| | (5,080,943 | ) | | $ | (33,823 | ) | | (8,049,029 | ) | | $ | (8 | ) | | $ | 320,148 |
| | $ | 82,082 |
| | $ | 5,430 |
| | $ | 407,660 |
|
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Par Value | | Additional paid in capital | | Accumulated
other
comprehensive
income (loss) | | Retained
earnings | | Common Stock held by subsidiaries | | Total stockholders’ equity to Tiptree Inc. | | Non-controlling
interests - Tiptree Financial Partners, L.P. | | Non-controlling
interests - Other | | Total stockholders' equity |
| | Class A | | Class B | | Class A | | Class B | | | | | Class A Shares | | Class A Amount | | Class B Shares | | Class B Amount | | | | |
| Balance at December 31, 2015 | 34,899,833 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 297,063 |
| | $ | (111 | ) | | $ | 15,845 |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | 312,840 |
| | $ | 69,278 |
| | $ | 15,576 |
| | $ | 397,694 |
|
| Stock-based compensation to directors and employees | 189,896 |
| | — |
| | — |
| | — |
| | 1,810 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,810 |
| | — |
| | — |
| | 1,810 |
|
Shares issued to settle contingent consideration | 72,868 |
| | — |
| | — |
| | — |
| | 377 |
| | | | — |
| | — |
| | — |
| | — |
| | — |
| | 377 |
| | — |
| | — |
| | 377 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 1,142 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,142 |
| | 237 |
| | (29 | ) | | 1,350 |
|
| Non-controlling interest contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,163 |
| | 6,163 |
|
| Non-controlling interest distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (603 | ) | | (1,456 | ) | | (2,059 | ) |
| Shares purchased under stock purchase plan | (215,358 | ) | | — |
| | — |
| | — |
| | (1,230 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,230 | ) | | — |
| | — |
| | (1,230 | ) |
| Shares acquired by subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,596,000 | ) | | (42,524 | ) | | (8,049,029 | ) | | (8 | ) | | (42,532 | ) | | — |
| | — |
| | (42,532 | ) |
| Net changes in non-controlling interest | — |
| | — |
| | — |
| | — |
| | (746 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (746 | ) | | 1,058 |
| | (335 | ) | | (23 | ) |
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,482 | ) | | — |
| | — |
| | — |
| | — |
| | (2,482 | ) | | — |
| | — |
| | (2,482 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17,593 |
| | — |
| | — |
| | — |
| | — |
| | 17,593 |
| | 4,660 |
| | 20 |
| | 22,273 |
|
| Balance at September 30, 2016 | 34,947,239 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 297,274 |
| | $ | 1,031 |
| | $ | 30,956 |
| | (6,596,000 | ) | | $ | (42,524 | ) | | (8,049,029 | ) | | $ | (8 | ) | | $ | 286,772 |
| | $ | 74,630 |
| | $ | 19,939 |
| | $ | 381,341 |
|
See accompanying notes to condensed consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | | | |
| | Number of shares | | Par value | | Additional paid in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Total stockholders’ equity to Tiptree Inc. | | Non-controlling interests - Other | | Total stockholders' equity |
| Balance at December 31, 2018 | 35,870,348 |
| | $ | 36 |
| | $ | 331,892 |
| | $ | (2,058 | ) | | $ | 57,231 |
| | $ | 387,101 |
| | $ | 12,158 |
| | $ | 399,259 |
|
Adoption of accounting standard (1) | — |
| | — |
| | — |
| | (99 | ) | | 99 |
| | — |
| | — |
| | — |
|
| Amortization of share-based incentive compensation | — |
| | — |
| | 670 |
| | — |
| | — |
| | 670 |
| | 661 |
| | 1,331 |
|
| Vesting of share-based incentive compensation | 108,163 |
| | — |
| | (144 | ) | | — |
| | — |
| | (144 | ) | | (2,236 | ) | | (2,380 | ) |
| Shares purchased under stock purchase plan | (1,472,730 | ) | | (1 | ) | | (9,084 | ) | | — |
| | — |
| | (9,085 | ) | | — |
| | (9,085 | ) |
| Non-controlling interest contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50 |
| | 50 |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | (1,240 | ) | | (1,240 | ) | | — |
| | (1,240 | ) |
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | 2,408 |
| | — |
| | 2,408 |
| | 11 |
| | 2,419 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 3,925 |
| | 3,925 |
| | 376 |
| | 4,301 |
|
| Balance at March 31, 2019 | 34,505,781 |
| | $ | 35 |
| | $ | 323,334 |
| | $ | 251 |
| | $ | 60,015 |
| | $ | 383,635 |
| | $ | 11,020 |
| | $ | 394,655 |
|
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)
| |
(1) | Amounts reclassified due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Par Value | | Additional paid in capital | | Accumulated
other
comprehensive
income (loss) | | Retained
earnings | | Common Stock held by subsidiaries | | Total stockholders’ equity to Tiptree Inc. | | Non-controlling
interests - Tiptree Financial Partners, L.P. | | Non-controlling
interests - Other | | Total stockholders' equity |
| | Class A | | Class B | | Class A | | Class B | | | | | Class A Shares | | Class A Amount | | Class B Shares | | Class B Amount | | | | |
| Balance at December 31, 2016 | 34,983,616 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 297,391 |
| | $ | 555 |
| | $ | 37,974 |
| | (6,596,000 | ) | | $ | (42,524 | ) | | (8,049,029 | ) | | $ | (8 | ) |
| $ | 293,431 |
|
| $ | 76,077 |
|
| $ | 20,636 |
|
| $ | 390,144 |
|
| Amortization of share-based incentive compensation | — |
| | — |
| | — |
| | — |
| | 1,541 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,541 |
| | — |
| | 536 |
| | 2,077 |
|
| Vesting of share-based incentive compensation | 19,388 |
| | — |
| | — |
| | — |
| | (588 | ) | | — |
| | — |
| | 119,511 |
| | 775 |
| | — |
| | — |
| | 187 |
| | — |
| |
| | 187 |
|
| Shares issued to settle contingent consideration | — |
| | — |
| | — |
| | — |
| | (76 | ) | | — |
| | — |
| | 756,046 |
| | 4,914 |
| | — |
| | — |
| | 4,838 |
| | — |
| | — |
| | 4,838 |
|
| Issuance of common stock for cash upon exercise of stock options | — |
| | — |
| | — |
| | — |
| | (1,371 | ) | | — |
| | — |
| | 1,510,920 |
| | 9,471 |
| | — |
| | — |
| | 8,100 |
| | — |
| | — |
| | 8,100 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 668 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 668 |
| | 154 |
| | (48 | ) | | 774 |
|
| Non-controlling interest contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | 2,464 |
| | 2,464 |
|
| Non-controlling interest distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (725 | ) | | (1,676 | ) | | (2,401 | ) |
| Shares acquired by subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,000,000 | ) | | (7,300 | ) | | — |
| | — |
| | (7,300 | ) | | — |
| | — |
| | (7,300 | ) |
| Net changes in non-controlling interest | — |
| | — |
| | — |
| | — |
| | (421 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (421 | ) | | — |
| | 2,640 |
| | 2,219 |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,604 | ) | | — |
| | — |
| | — |
| | — |
| | (2,604 | ) | | — |
| | — |
| | (2,604 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,457 | ) | | — |
| | — |
| | — |
| | — |
| | (6,457 | ) | | (1,432 | ) | | 529 |
| | (7,360 | ) |
| Balance at September 30, 2017 | 35,003,004 |
| | 8,049,029 |
| | $ | 35 |
| | $ | 8 |
| | $ | 296,476 |
| | $ | 1,223 |
| | $ | 28,913 |
| | (5,209,523 | ) | | $ | (34,664 | ) | | (8,049,029 | ) | | $ | (8 | ) | | $ | 291,983 |
| | $ | 74,074 |
| | $ | 25,081 |
| | $ | 391,138 |
|
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Operating Activities: | | | |
| Net income (loss) available to common stockholders | $ | (6,457 | ) | | $ | 17,593 |
|
| Net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P. | (1,432 | ) | | 4,660 |
|
| Net income (loss) attributable to non-controlling interests - Other | 529 |
| | 20 |
|
| Net income (loss) | (7,360 | ) | | 22,273 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | |
| Net realized and unrealized (gains) losses | (35,183 | ) | | (65,954 | ) |
| Net unrealized loss (gain) on interest rate swaps | (67 | ) | | 1,233 |
|
| Change in fair value of contingent consideration | 3,192 |
| | (262 | ) |
| Non cash compensation expense | 4,275 |
| | 1,696 |
|
| Amortization/accretion of premiums and discounts | 971 |
| | 1,094 |
|
| Depreciation and amortization expense | 24,120 |
| | 21,899 |
|
| Provision for doubtful accounts | 967 |
| | 1,321 |
|
| Amortization of deferred financing costs | 2,178 |
| | 1,326 |
|
| Deferred tax expense (benefit) | (2,371 | ) | | (327 | ) |
| Changes in operating assets and liabilities: | | | |
| Mortgage loans originated for sale | (1,151,150 | ) | | (1,258,931 | ) |
| Proceeds from the sale of mortgage loans originated for sale | 1,205,868 |
| | 1,259,091 |
|
| (Increase) decrease in notes and accounts receivable | (26,262 | ) | | (16,964 | ) |
| (Increase) decrease in reinsurance receivables | (33,312 | ) | | (28,237 | ) |
| (Increase) decrease in deferred acquisition costs | (12,863 | ) | | (2,292 | ) |
| (Increase) decrease in other assets | (8,205 | ) | | (2,223 | ) |
| Increase (decrease) in unearned premiums | 59,481 |
| | 22,934 |
|
| Increase (decrease) in policy liabilities and unpaid claims | 4,666 |
| | 21,250 |
|
| Increase (decrease) in deferred revenue | 1,267 |
| | (6,810 | ) |
| Increase (decrease) in reinsurance payable | 11,299 |
| | (11,772 | ) |
| Increase (decrease) in other liabilities and accrued expenses | (14,297 | ) | | 12,499 |
|
| Operating activities from consolidated CLOs | (2,684 | ) | | (3,505 | ) |
| Net cash provided by (used in) operating activities | 24,530 |
| | (30,661 | ) |
| | | | |
| Investing Activities: | | | |
| Purchases of investments | (147,764 | ) | | (178,599 | ) |
| Proceeds from sales and maturities of investments | 201,754 |
| | 159,773 |
|
| (Increase) decrease in loans owned, at amortized cost, net | (37,166 | ) | | (44,640 | ) |
| Purchases of real estate capital expenditures | (463 | ) | | (4,372 | ) |
| Proceeds from the sale of real estate | 11,396 |
| | 2,526 |
|
| Purchases of corporate fixed assets | (1,616 | ) | | (991 | ) |
Proceeds from the sale of subsidiaries (1) | 4,846 |
| | — |
|
| Proceeds from notes receivable | 40,273 |
| | 25,193 |
|
| Issuance of notes receivable | (35,109 | ) | | (32,137 | ) |
| (Increase) decrease in restricted cash | 1,072 |
| | (3,315 | ) |
| Business and asset acquisitions, net of cash and deposits | (75,489 | ) | | (81,183 | ) |
| Investing activities from consolidated CLOs | 224,107 |
| | (96,834 | ) |
| Net cash provided by (used in) investing activities | 185,841 |
| | (254,579 | ) |
| | | | |
| Financing Activities: | | | |
| Dividends paid | (2,604 | ) | | (2,482 | ) |
| Non-controlling interest contributions | 2,464 |
| | 3,050 |
|
| Non-controlling interest distributions | (1,657 | ) | | (2,059 | ) |
| Payment of debt issuance costs | (1,738 | ) | | (2,508 | ) |
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(in thousands)
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Proceeds from borrowings and mortgage notes payable | 1,297,203 |
| | 1,477,446 |
|
| Principal paydowns of borrowings and mortgage notes payable | (1,232,705 | ) | | (1,368,585 | ) |
| Proceeds from the exercise of options for common stock | 8,100 |
| | — |
|
| Repurchases of common stock | (7,300 | ) | | (43,754 | ) |
| Financing activities from consolidated CLOs | (223,393 | ) | | 220,727 |
|
| Net cash provided by (used in) financing activities | (161,630 | ) | | 281,835 |
|
| Net increase (decrease) in cash and cash equivalents | 48,741 |
| | (3,405 | ) |
| Cash and cash equivalents – beginning of period | 63,010 |
| | 69,400 |
|
| Cash and cash equivalents – end of period | $ | 111,751 |
| | $ | 65,995 |
|
| | | | |
| Supplemental Schedule of Non-Cash Investing and Financing Activities: | | | |
| Acquired real estate properties through, or in lieu of, foreclosure of the related loan | $ | 9,793 |
| | $ | 10,288 |
|
| Real estate acquired through asset acquisition | $ | 8,178 |
| | $ | — |
|
| Intangible assets related to in-place leases acquired through asset acquisition | $ | 2,049 |
| | $ | — |
|
| Assets of consolidated CLOs deconsolidated due to sale and redemption | $ | 407,323 |
| | $ | — |
|
| Liabilities of consolidated CLOs deconsolidated due to sale and redemption | $ | 389,333 |
| | $ | — |
|
| Debt assumed through asset acquisition | $ | 7,586 |
| | $ | — |
|
| Settlement of contingent consideration payable with Class A common stock | $ | 4,838 |
| | $ | — |
|
(1) Represents the final payment received for the sale of Philadelphia Financial Group in 2015.
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Operating Activities: | | | |
| Net income (loss) attributable to Common Stockholders | $ | 3,925 |
| | $ | 23,560 |
|
| Net income (loss) attributable to non-controlling interests - TFP | — |
| | 5,392 |
|
| Net income (loss) attributable to non-controlling interests - Other | 376 |
| | 54 |
|
| Net income (loss) | 4,301 |
| | 29,006 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | |
| Net realized and unrealized (gains) losses | (20,151 | ) | | (7,384 | ) |
| Net (gain) on sale of subsidiary | — |
| | (46,184 | ) |
| Non cash compensation expense | 1,408 |
| | 1,233 |
|
| Amortization/accretion of premiums and discounts | 308 |
| | 169 |
|
| Depreciation and amortization expense | 3,094 |
| | 2,958 |
|
| Bad debt expense | 80 |
| | 64 |
|
| Amortization of deferred financing costs | 240 |
| | 329 |
|
| Loss on extinguishment of debt | 1,241 |
| | 428 |
|
| Deferred tax expense (benefit) | 727 |
| | 10,759 |
|
| Changes in operating assets and liabilities: | | | |
| Mortgage loans originated for sale | (350,220 | ) | | (360,542 | ) |
| Proceeds from the sale of mortgage loans originated for sale | 366,121 |
| | 390,747 |
|
| (Increase) decrease in notes and accounts receivable | (5,020 | ) | | (15,234 | ) |
| (Increase) decrease in reinsurance receivables | (645 | ) | | (9,444 | ) |
| (Increase) decrease in deferred acquisition costs | (664 | ) | | 4,016 |
|
| (Increase) decrease in other assets | 2,201 |
| | (18,361 | ) |
| Increase (decrease) in unearned premiums | (10,370 | ) | | 17,639 |
|
| Increase (decrease) in policy liabilities and unpaid claims | (1,026 | ) | | 5,737 |
|
| Increase (decrease) in deferred revenue | (478 | ) | | 1,604 |
|
| Increase (decrease) in reinsurance payable | (2,568 | ) | | 5,624 |
|
| Increase (decrease) in other liabilities and accrued expenses | 3,261 |
| | (9,713 | ) |
| Net cash provided by (used in) operating activities | (8,160 | ) | | 3,451 |
|
| | | | |
| Investing Activities: | | | |
| Purchases of investments | (30,725 | ) | | (104,449 | ) |
| Proceeds from sales and maturities of investments | 120,309 |
| | 76,291 |
|
| Proceeds from the sale of real estate | 2,555 |
| | 4,200 |
|
| Purchases of fixed assets | (3,231 | ) | | (614 | ) |
| Proceeds from the sale of subsidiaries | 9,676 |
| | 3,561 |
|
| Proceeds from notes receivable | 7,711 |
| | 7,803 |
|
| Issuance of notes receivable | (11,629 | ) | | (7,778 | ) |
| Net cash provided by (used in) investing activities | 94,666 |
| | (20,986 | ) |
| | | | |
| Financing Activities: | | | |
| Non-controlling interest contributions | 50 |
| | — |
|
| Non-controlling interest distributions | — |
| | (241 | ) |
| Payment of debt issuance costs | (37 | ) | | (346 | ) |
| Proceeds from borrowings and mortgage notes payable | 382,506 |
| | 363,590 |
|
| Principal paydowns of borrowings and mortgage notes payable | (455,414 | ) | | (395,625 | ) |
| Repurchases of Common Stock | (9,085 | ) | | (187 | ) |
| Net cash provided by (used in) financing activities | (81,980 | ) | | (32,809 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 4,526 |
| | (50,344 | ) |
| Cash, cash equivalents and restricted cash – beginning of period | 96,524 |
| | 142,237 |
|
| Cash, cash equivalents and restricted cash – beginning of period - held for sale | 2,860 |
| | 10,533 |
|
Cash, cash equivalents and restricted cash – end of period (1) | 103,910 |
| | 102,426 |
|
| Less: Reclassification of cash to assets held for sale | 2,769 |
| | 1,871 |
|
| Cash, cash equivalents and restricted cash– end of period | $ | 101,141 |
| | $ | 100,555 |
|
| | | | |
| Supplemental Schedule of Non-Cash Investing and Financing Activities: | | | |
| Right-of-use asset obtained in exchange for lease liability | $ | 33,558 |
| | $ | — |
|
| Acquired real estate properties through, or in lieu of, foreclosure of the related loan | $ | 1,958 |
| | $ | 3,435 |
|
| Equity securities acquired through the sale of a subsidiary and asset sales | $ | — |
| | $ | 134,083 |
|
| | | | |
| | As of |
| Reconciliation of cash, cash equivalents and restricted cash shown in the statement of cash flows | March 31, 2019 | | December 31, 2018 |
| Cash and cash equivalents | $ | 88,079 |
| | $ | 86,003 |
|
| Restricted cash | 13,062 |
| | 10,521 |
|
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 101,141 |
| | 96,524 |
|
| |
(1) | Includes cash in assets held for sale |
See accompanying notes to condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
(1) Organization
Tiptree Inc. (formally known as Tiptree Financial Inc., together(together with its consolidated subsidiaries, collectively, Tiptree, or the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree is a diversified holding company with four reporting segments: specialty insurance, asset management, senior living and specialty finance. Tiptree’s Class A common stock is tradedCommon Stock trades on the NASDAQNasdaq Capital Market under the symbol “TIPT”. Tiptree’s primary assetTiptree is its ownership of Tiptree Financial Partners, L.P. (TFP) an intermediatea holding company throughthat combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into one reportable segment: Specialty Insurance. We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable segments and other business activities, as Tiptree operates its businesses. Tiptree reports a non-controlling interest representing the economic interest in TFP held by other limited partners of TFP.Capital.
As of January 1, 2016, Tiptree directly owned approximately 81% of TFP. The remaining 19% is reported as non-controlling interest. All of Tiptree’s Class B common stock is owned by TFP and is accounted for as treasury stock. Tiptree’s Class B common stock has the same voting rights as theIn this report “Common Stock” means Class A common stock but no economic rights. The limited partners of TFP (other than Tiptree itself) have$0.001 par value for periods prior to June 7, 2018 and thereafter the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit equal to the number of shares of Class B common stock outstanding. For every share of Class A common stock exchanged in this manner, a share of Class B common stock is canceled. The percentage of TFP owned by Tiptree may increase in the future to the extent TFP’s limited partners exchange their limited partnership units of TFP for Class A common stock of Tiptree. Changes in Tiptree’s ownership of TFP, as a result of such exchanges, will be accounted for as equity transactions, which increase Tiptree’s ownership of TFP and reduce non-controlling interest in TFP without changing total stockholders’ equity of Tiptree.$0.001 par value.
(2) Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Tiptree have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries. The condensed consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited condensed consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016.2018. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income and cash flows for each of the interim periods presented. The results of operations for the three and nine months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2017.2019.
As a result of changes in presentation made in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2018, certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications had no effect on the reported results of operations. The primary difference in the presentation of the condensed consolidated financial statements from the prior year is the aggregation of investments on the condensed consolidated balance sheets and the summation of the net investment income of our specialty insurance business in the condensed consolidated statements of operations. The condensed consolidated cash flow statement has also been conformed to this new presentation. In addition certain immaterial balances have been combined in the condensed consolidated balance sheet and condensed consolidated statement of operations.
Tiptree consolidates those entities in which it has an investment of 50% or more of voting rights or has control over significant operating, financial and investing decisions of the entity as well as variable interest entities (VIEs) in which Tiptree is determined to be the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties.
A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Generally, Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
Non-controlling interests on the condensed consolidated balance sheets represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated.
As a result of the adoption of ASU 2016-02, the Company’s operating leases are now recognized on the condensed consolidated balance sheets as of January 1, 2019. See Note (14) Other Assets and Other Liabilities and Accrued Expenses for additional information.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of the following significant items:
Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivativesderivatives;
Value of acquired assets and liabilities;
Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives;
Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims;
Valuation of contingent share issuances for compensation and purchase consideration, including estimates of number of shares and vesting schedules;
Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service, administration fees, and loan origination fees; and
Other matters that affect the reported amounts and disclosure of contingencies in the condensed consolidated financial statements.
Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.
Business Combination Accounting
The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other expense in the condensed consolidated statements of operations. Acquisition and transaction costs are expensed as incurred.
In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of valuation studies applicable to the business combination.
Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:
•Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
•Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at level 2 are valued based on one or more of the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in nonactive markets;
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;
d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
•Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability.
Fair Value Option
In addition to the financial instruments the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the condensed consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are reported separately in our condensed consolidated balance sheets from those instruments using another accounting method.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Recent Accounting Standards
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, Investments -Equity Method and Joint Ventures (Topic 323), which eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this Update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties that Are Under Common Control, which amends the consolidation guidance on how a reporting entity, that is the single decision maker of a VIE, evaluates whether it is the primary beneficiary of a VIE. This new guidance is effective for fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
Recently Issued Accounting Pronouncements, Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which makes targeted improvements to the recognition, measurement, presentation and disclosure of certain financial instruments. ASU 2016-01 focuses primarily on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for certain financial instruments. Among its provisions for public business entities, ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires the separate presentation in other comprehensive income of the change in fair value of a liability due to instrument-specific credit risk for a liability for which the reporting entity has elected the fair value option, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) and clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for a limited number of provisions. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. TheCompany is currently evaluatingadopted the effect on itsstandard in the first quarter of 2019 under the modified retrospective approach without restating prior comparative periods. The adoption of the updated guidance resulted in the Company recognizing a right of use asset of $32,052 as part of other assets and a lease liability of $33,558 as part of other liabilities and accrued expenses in the condensed consolidated financial statements.balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance, for its operating lease agreements at January 1, 2019. We have elected the practical expedient to not separate lease components and non-lease components, and leases with an initial term of 12 months or less are not recorded on the balance sheet. The cumulative effect adjustment to the opening balance of retained earnings was zero.
In March 2016,2017, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606)2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarify the implementationPremium Amortization on Purchased Callable Debt Securities. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2017. The guidance is to be applied on principal versus net considerations. The effective date and transition requirements for this standard are the samea modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The Update includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. The Update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the beginning of the period of adoption. The guidance bothshortens the amortization period for certain callable debt securities held at implementation and on an ongoing basis. The effective date and transition requirements fora premium, requiring the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect on its condensed consolidated financial statements.
In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuantpremium to Staff Announcements
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
at the March 3, 2016 EITF Meeting, which rescinds SEC paragraphs pursuantbe amortized to the SEC Staff Announcement, “Rescission of Certain SEC Staff Observer Comments upon Adoption of Topic 606,” and the SEC Staff Announcement, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or Equity,” announced at the March 3, 2016 Emerging Issues Task Force (EITF) meeting.earliest call date. The Company believes that that the adoption of this standard willdid not have a material impact on the Company’s condensed consolidated financial statements.
In May 2016,August 2017, the FASB issued ASU 2016-12, Revenue from Contracts with Customers2017-12, Derivatives and Hedging (Topic 606)815): Narrow-Scope Improvements and Practical Expedients, Targeted Improvements to Accounting for Hedging Activities, which providesamends the guidance on collectability, noncash consideration,hedge accounting. The amendment will make more financial and completed contracts at transition. Additionally,nonfinancial hedging strategies eligible for hedge accounting and amend the amendments in this Update provide a practical expedient for contract modifications at transitionpresentation and andisclosure requirements. It is intended to more closely align hedge accounting policy election relatedwith companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the presentationscope and results of sales taxes and other similar taxes collected from customers.hedging programs. ASU 2017-12 can be adopted immediately in any interim or annual period. The mandatory effective date and transition requirements for calendar year-end public companies is January 1, 2019. The adoption of this standard did not have a material impact on the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect on itsCompany’s condensed consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which permits companies to reclassify stranded tax effects caused by Public Law no. 115-97, commonly referred to as the Tax Cuts and Jobs Act (Tax Act), from accumulated other comprehensive income (AOCI) to retained earnings. Deferred tax assets (DTA) related to available for sale (AFS) securities unrealized gains and losses that were revalued as of December 31, 2017 created stranded tax effects in accumulated other comprehensive income (AOCI) due to the enactment of the Tax Act, due to the nature of existing GAAP requiring recognition of tax rate change effects on the DTA revaluation related to AFS securities as an adjustment to provision for income taxes. Specifically, ASU 2018-02 permits a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. Additionally, the ASU requires new disclosures by all companies, whether they opt to do the reclassification or not. The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company has adopted the standard effective January 1, 2019, and reclassified the stranded tax effects caused by the Tax Act from AOCI to retained earnings. The standard is applied in the period of adoption, and the impact to the Company’s condensed consolidated financial statements in the period of adoption is not material. The Company’s accounting policy for the release of stranded tax effects in AOCI is the aggregate portfolio approach.
Recently Issued Accounting Pronouncements, Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13Financial Instruments -Credit- Credit Losses (Topic 326): Measurement of Credit Losses
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This UpdateASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted, including the adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which addresses classification and presentation of changes in restricted cash on the statement of cash flows.ASU 2016-18 requires an entity’s reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents. The ASU does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions. ASU 2016-18 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.Impairment. ASU 2017-04 does not change the qualitative assessment; however, it removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Therefore, as the FASB notes in the ASU’s Basis for Conclusions, the goodwill of reporting units with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit indicate that goodwill is impaired. Entities will, however, be
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
required to disclose any reporting units with zero or negative carrying amounts and the respective amounts of goodwill allocated to those reporting units. The amendments in ASU 2017-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In February 2017,August 2018, the FASB issued ASU 2017-05,2018-13, Fair Value Measurement (Topic 820): Other Income-GainsChanges to the Disclosure Requirementsfor Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The modifications include the removal of certain requirements, modifications to exiting requirements and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) Clarifying the Scope of Asset Derecognition Guidanceadditional requirements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and Accounting for Partial Sales of Nonfinancial Assets. The new guidance is effective forinterim periods within those fiscal years, beginning after December 15, 2017 and interim periods within those years. Early2019, with early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets.permitted. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2017. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The guidance shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The Company is currently evaluating the effect on its condensed consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provided clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for the Company for interim and annual periods beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. The Company will consider the impact that this standard may have on future stock-based payment award modifications should they occur.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the guidance on hedge accounting. The amendment will make more financial and nonfinancial hedging strategies eligible for hedge accounting and amend the presentation and disclosure requirements. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 can be adopted immediately in any interim or annual period. The mandatory effective date for calendar year-end public companies is January 1, 2019. The Company is currently evaluating the effect on its condensed consolidated financial statements.
(3) AcquisitionsDispositions, Assets Held for Sale and Discontinued Operations
Acquisitions during the nine months ended September 30, 2017
Senior Living
Managed Properties
During the nine months ended September 30, 2017, subsidiaries in our senior living business and their partners entered into agreements to acquire and operate two senior living communities for total consideration of $25,999, of which $7,000 was financed through mortgage debt issued in connection with one of the acquisitions, $4,096 was financed by contributions from partners of our subsidiaries and the remainder was paid with cash on hand. Affiliates of the partners provide management services to the communities under management contracts.Dispositions
The Company providedcompleted the sale of Care, as well as two senior living properties held in our specialty insurance business to Invesque Inc. (Invesque), on February 1, 2018. The pre-tax comprehensive income on the sale for the three months ended March 31, 2018 was approximately $44.2 million, which consists of $46.2 million gain on sale of a subsidiary, $1.8 million of realized gain on the sale of the specialty insurance properties, offset by the reclassification of the interest rate swap from AOCI of $3.8 million. In December 2018 an advanceadditional gain on sale of a subsidiary of $10.7 million of earnout consideration was recognized as a result of a portfolio disposition by Invesque.
Total consideration received for the sale of Care was $150.7 million, including approximately 16.6 million shares of Invesque, resulting in an ownership of approximately 34% of the acquiring company at the time of sale. The Company has elected to apply the fair value option to the partners of our subsidiaryinvestment in Invesque. As such, these shares are held at closing of one of these transactions for $1,036, which was part of their cash contribution for the property. Subsequent to the closing of this transaction, the property was financed with mortgage debt of $10,000. Our partner repaid the advance tofair value within equity securities.
When the Company with proceedsentered into a purchase agreement on November 16, 2017 to sell Care, the Company concluded that the sale met the requirements to be classified as a discontinued operation. As a result, the Company reclassified the income and expenses attributable to Care to net income (loss) from this financing, which was split based ondiscontinued operations through the ownershipcompletion of the property.sale.
The primary reasonCompany has entered into a definitive agreement to sell Luxury, which is pending a regulatory review, and is classified as held for sale at March 31, 2019 and December 31, 2018. The agreement did not meet the Company’s acquisitions of the senior living communities arerequirements to expand its real estate operations. For the period from acquisition until September 30, 2017, revenue and the net loss for the two properties acquired were $4,398 and $1,941, respectively.be classified as a discontinued operation.
As of March 31, 2019 and December 31, 2018, the Company did not record any impairments with respect to assets held for sale.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following table summarizes the consideration paid and the amounts of the final determination, as described above,Assets Held for the transactions completed during the nine months ended September 30, 2017:
|
| | | |
| | 2017 Acquisitions |
| | Senior living |
| Consideration: | |
| Cash | $ | 25,999 |
|
| Fair value of total consideration | $ | 25,999 |
|
| | |
| Acquisition costs | $ | 288 |
|
| | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |
| Assets: | |
| Cash and cash equivalents | $ | 717 |
|
| Real estate, net | 21,800 |
|
| Intangible assets, net | 3,850 |
|
| Other assets | 76 |
|
| | |
| Liabilities: | |
| Deferred revenue | (409 | ) |
| Other liabilities and accrued expenses | (35 | ) |
| Total identifiable net assets assumed | $ | 25,999 |
|
The following table shows the values recorded by the Company, asrepresents detail of the acquisition date, for finite-lived intangible assets and their estimated amortization period:liabilities held for sale in the condensed consolidated balance sheets for the following periods:
|
| | | | | |
| Intangible Assets | Weighted Average Amortization Period (in Years) | | Senior living |
| In-place lease | 1.38 | | $ | 3,850 |
|
|
| | | | | | | |
| | As of |
| | March 31, 2019 | | December 31, 2018 |
| Assets | | | |
| Investments: | | | |
| Loans, at fair value | $ | 63,372 |
| | $ | 63,340 |
|
| Other investments | 1,283 |
| | 798 |
|
| Total Investments | 64,655 |
| | 64,138 |
|
| Cash and cash equivalents | 2,769 |
| | 2,860 |
|
| Notes and accounts receivable, net | 203 |
| | 230 |
|
Other assets (1) | 1,827 |
| | 1,003 |
|
| Assets held for sale | $ | 69,454 |
| | $ | 68,231 |
|
| | | | |
| Liabilities | | | |
| Debt, net | $ | 61,602 |
| | $ | 61,381 |
|
Other liabilities and accrued expenses (2) | 2,597 |
| | 1,599 |
|
| Liabilities held for sale | $ | 64,199 |
| | $ | 62,980 |
|
Supplemental pro forma results of operations have not been presented for the above 2017 business acquisitions as they are not material in relation to the Company’s reported results. | |
(1) | Includes $582 and $0 of a right of use asset as of March 31, 2019 and December 31, 2018, respectively. |
| |
(2) | Includes $601 and $0 of a lease liability as of March 31, 2019 and December 31, 2018, respectively. |
Acquisitions during the nine months ended September 30, 2016
Senior Living
Managed Properties
During the nine months ended September 30, 2016, subsidiaries in our senior living business and their partners entered into agreements to acquire and operate three senior living communities for total consideration of $84,605 (which includes deposits of $125 paid in the fourth quarter of 2015), of which $59,817 was financed through mortgage debt issued in connection with the acquisitions, $4,778 was financed by contributions from partners of our subsidiary, and the remainder was paid with cash on hand. Affiliates of the partners provide management services to the communities under management contracts.Discontinued Operations
The primary reasonfollowing table represents detail of revenues and expenses of discontinued operations in the condensed consolidated statements of operations for the Company’s acquisition of the senior living communities is to expand its real estate operations. For the period from acquisition until September 30, 2016, revenue and the net loss for the three managed properties acquired were $7,247 and $1,899, respectively.
following periods:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Revenues: |
| |
|
| Rental and related revenue | $ | — |
| | $ | 6,476 |
|
| Other revenue | — |
| | 149 |
|
| Total revenues | — |
| | 6,625 |
|
| Expenses: | | | |
| Employee compensation and benefits | — |
| | 2,788 |
|
| Interest expense | — |
| | 1,252 |
|
| Other expenses | — |
| | 1,961 |
|
| Total expenses | — |
| | 6,001 |
|
| Net income (loss) before taxes from discontinued operations | — |
| | 624 |
|
| Gain on sale of discontinued operations | — |
| | 46,184 |
|
| Less: provision (benefit) for income taxes | — |
| | 12,327 |
|
| Net income (loss) from discontinued operations | $ | — |
| | $ | 34,481 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following table summarizesrepresents a summary of cash flows related to discontinued operation included in the consideration paid andcondensed consolidated statements of cash flows for the amounts of the final determination, as described above, for transactions completed during the nine months ended September 30, 2016:following periods:
|
| | | |
| | 2016 Acquisitions |
| | Senior living |
| Consideration: | |
| Cash | $ | 81,492 |
|
| Non-cash non-controlling interests contributions | 3,113 |
|
| Fair value of total consideration | $ | 84,605 |
|
| | |
| Acquisition costs | $ | 612 |
|
| | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |
| Assets: | |
| Cash and cash equivalents | $ | 184 |
|
| Real estate, net | 77,787 |
|
| Intangible assets, net | 6,838 |
|
| Other assets | 248 |
|
| | |
| Liabilities: | |
| Deferred revenue | (290 | ) |
| Other liabilities and accrued expenses | (162 | ) |
| Total identifiable net assets assumed | $ | 84,605 |
|
The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and their estimated amortization period:
|
| | | | | |
| Intangible Assets | Weighted Average Amortization Period (in Years) | | Senior living |
| In-place lease | 1.61 | | $ | 6,838 |
|
Supplemental pro forma results of operations have not been presented for the above 2016 business acquisitions as they are not material in relation to the Company’s reported results. |
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Net cash provided by (used in): | | | |
| Operating activities | $ | — |
| | $ | (2,095 | ) |
| Investing activities | — |
| | (592 | ) |
| Financing activities | — |
| | (123 | ) |
| Net cash flows provided by discontinued operations | $ | — |
| | $ | (2,810 | ) |
(4) Operating Segment Data
The Company has fourTiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into one reportable segment – Specialty Insurance. We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable operating segments which are: (i) specialty insurance (formally knownand other business activities, as insuranceTiptree Capital. Corporate activities include holding company interest expense, employee compensation and insurance services), (ii) asset management, (iii) senior living (formally known as real estate),benefits, and (iv) specialty finance. The Company’s operating segments are organized in a manner that reflects how the chief operating decision maker (CODM) views these strategic business units.other expenses.
EachOur reportable segment’s income (loss)or loss is reported before income taxes, discontinued operations and non-controlling interests.
Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired. As of December 31, 2018, Mortgage and Asset Management, which previously were reportable segments, no longer met the quantitative threshold for disclosure. Those are now reported in Other, which we refer to as Tiptree Capital. Prior periods have been conformed to the current year presentation. Intercompany transactions are eliminated.
In the fourth quarterA description of 2016, the Company made certainour reportable segment realignments in order to conform to the way the CODM internally evaluates segment performance. These realignments primarily consistedand of the transfer of principal investments from corporate and other to the specialty insurance and asset management operating segments. As a result, corporate and other is no longer deemed to be an operating segment of the Company. For the three months ended September 30, 2016, $6,808 of pretax income (loss) previously reported in corporate and other was allocated $2,634 and $4,174 to the specialty insurance and asset management operating segments, respectively. For the three months ended September 30, 2016, inclusive of what was allocated to the asset management operating segment there was $3,312 of net income (loss) attributable to consolidated CLOs. For the
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
nine months ended September 30, 2016, $20,160 of pretax income (loss) previously reported in corporate and other was allocated $10,527 and $9,633 to the specialty insurance and asset management operating segments, respectively. For the nine months ended September 30, 2016, inclusive of what was allocated to the asset management operating segment there was $7,583 of net income (loss) attributable to consolidated CLOs. The Company has reclassified prior period amounts to provide visibility and comparability. This reclassification had no impact on the allocation of goodwill to reporting units. None of these changes impact the Company’s previously reported consolidated net income or earnings per share.
Descriptions of each of the reportable segmentsTiptree Capital are as follows:
Specialty Insurance operations are conducted through Fortegra Financial Corporation (Fortegra), an insurance holding company. Fortegra underwrites and provides specialty insurance products, primarily in the United States, and is a leading provider of credit insurance and asset protection products. Fortegra’s diverse range of products and services include products such as mobilecredit protection extendedinsurance, warranty and service debt protectioncontract products, and creditother specialty insurance and selectprograms which underwrite niche personal and commercial lines of insurance. The specialtyWe also offer various other insurance investment portfolio also includes results related to corporate loans held at fair valueproducts and non-performing residential mortgage loans due toservices throughout the aforementioned segment realignment.U.S. through our non-regulated subsidiaries.
Asset ManagementTiptree Capital includes our asset management, mortgage and shipping operations, are primarily conducted through Telos Asset Management LLC’s (Telos) management of CLOs. Telos is a subsidiary of Tiptree Asset Management Company, LLC (TAMCO), an SEC-registered investment advisor owned by the Company. Results include net income (loss) from consolidated CLOs.and other investments (including our Invesque shares).
Senior Living operations are conducted through Care Investment Trust LLC (Care) which has a geographically diverse portfolio of seniors housing properties including senior apartments, assisted living, independent living, memory care and skilled nursing facilities in the U.S.
Specialty Finance operations are conducted through Siena Capital Finance LLC (Siena) and the Company’s mortgage businesses, which consist of Luxury and Reliance. The Company’s mortgage origination business originated loans for sale to institutional investors, including GSEs and FHA/VA. Siena’s business consists of structuring asset-based loan facilities across diversified industries.
The tables below present the components of revenue, expense, pre-tax income (loss), and segment assets for each of the operating segmentsour reportable segment as well as Tiptree Capital for the following periods: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Specialty insurance | | Asset management | | Senior living | | Specialty finance | | Corporate and other | | Total |
| Total revenue | $ | 118,714 |
| | $ | 1,448 |
| | $ | 19,583 |
| | $ | 24,976 |
| | $ | (202 | ) | | $ | 164,519 |
|
| | | | | | | | | | | | |
| Total expense | 121,059 |
| | 1,058 |
| | 21,118 |
| | 22,381 |
| | 6,916 |
| | 172,532 |
|
| Net income attributable to consolidated CLOs | — |
| | 2,583 |
| | — |
| | — |
| | — |
| | 2,583 |
|
| Income (loss) before taxes | $ | (2,345 | ) | | $ | 2,973 |
| | $ | (1,535 | ) | | $ | 2,595 |
| | $ | (7,118 | ) | | $ | (5,430 | ) |
| Less: provision (benefit) for income taxes | | | | | | | | | | | (2,052 | ) |
| Net income (loss) before non-controlling interests | | | | | | | | | | | $ | (3,378 | ) |
| Less: net income (loss) attributable to non-controlling interests | | | | | | | | | | | (264 | ) |
| Net income (loss) attributable to Tiptree Inc. Class A common stockholders | | | | | | | | | | | $ | (3,114 | ) |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| | Specialty insurance(1) | | Asset management(1) | | Senior living | | Specialty finance | | Corporate and other(1) | | Total |
| Total revenue | $ | 82,630 |
| | $ | 4,746 |
| | $ | 15,695 |
| | $ | 29,013 |
| | $ | 76 |
| | $ | 132,160 |
|
| | | | | | | | | | | | |
| Total expense | 71,971 |
| | 2,303 |
| | 16,168 |
| | 24,832 |
| | 9,368 |
| | 124,642 |
|
| Net income attributable to consolidated CLOs | — |
| | 4,032 |
| | — |
| | — |
| | — |
| | 4,032 |
|
| Income (loss) before taxes | $ | 10,659 |
| | $ | 6,475 |
| | $ | (473 | ) | | $ | 4,181 |
| | $ | (9,292 | ) | | $ | 11,550 |
|
| Less: provision (benefit) for income taxes | | | | | | | | | | | 3,712 |
|
| Net income (loss) before non-controlling interests | | | | | | | | | | | $ | 7,838 |
|
| Less: net income (loss) attributable to non-controlling interests | | | | | | | | | | | 1,933 |
|
| Net income (loss) attributable to Tiptree Inc. Class A common stockholders | | | | | | | | | | | $ | 5,905 |
|
(1) Reclassified to conform to current period presentation
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Specialty insurance | | Asset management | | Senior living | | Specialty finance | | Corporate and other | | Total |
| Total revenue | $ | 351,731 |
| | $ | 8,239 |
| | $ | 55,927 |
| | $ | 70,325 |
| | $ | 75 |
| | $ | 486,297 |
|
| | | | | | | | | | | | |
| Total expense | 350,007 |
| | 4,549 |
| | 61,286 |
| | 67,696 |
| | 22,273 |
| | 505,811 |
|
| Net income (loss) attributable to consolidated CLOs | — |
| | 9,393 |
| | — |
| | — |
| | — |
| | 9,393 |
|
| Income (loss) before taxes | $ | 1,724 |
| | $ | 13,083 |
| | $ | (5,359 | ) | | $ | 2,629 |
| | $ | (22,198 | ) | | $ | (10,121 | ) |
| Less: provision (benefit) for income taxes | | | | | | | | | | | (2,761 | ) |
| Net income (loss) before non-controlling interests | | | | | | | | | | | $ | (7,360 | ) |
| Less: net income (loss) attributable to non-controlling interests | | | | | | | | | | | (903 | ) |
| Net income (loss) attributable to Tiptree Inc. Class A common stockholders | | | | | | | | | | | $ | (6,457 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| | Specialty insurance(1) | | Asset management(1) | | Senior living | | Specialty finance | | Corporate and other(1) | | Total |
| Total revenue | $ | 268,743 |
| | $ | 10,754 |
| | $ | 44,204 |
| | $ | 67,790 |
| | $ | 3,568 |
| | $ | 395,059 |
|
| | | | | | | | | | | | |
| Total expense | 233,116 |
| | 6,131 |
| | 49,691 |
| | 62,280 |
| | 26,319 |
| | 377,537 |
|
| Net income (loss) attributable to consolidated CLOs | — |
| | 10,049 |
| | — |
| | — |
| | — |
| | 10,049 |
|
| Income (loss) before taxes | $ | 35,627 |
| | $ | 14,672 |
| | $ | (5,487 | ) | | $ | 5,510 |
| | $ | (22,751 | ) | | $ | 27,571 |
|
| Less: provision (benefit) for income taxes | | | | | | | | | | | 5,298 |
|
| Net income (loss) before non-controlling interests | | | | | | | | | | | $ | 22,273 |
|
| Less: net income (loss) attributable to non-controlling interests | | | | | | | | | | | 4,680 |
|
| Net income (loss) attributable to Tiptree Inc. Class A common stockholders | | | | | | | | | | | $ | 17,593 |
|
(1) Reclassified to conform to current period presentation
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, 2019 | | Three Months Ended
March 31, 2018 |
| | Specialty Insurance | | Tiptree Capital | | Total | | Specialty Insurance | | Tiptree Capital | | Total |
| Total revenue | $ | 154,628 |
| | $ | 29,275 |
| | $ | 183,903 |
| | $ | 129,998 |
| | $ | 18,074 |
| | $ | 148,072 |
|
| Total expense | (146,490 | ) | | (23,357 | ) | | (169,847 | ) | | (128,655 | ) | | (19,746 | ) | | (148,401 | ) |
| Corporate expense | — |
| | — |
| | (8,901 | ) | | — |
| | — |
| | (6,714 | ) |
| Net income (loss) before taxes from continuing operations | $ | 8,138 |
| | $ | 5,918 |
| | $ | 5,155 |
| | $ | 1,343 |
| | $ | (1,672 | ) | | $ | (7,043 | ) |
| Less: provision (benefit) for income taxes | | | | | 854 |
| | | | | | (1,568 | ) |
| Net income (loss) from discontinued operations | | | | | — |
| | | | | | 34,481 |
|
| Net income (loss) before non-controlling interests | | | | | $ | 4,301 |
| | | | | | $ | 29,006 |
|
| Less: net income (loss) attributable to non-controlling interests | | | | | 376 |
| | | | | | 5,446 |
|
| Net income (loss) attributable to Common Stockholders | | | | | $ | 3,925 |
| | | | | | $ | 23,560 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| The following table presents the segment assets for the following periods: |
| | Segment Assets as of September 30, 2017 |
| | Specialty insurance | | Asset management | | Senior living | | Specialty finance | | Corporate and other | | Total |
| Segment assets | $ | 1,319,165 |
| | $ | 21,175 |
| | $ | 390,818 |
| | $ | 303,203 |
| | $ | 41,619 |
| | $ | 2,075,980 |
|
| Assets of consolidated CLOs | — |
| | 372,774 |
| | — |
| | — |
| | — |
| | 372,774 |
|
| Total assets | | | | | | | | | | | $ | 2,448,754 |
|
| | | | | | | | | | | | |
| | Segment Assets as of December 31, 2016 |
| | Specialty insurance | | Asset management | | Senior living | | Specialty finance | | Corporate and other | | Total |
| Segment assets | $ | 1,268,152 |
| | $ | 17,427 |
| | $ | 323,169 |
| | $ | 271,795 |
| | $ | 20,012 |
| | $ | 1,900,555 |
|
| Assets of consolidated CLOs | — |
| | 989,495 |
| | — |
| | — |
| | — |
| | 989,495 |
|
| Total assets | | | | | | | | | | | $ | 2,890,050 |
|
(1) Reclassified to conform to current period presentationThe following table summarizes sources of revenue from Tiptree Capital:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
Net realized and unrealized gains (losses) (1) | $ | 18,037 |
| | $ | 10,791 |
|
Other investment income (2) | 9,881 |
| | 5,108 |
|
| Management fee income | 1,267 |
| | 1,577 |
|
| Other | 90 |
| | 598 |
|
| Total Revenue | $ | 29,275 |
| | $ | 18,074 |
|
| |
(1) | See Note (5) Investments for the components of Net realized and unrealized gains (losses) related to Tiptree Capital. |
| |
(2) | See Note (5) Investments for the components of Other investment income. |
The following table presents the reportable segment and Tiptree Capital assets for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Specialty Insurance | | Tiptree Capital | | Corporate | | Total | | Specialty Insurance | | Tiptree Capital | | Corporate | | Total |
| Total assets | $ | 1,450,765 |
| | $ | 320,320 |
| | $ | 43,755 |
| | $ | 1,814,840 |
| | $ | 1,514,084 |
| | $ | 318,420 |
| | $ | 32,414 |
| | $ | 1,864,918 |
|
(5) Investments
The following table presents the Company's investments related to insurance operations (Specialty Insurance) and investments from other Tiptree investing activities (Tiptree Capital), measured at fair value as of the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Specialty Insurance | | Tiptree Capital | | Total | | Specialty Insurance | | Tiptree Capital | | Total |
| Available for sale securities, at fair value | $ | 283,929 |
| | $ | — |
| | $ | 283,929 |
| | $ | 283,563 |
| | $ | — |
| | $ | 283,563 |
|
| Loans, at fair value | 71,633 |
| | 53,512 |
| | 125,145 |
| | 158,466 |
| | 56,917 |
| | 215,383 |
|
| Equity securities | 26,977 |
| | 95,615 |
| | 122,592 |
| | 29,425 |
| | 93,554 |
| | 122,979 |
|
| Other investments | 18,751 |
| | 57,990 |
| | 76,741 |
| | 18,526 |
| | 56,476 |
| | 75,002 |
|
| Total investments | $ | 401,290 |
| | $ | 207,117 |
| | $ | 608,407 |
| | $ | 489,980 |
| | $ | 206,947 |
| | $ | 696,927 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Available for Sale Securities, at fair value
All of the Company’s investments in available for sale securities (AFS) as of September 30, 2017March 31, 2019 and December 31, 20162018 are held by subsidiaries in the specialty insurance business. The following tables present the Company's investments in available for sale securities:
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 36,474 |
| | $ | 96 |
| | $ | (216 | ) | | $ | 36,354 |
|
| Obligations of state and political subdivisions | 47,542 |
| | 415 |
| | (324 | ) | | 47,633 |
|
| Corporate securities | 53,589 |
| | 447 |
| | (167 | ) | | 53,869 |
|
| Asset backed securities | 24,011 |
| | 105 |
| | (16 | ) | | 24,100 |
|
| Certificates of deposit | 896 |
| | — |
| | — |
| | 896 |
|
| Equity securities | 658 |
| | 13 |
| | (9 | ) | | 662 |
|
| Obligations of foreign governments | 566 |
| | 13 |
| | — |
| | 579 |
|
| Total | $ | 163,736 |
| | $ | 1,089 |
| | $ | (732 | ) | | $ | 164,093 |
|
| | | | | | | | |
| | As of December 31, 2016 |
| | Amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 27,149 |
| | $ | 27 |
| | $ | (377 | ) | | $ | 26,799 |
|
| Obligations of state and political subdivisions | 57,425 |
| | 107 |
| | (598 | ) | | 56,934 |
|
| Corporate securities | 58,769 |
| | 204 |
| | (402 | ) | | 58,571 |
|
| Asset backed securities | 1,459 |
| | 1 |
| | — |
| | 1,460 |
|
| Certificates of deposit | 895 |
| | — |
| | — |
| | 895 |
|
| Equity securities | 818 |
| | 3 |
| | (37 | ) | | 784 |
|
| Obligations of foreign governments | 733 |
| | 3 |
| | (8 | ) | | 728 |
|
| Total | $ | 147,248 |
| | $ | 345 |
| | $ | (1,422 | ) | | $ | 146,171 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following tables summarize the gross unrealized losses on available for sale securities in an unrealized loss position:
|
| | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Less Than or Equal to One Year | | More Than One Year |
| | Fair value | | Gross
unrealized losses | | # of Securities | | Fair value | | Gross unrealized losses | | # of Securities |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 25,152 |
| | $ | (187 | ) | | 119 |
| | $ | 924 |
| | $ | (29 | ) | | 5 |
|
| Obligations of state and political subdivisions | 9,936 |
| | (145 | ) | | 55 |
| | 7,142 |
| | (179 | ) | | 34 |
|
| Corporate securities | 16,269 |
| | (61 | ) | | 164 |
| | 4,479 |
| | (106 | ) | | 86 |
|
| Asset-backed securities | 1,294 |
| | (16 | ) | | 2 |
| | — |
| | — |
| | — |
|
| Equity securities | 411 |
| | (7 | ) | | 3 |
| | 19 |
| | (2 | ) | | 2 |
|
| Obligations of foreign governments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | $ | 53,062 |
| | $ | (416 | ) | | 343 |
| | $ | 12,564 |
| | $ | (316 | ) | | 127 |
|
| | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Less Than or Equal to One Year | | More Than One Year |
| | Fair value | | Gross
unrealized losses | | # of Securities | | Fair value | | Gross unrealized losses | | # of Securities |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 20,979 |
| | $ | (376 | ) | | 115 |
| | $ | 16 |
| | $ | (1 | ) | | 5 |
|
| Obligations of state and political subdivisions | 41,639 |
| | (597 | ) | | 170 |
| | 1,334 |
| | (1 | ) | | 3 |
|
| Corporate securities | 29,856 |
| | (400 | ) | | 279 |
| | 253 |
| | (2 | ) | | 3 |
|
| Asset-backed securities | 706 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| Equity securities | 736 |
| | (35 | ) | | 5 |
| | 19 |
| | (2 | ) | | 2 |
|
| Obligations of foreign governments | 338 |
| | (8 | ) | | 4 |
| | — |
| | — |
| | — |
|
| Total | $ | 94,254 |
| | $ | (1,416 | ) | | 574 |
| | $ | 1,622 |
| | $ | (6 | ) | | 13 |
|
The Company does not intend to sell the investments that were in an unrealized loss position as of September 30, 2017, and management believes that it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities or cost for equity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of September 30, 2017 and December 31, 2016, based on the Company's review, none of the fixed maturity or equity securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery. |
| | | | | | | | | | | | | | | |
| | As of March 31, 2019 |
| | Amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 78,903 |
| | $ | 595 |
| | $ | (213 | ) | | $ | 79,285 |
|
| Obligations of state and political subdivisions | 63,234 |
| | 745 |
| | (197 | ) | | 63,782 |
|
| Corporate securities | 93,144 |
| | 798 |
| | (260 | ) | | 93,682 |
|
| Asset backed securities | 42,356 |
| | 38 |
| | (1,203 | ) | | 41,191 |
|
| Certificates of deposit | 1,096 |
| | — |
| | — |
| | 1,096 |
|
| Obligations of foreign governments | 4,865 |
| | 29 |
| | (1 | ) | | 4,893 |
|
| Total | $ | 283,598 |
| | $ | 2,205 |
| | $ | (1,874 | ) | | $ | 283,929 |
|
| | | | | | | | |
| | As of December 31, 2018 |
| | Amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 71,945 |
| | $ | 266 |
| | $ | (463 | ) | | $ | 71,748 |
|
| Obligations of state and political subdivisions | 67,624 |
| | 280 |
| | (458 | ) | | 67,446 |
|
| Corporate securities | 96,888 |
| | 78 |
| | (1,241 | ) | | 95,725 |
|
| Asset backed securities | 41,912 |
| | 14 |
| | (1,274 | ) | | 40,652 |
|
| Certificates of deposit | 1,241 |
| | — |
| | — |
| | 1,241 |
|
| Obligations of foreign governments | 6,750 |
| | 12 |
| | (11 | ) | | 6,751 |
|
| Total | $ | 286,360 |
| | $ | 650 |
| | $ | (3,447 | ) | | $ | 283,563 |
|
The amortized cost and fair values of investments in debt securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Excluded from this table are equity securities since they have no contractual maturity.
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| Due in one year or less | $ | 19,075 |
| | $ | 19,074 |
| | $ | 22,846 |
| | $ | 22,833 |
| $ | 32,144 |
| | $ | 32,107 |
| | $ | 30,920 |
| | $ | 30,836 |
|
| Due after one year through five years | 68,918 |
| | 69,207 |
| | 66,063 |
| | 65,841 |
| 166,245 |
| | 167,544 |
| | 167,201 |
| | 166,366 |
|
| Due after five years through ten years | 45,447 |
| | 45,375 |
| | 49,036 |
| | 48,381 |
| 30,208 |
| | 30,291 |
| | 32,805 |
| | 32,185 |
|
| Due after ten years | 5,627 |
| | 5,675 |
| | 7,026 |
| | 6,872 |
| 12,645 |
| | 12,796 |
| | 13,522 |
| | 13,524 |
|
| Asset backed securities | 24,011 |
| | 24,100 |
| | 1,459 |
| | 1,460 |
| |
| Asset-backed securities | | 42,356 |
| | 41,191 |
| | 41,912 |
| | 40,652 |
|
| Total | $ | 163,078 |
| | $ | 163,431 |
| | $ | 146,430 |
| | $ | 145,387 |
| $ | 283,598 |
| | $ | 283,929 |
| | $ | 286,360 |
| | $ | 283,563 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following tables summarize the gross unrealized losses on available for sale securities in an unrealized loss position:
|
| | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 |
| | Less Than or Equal to One Year | | More Than One Year |
| | Fair value | | Gross
unrealized losses | | # of Securities | | Fair value | | Gross unrealized losses | | # of Securities |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 2,058 |
| | $ | (3 | ) | | 15 |
| | $ | 21,591 |
| | $ | (210 | ) | | 127 |
|
| Obligations of state and political subdivisions | 5,555 |
| | (3 | ) | | 13 |
| | 15,093 |
| | (194 | ) | | 89 |
|
| Corporate securities | 4,292 |
| | (31 | ) | | 32 |
| | 23,033 |
| | (229 | ) | | 271 |
|
| Asset-backed securities | 33,316 |
| | (272 | ) | | 12 |
| | 2,665 |
| | (931 | ) | | 10 |
|
| Obligations of foreign governments | — |
| | — |
| | — |
| | 942 |
| | (1 | ) | | 4 |
|
| Total | $ | 45,221 |
| | $ | (309 | ) | | 72 |
| | $ | 63,324 |
| | $ | (1,565 | ) | | 501 |
|
| | | | | | | | | | | | |
| | As of December 31, 2018 |
| | Less Than or Equal to One Year | | More Than One Year |
| | Fair value | | Gross
unrealized losses | | # of Securities | | Fair value | | Gross unrealized losses | | # of Securities |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 14,844 |
| | $ | (70 | ) | | 51 |
| | $ | 19,495 |
| | $ | (393 | ) | | 128 |
|
| Obligations of state and political subdivisions | 15,830 |
| | (30 | ) | | 41 |
| | 21,594 |
| | (428 | ) | | 115 |
|
| Corporate securities | 47,976 |
| | (393 | ) | | 352 |
| | 28,517 |
| | (848 | ) | | 404 |
|
| Asset-backed securities | 37,613 |
| | (1,262 | ) | | 35 |
| | 614 |
| | (12 | ) | | 5 |
|
| Obligations of foreign governments | 2,313 |
| | (6 | ) | | 15 |
| | 1,301 |
| | (5 | ) | | 8 |
|
| Total | $ | 118,576 |
| | $ | (1,761 | ) | | 494 |
| | $ | 71,521 |
| | $ | (1,686 | ) | | 660 |
|
The Company does not intend to sell the investments that were in an unrealized loss position as of March 31, 2019, and management believes that it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of March 31, 2019 and December 31, 2018, based on the Company's review, none of the fixed maturity securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery.
Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company cannot remove invested assets from these accounts without prior approval of the contractual party or regulatory authority, as applicable. The following table presents the Company's restricted investments included in the Company's available for sale securities:
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Fair value of restricted investments for special deposits required by state insurance departments | $ | 9,939 |
| | $ | 10,111 |
| $ | 6,317 |
| | $ | 9,398 |
|
| Fair value of restricted investments in trust pursuant to reinsurance agreements | 7,287 |
| | 7,573 |
| 26,086 |
| | 24,931 |
|
| Total fair value of restricted investments | $ | 17,226 |
| | $ | 17,684 |
| $ | 32,403 |
| | $ | 34,329 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
The following table presents additional information on the Company’s available for sale securities:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Purchases of available for sale securities | $ | 45,250 |
| | $ | 12,799 |
| | $ | 79,907 |
| | $ | 22,477 |
| $ | 29,861 |
| | $ | 75,570 |
|
| | | | | | | | | | | |
| Proceeds from maturities, calls and prepayments of available for sale securities | $ | 7,686 |
| | $ | 4,483 |
| | $ | 23,909 |
| | $ | 26,086 |
| $ | 11,144 |
| | $ | 10,018 |
|
| | | | | | | | | | | |
| Gains (losses) realized on maturities, calls and prepayments of available for sale securities | $ | — |
| | $ | (14 | ) | | $ | (5 | ) | | $ | 83 |
| $ | — |
| | $ | (27 | ) |
| | | | | | | | | | | |
| Gross proceeds from sales of available for sale securities | $ | 21,167 |
| | $ | 35,069 |
| | $ | 39,493 |
| | $ | 45,928 |
| $ | 21,168 |
| | $ | 32,032 |
|
| | | | | | | | | | | |
| Gains (losses) realized on sales of available for sale securities | $ | 395 |
| | $ | 974 |
| | $ | 372 |
| | $ | 1,016 |
| $ | (5 | ) | | $ | (500 | ) |
Investment in Loans, at fair value
The following tables present the Company’s investments in loans measured at fair value: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Fair value | | Unpaid principal balance (UPB) | | Fair value exceeds / (below) UPB | | Fair value | | Unpaid principal balance (UPB) | | Fair value exceeds / (below) UPB |
| Loans, at fair value | | | | | | | | | | | |
| Corporate loans | $ | 162,512 |
| | $ | 162,582 |
| | $ | (70 | ) | | $ | 175,558 |
| | $ | 176,808 |
| | $ | (1,250 | ) |
| Mortgage loans held for sale | 114,461 |
| | 110,803 |
| | 3,658 |
| | 121,439 |
| | 118,162 |
| | 3,277 |
|
| Non-performing loans | 44,980 |
| | 62,237 |
| | (17,257 | ) | | 74,923 |
| | 113,892 |
| | (38,969 | ) |
| Other loans receivable | 1,169 |
| | 1,169 |
| | — |
| | 1,169 |
| | 1,169 |
| | — |
|
| Total loans, at fair value | $ | 323,122 |
| | $ | 336,791 |
| | $ | (13,669 | ) | | $ | 373,089 |
| | $ | 410,031 |
| | $ | (36,942 | ) |
The following table presentsvalue and the Company’s investments in loans, measured at fair value pledged as collateral:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
| Corporate loans | $ | 161,000 |
| | $ | 175,365 |
|
| Mortgage loans held for sale | 111,927 |
| | 117,734 |
|
| Non-performing loans | 39,537 |
| | 60,409 |
|
| Total fair value of loans pledged as collateral | $ | 312,464 |
| | $ | 353,508 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Fair value | | Unpaid principal balance (UPB) | | Fair value exceeds / (below) UPB | | Pledged as Collateral | | Fair value | | Unpaid principal balance (UPB) | | Fair value exceeds / (below) UPB | | Pledged as Collateral |
| Specialty Insurance: | | | | | | | | | | | | | | | |
Corporate loans (1) | $ | 47,094 |
| | $ | 51,454 |
| | $ | (4,360 | ) | | $ | — |
| | $ | 130,910 |
| | $ | 136,475 |
| | $ | (5,565 | ) | | $ | 120,202 |
|
Non-performing loans (2) | 24,539 |
| | 30,545 |
| | (6,006 | ) | | — |
| | 27,556 |
| | 33,887 |
| | (6,331 | ) | | — |
|
| Tiptree Capital: | | | | | | | | | | | | | | | |
Mortgage loans held for sale (3) | 53,512 |
| | 51,239 |
| | 2,273 |
| | 53,028 |
| | 56,917 |
| | 54,679 |
| | 2,238 |
| | 56,441 |
|
| Total loans, at fair value | $ | 125,145 |
| | $ | 133,238 |
| | $ | (8,093 | ) | | $ | 53,028 |
| | $ | 215,383 |
| | $ | 225,041 |
| | $ | (9,658 | ) | | $ | 176,643 |
|
| |
(1) | The UPB of these loans approximates cost basis. |
| |
(2) | The cost basis of NPLs was approximately $19,033 and $21,555 at March 31, 2019 and December 31, 2018, respectively. |
| |
(3) | As of March 31, 2019 there was one mortgage loan held for sale with a fair value of $123 that was 90 days or more past due. As of December 31, 2018 there were no mortgage loans held for sale 90 days or more past due. |
Equity securities
Equity securities represents the carrying amount of the Company's basis in equity investments. Included within the equity securities balance are 16.6 million shares of Invesque for which the Company has elected to apply the fair value option. The following table contains information regarding the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Specialty Insurance | | Tiptree Capital | | Total | | Specialty Insurance | | Tiptree Capital | | Total |
| Invesque Inc. | $ | 20,015 |
| | $ | 95,615 |
| | $ | 115,630 |
| | $ | 19,584 |
| | $ | 93,554 |
| | $ | 113,138 |
|
| Other equity securities | 6,962 |
| | — |
| | 6,962 |
| | 9,841 |
| | — |
| | 9,841 |
|
| Total equity securities | $ | 26,977 |
| | $ | 95,615 |
| | $ | 122,592 |
| | $ | 29,425 |
| | $ | 93,554 |
| | $ | 122,979 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
As of September 30, 2017, there are no mortgage loans held for sale 90 days or more past due. The unpaid principal balance and fair value of mortgage loans held for sale that are 90 days or more past due were $142 and $66, respectively, as of December 31, 2016.
The following table presents the Company’s investments in loans, measured at amortized cost:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
| Loans at amortized cost, net | | | |
| Asset backed loans and other loans, net | $ | 152,168 |
| | $ | 115,033 |
|
| Less: Allowance for loan losses | 1,572 |
| | 1,195 |
|
| Total loans at amortized cost, net | $ | 150,596 |
| | $ | 113,838 |
|
| | | | |
| Net deferred loan origination fees included in asset backed loans | $ | 5,701 |
| | $ | 5,244 |
|
The following table presents additional information on the Company’s asset backed loans:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
| Pledged as collateral | $ | 157,169 |
| | $ | 119,558 |
|
| | | | |
| Loans receivable, net, attributable to a subsidiary in our specialty finance business | $ | 149,896 |
| | $ | 113,138 |
|
Our subsidiary structures asset-based loan facilities in the $1,000 to $25,000 range for small to mid-sized companies. Collateral for asset-backed loan receivables, as of September 30, 2017 and December 31, 2016, consisted primarily of inventory, equipment and accounts receivable. Management reviews collateral for these loans on at least a monthly basis or more frequently if a draw is requested and management has determined that no impairment existed as of September 30, 2017. As of September 30, 2017, there were no delinquencies in the portfolio and all loans were classified as performing.
Real Estate, netOther Investments
The following table contains information regarding the Company’s investment in real estateother investments as of the following periods:
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Land | | Buildings and equipment | | Accumulated depreciation | | Total |
| Managed properties | $ | 19,447 |
| | $ | 208,751 |
| | $ | (16,283 | ) | | $ | 211,915 |
|
| Triple net lease properties | 19,741 |
| | 135,857 |
| | (9,455 | ) | | 146,143 |
|
| Foreclosed residential real estate property | — |
| | 13,079 |
| | — |
| | 13,079 |
|
| Total | $ | 39,188 |
| | $ | 357,687 |
| | $ | (25,738 | ) | | $ | 371,137 |
|
| | | | | | | | |
| | As of December 31, 2016 |
| | Land | | Buildings and equipment | | Accumulated depreciation | | Total |
| Managed properties | $ | 16,347 |
| | $ | 189,463 |
| | $ | (11,212 | ) | | $ | 194,598 |
|
| Triple net lease properties | 13,778 |
| | 94,291 |
| | (6,610 | ) | | 101,459 |
|
| Foreclosed residential real estate property | — |
| | 13,366 |
| | — |
| | 13,366 |
|
| Total | $ | 30,125 |
| | $ | 297,120 |
| | $ | (17,822 | ) | | $ | 309,423 |
|
For the nine months ended September 30, 2017, the Company acquired ten senior living facilities accounted for as asset acquisitions, with $47,654 of real estate acquired, and $8,297 of identifiable intangible assets related to in-place leases which will be amortized over a period ranging from approximately 7 to 12 years. These ten properties are in addition to the two acquisitions disclosed in Note—(3) Acquisitions, which were accounted for as business combinations. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Specialty Insurance | | Tiptree Capital | | Total | | Specialty Insurance | | Tiptree Capital | | Total |
Vessels, net (1) | $ | — |
| | $ | 49,547 |
| | $ | 49,547 |
| | $ | — |
| | $ | 50,125 |
| | $ | 50,125 |
|
| Real estate | 9,863 |
| | — |
| | 9,863 |
| | 10,019 |
| | — |
| | 10,019 |
|
| Other | 8,888 |
| | 8,443 |
| | 17,331 |
| | 8,507 |
| | 6,351 |
| | 14,858 |
|
| Total other investments | $ | 18,751 |
| | $ | 57,990 |
| | $ | 76,741 |
| | $ | 18,526 |
| | $ | 56,476 |
| | $ | 75,002 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the depreciation expense related to the Company’s real estate investments for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Depreciation expense on real estate investments | $ | 2,873 |
| | $ | 1,974 |
| | $ | 7,916 |
| | $ | 5,581 |
|
Future Minimum Rental Revenue
The following table presents the future minimum rental revenue under the noncancelable terms of all operating leases related to our triple net lease properties, as of:
|
| | | |
| | September 30, 2017 |
| Remainder of 2017 | $ | 3,280 |
|
| 2018 | 13,248 |
|
| 2019 | 13,519 |
|
| 2020 | 13,797 |
|
| 2021 | 15,161 |
|
| Thereafter | 60,999 |
|
| Total | $ | 120,004 |
|
The following table presents rental revenues from residential leases at the managed properties for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Rental revenues from residential leases | $ | 14,274 |
| | $ | 12,685 |
| | $ | 42,005 |
| | $ | 35,231 |
|
| |
(1) | Net of accumulated depreciation of $1,490 and $898, respectively. |
Net Investment Income - Specialty Insurance
Net investment income represents income primarily from the following sources:
Interestinvestment income and dividendsexpense from investments related to available for sale securities, at fair value;
Interestinsurance operations as disclosed within net investment income related to loans, at fair value;
Dividend income from equity securities, trading, at fair value;
Rental and related revenue from real estate, net; and
Earnings from other investments.
on the condensed consolidated statements of operations. The following table presentstables present the components of net investment income related to our specialty insurance business recordedby source of income:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Interest: | | | |
| Available for sale securities, at fair value | $ | 2,127 |
| | $ | 1,219 |
|
| Loans, at fair value | 1,831 |
| | 2,472 |
|
| Other investments | 104 |
| | 342 |
|
| Dividends from equity securities | 574 |
| | 390 |
|
| Other | — |
| | 97 |
|
| Subtotal | 4,636 |
| | 4,520 |
|
| Less: investment expenses | 335 |
| | 315 |
|
| Net investment income | $ | 4,301 |
| | $ | 4,205 |
|
Other Investment Income - Tiptree Capital
Other investment income represents other income from other Tiptree non-insurance activities as disclosed within other revenue on the condensed consolidated statements of operations:operations, see Note (15) Other Revenue, Other Expenses and Other Income. The following tables present the components of other investment income by type:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Net investment income | 2017 | | 2016 | | 2017 | | 2016 |
| Available for sale securities, at fair value | $ | 823 |
| | $ | 653 |
| | $ | 2,423 |
| | $ | 2,323 |
|
| Loans, at fair value | 2,698 |
| | 1,971 |
| | 8,330 |
| | 4,981 |
|
| Equity securities, trading, at fair value | 459 |
| | 969 |
| | 1,912 |
| | 1,933 |
|
| Real estate, net | 156 |
| | — |
| | 482 |
| | — |
|
| Other investments | 73 |
| | 73 |
| | 277 |
| | 224 |
|
| Total investment income | 4,209 |
| | 3,666 |
| | 13,424 |
| | 9,461 |
|
| Less: investment expenses | 369 |
| | 359 |
| | 1,392 |
| | 1,052 |
|
| Net investment income | $ | 3,840 |
| | $ | 3,307 |
| | $ | 12,032 |
| | $ | 8,409 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Interest income: | | | |
| Loans, at fair value | $ | 1,360 |
| | $ | 873 |
|
| Other | 130 |
| | 254 |
|
| Dividends from equity securities | 2,533 |
| | 1,663 |
|
| Loan fee income: | | | |
| Loans, at fair value | 2,239 |
| | 2,318 |
|
| Charter revenue from vessels | 3,619 |
| | — |
|
| Other investment income | $ | 9,881 |
| | $ | 5,108 |
|
Net realized and unrealized gains (losses)
The following table presents the components of net realized and unrealized gains (losses) recorded on the condensed consolidated statements of operations:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Net realized and unrealized gains (losses) | 2017 | | 2016 | | 2017 | | 2016 |
| Net realized gains (losses) | $ | 18,817 |
| | $ | 19,948 |
| | $ | 48,150 |
| | $ | 48,423 |
|
| Net unrealized gains (losses) | (11,291 | ) | | 6,267 |
| | (12,967 | ) | | 17,531 |
|
| Net realized and unrealized gains (losses) | $ | 7,526 |
| | $ | 26,215 |
| | $ | 35,183 |
| | $ | 65,954 |
|
The following table presents the net gain on the sale of mortgage loans and the cumulative netoperations. Net unrealized gains (losses) on equityavailable for sale securities trading, at fair value recorded on the condensed consolidated statements of operations:are included within other comprehensive income, and as such, are not included in this table:
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net realized gain on sale of mortgage loans (1) | $ | 16,476 |
| | $ | 20,045 |
| | $ | 47,237 |
| | $ | 48,412 |
|
| | | | | | | | |
| Cumulative net unrealized gains (losses) on equity securities, trading, at fair value held at the reporting date | $ | (11,125 | ) | | $ | 1,365 |
| | $ | (21,183 | ) | | $ | 6,386 |
|
(1) Related to the Company’s specialty finance business. |
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Net realized gains (losses) | | | |
| Specialty Insurance: | | | |
| Reclass of unrealized gains (losses) on AFS from OCI | $ | (5 | ) | | $ | (527 | ) |
| Net gains (losses) on loans | (278 | ) | | 1,247 |
|
| Net gains (losses) on equity securities | 482 |
| | 2,574 |
|
| Other | — |
| | 1,845 |
|
| Tiptree Capital: | | | |
| Net gains (losses) on loans | 13,587 |
| | 15,796 |
|
| Total net realized gains (losses) | 13,786 |
| | 20,935 |
|
| | | | |
| Net unrealized gains (losses) | | | |
| Specialty Insurance: | | | |
| Net change in unrealized gains (losses) on loans | 224 |
| | (453 | ) |
| Net unrealized gains (losses) on equity securities held at period end | 1,760 |
| | (5,926 | ) |
| Reclass of unrealized (gains) losses from prior periods for equity securities sold | (403 | ) | | (2,167 | ) |
| Other | 334 |
| | — |
|
| Tiptree Capital: | | | |
| Net change in unrealized gains (losses) on loans | 23 |
| | (1,043 | ) |
| Net unrealized gains (losses) on equity securities held at period end | 2,061 |
| | (3,178 | ) |
| Other | 2,366 |
| | (784 | ) |
| Total net unrealized gains (losses) | 6,365 |
| | (13,551 | ) |
| Total net realized and unrealized gains (losses) | $ | 20,151 |
| | $ | 7,384 |
|
(6) Notes and Accounts Receivable, net
The following table summarizes the total notes and accounts receivable, net:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
Premium financing program (1) | $ | 15,403 |
| | $ | 20,615 |
|
Notes from affiliates of partner (2) | 3,862 |
| | 3,862 |
|
| Other | 45 |
| | 298 |
|
| Notes receivable, net | $ | 19,310 |
| | $ | 24,775 |
|
| Accounts and premiums receivable, net | 60,763 |
| | 45,041 |
|
| Retrospective commissions receivable | 65,156 |
| | 59,175 |
|
| Other receivables | 33,497 |
| | 28,509 |
|
| Total | $ | 178,726 |
| | $ | 157,500 |
|
(1) Related to the Company’s specialty insurance business.
(2) Related to the Company’s senior living business, which owns a 75% interest in a managed property. The remaining 25% interest is owned by our joint venture partner. |
| | | | | | | |
| | As of |
| | March 31, 2019 | | December 31, 2018 |
| Notes receivable, net - premium financing program | $ | 16,338 |
| | $ | 13,057 |
|
| Accounts and premiums receivable, net | 44,867 |
| | 50,880 |
|
| Retrospective commissions receivable | 90,339 |
| | 84,488 |
|
| Trust receivables | 59,420 |
| | 53,424 |
|
| Other receivables | 21,026 |
| | 21,256 |
|
| Total | $ | 231,990 |
| | $ | 223,105 |
|
Notes Receivable, net
The Company has established an allowance for uncollectible amounts against its notes receivable of $1,528$121 and $1,444$97 as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. As of September 30, 2017March 31, 2019 and December 31, 2016,2018, there were $1,848$170 and $2,188$368 in balances classified as 90 days plus past due, respectively. Bad debt expense totaled $69 and $54 for the three months ended March 31, 2019 and 2018, respectively.
Accounts and premiums receivable, net Retrospective commissions receivable and Other receivables
Accounts and premiums receivable, net, retrospective commissions receivable and other receivables are primarily trade receivables from the specialty insurance business that are carried at their approximate fair value. The Company has established a valuation allowance against its accounts and premiums receivable of $319$225 and $225$217 as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. Bad debt expense totaled $11 and $11 for the three months ended March 31, 2019 and 2018, respectively.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
(7) Reinsurance Receivables
The following table presents the effect of reinsurance on premiums written and earned by our specialty insurance business for the following periods:
|
| | | | | | | | | | | | | | | | | | |
| | Direct amount | | Ceded to other companies | | Assumed from other companies | | Net amount | | Percentage of amount - assumed to net |
| For the Three Months ended September 30, 2017 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 18,375 |
| | $ | 9,587 |
| | $ | 525 |
| | $ | 9,313 |
| | 5.6 | % |
| Accident and health insurance | 34,034 |
| | 23,077 |
| | 862 |
| | 11,819 |
| | 7.3 | % |
| Property and liability insurance | 149,414 |
| | 56,380 |
| | 4,844 |
| | 97,878 |
| | 4.9 | % |
| Total premiums written | 201,823 |
| | 89,044 |
| | 6,231 |
| | 119,010 |
| | 5.2 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 15,654 |
| | 7,764 |
| | 481 |
| | 8,371 |
| | 5.7 | % |
| Accident and health insurance | 28,347 |
| | 19,511 |
| | 814 |
| | 9,650 |
| | 8.4 | % |
| Property and liability insurance | 126,847 |
| | 52,201 |
| | 3,406 |
| | 78,052 |
| | 4.4 | % |
| Total premiums earned | $ | 170,848 |
| | $ | 79,476 |
| | $ | 4,701 |
| | $ | 96,073 |
| | 4.9 | % |
| | | | | | | | | | |
| For the Three Months ended September 30, 2016 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 18,246 |
| | $ | 9,668 |
| | $ | 674 |
| | $ | 9,252 |
| | 7.3 | % |
| Accident and health insurance | 31,553 |
| | 21,635 |
| | 865 |
| | 10,783 |
| | 8.0 | % |
| Property and liability insurance | 126,230 |
| | 94,095 |
| | 3,842 |
| | 35,977 |
| | 10.7 | % |
| Total premiums written | 176,029 |
| | 125,398 |
| | 5,381 |
| | 56,012 |
| | 9.6 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 15,861 |
| | 7,712 |
| | 642 |
| | 8,791 |
| | 7.3 | % |
| Accident and health insurance | 28,391 |
| | 20,093 |
| | 830 |
| | 9,128 |
| | 9.1 | % |
| Property and liability insurance | 126,902 |
| | 98,883 |
| | 1,671 |
| | 29,690 |
| | 5.6 | % |
| Total premiums earned | $ | 171,154 |
| | $ | 126,688 |
| | $ | 3,143 |
| | $ | 47,609 |
| | 6.6 | % |
| | | | | | | | | | |
| For the Nine Months ended September 30, 2017 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 46,275 |
| | $ | 23,264 |
| | $ | 1,458 |
| | $ | 24,469 |
| | 6.0 | % |
| Accident and health insurance | 87,242 |
| | 57,911 |
| | 2,355 |
| | 31,686 |
| | 7.4 | % |
| Property and liability insurance | 406,976 |
| | 176,477 |
| | 15,670 |
| | 246,169 |
| | 6.4 | % |
| Total premiums written | 540,493 |
| | 257,652 |
| | 19,483 |
| | 302,324 |
| | 6.4 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 45,995 |
| | 22,685 |
| | 1,473 |
| | 24,783 |
| | 5.9 | % |
| Accident and health insurance | 82,242 |
| | 56,736 |
| | 2,373 |
| | 27,879 |
| | 8.5 | % |
| Property and liability insurance | 357,448 |
| | 148,402 |
| | 11,073 |
| | 220,119 |
| | 5.0 | % |
| Total premiums earned | $ | 485,685 |
| | $ | 227,823 |
| | $ | 14,919 |
| | $ | 272,781 |
| | 5.5 | % |
| | | | | | | | | | |
| For the Nine Months ended September 30, 2016 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 49,018 |
| | $ | 25,267 |
| | $ | 1,971 |
| | $ | 25,722 |
| | 7.7 | % |
| Accident and health insurance | 87,446 |
| | 59,657 |
| | 2,507 |
| | 30,296 |
| | 8.3 | % |
| Property and liability insurance | 389,157 |
| | 302,945 |
| | 10,146 |
| | 96,358 |
| | 10.5 | % |
| Total premiums written | 525,621 |
| | 387,869 |
| | 14,624 |
| | 152,376 |
| | 9.6 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 46,112 |
| | 22,139 |
| | 2,003 |
| | 25,976 |
| | 7.7 | % |
| Accident and health insurance | 84,994 |
| | 60,134 |
| | 2,465 |
| | 27,325 |
| | 9.0 | % |
| Property and liability insurance | 377,589 |
| | 296,523 |
| | 4,149 |
| | 85,215 |
| | 4.9 | % |
| Total premiums earned | $ | 508,695 |
| | $ | 378,796 |
| | $ | 8,617 |
| | $ | 138,516 |
| | 6.2 | % |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | |
| | Direct amount | | Ceded to other companies | | Assumed from other companies | | Net amount | | Percentage of amount - assumed to net |
| For the Three Months Ended March 31, 2019 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 14,911 |
| | $ | 7,703 |
| | $ | 391 |
| | $ | 7,599 |
| | 5.1 | % |
| Accident and health insurance | 27,799 |
| | 17,975 |
| | 747 |
| | 10,571 |
| | 7.1 | % |
| Property and liability insurance | 137,603 |
| | 51,819 |
| | 17,003 |
| | 102,787 |
| | 16.5 | % |
| Total premiums written | 180,313 |
| | 77,497 |
| | 18,141 |
| | 120,957 |
| | 15.0 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 16,449 |
| | 8,526 |
| | 416 |
| | 8,339 |
| | 5.0 | % |
| Accident and health insurance | 30,613 |
| | 20,623 |
| | 794 |
| | 10,784 |
| | 7.4 | % |
| Property and liability insurance | 144,994 |
| | 60,810 |
| | 15,666 |
| | 99,850 |
| | 15.7 | % |
| Total premiums earned | $ | 192,056 |
| | $ | 89,959 |
| | $ | 16,876 |
| | $ | 118,973 |
| | 14.2 | % |
| | | | | | | | | | |
| For the Three Months Ended March 31, 2018 | | | | | | | | | |
| Premiums written: | | | | | | | | | |
| Life insurance | $ | 13,762 |
| | $ | 7,176 |
| | $ | 427 |
| | $ | 7,013 |
| | 6.1 | % |
| Accident and health insurance | 26,626 |
| | 17,433 |
| | 769 |
| | 9,962 |
| | 7.7 | % |
| Property and liability insurance | 141,742 |
| | 66,827 |
| | 17,328 |
| | 92,243 |
| | 18.8 | % |
| Total premiums written | 182,130 |
| | 91,436 |
| | 18,524 |
| | 109,218 |
| | 17.0 | % |
| | | | | | | | | | |
| Premiums earned: | | | | | | | | | |
| Life insurance | 15,614 |
| | 7,822 |
| | 453 |
| | 8,245 |
| | 5.5 | % |
| Accident and health insurance | 28,902 |
| | 19,617 |
| | 818 |
| | 10,103 |
| | 8.1 | % |
| Property and liability insurance | 129,609 |
| | 53,931 |
| | 7,619 |
| | 83,297 |
| | 9.1 | % |
| Total premiums earned | $ | 174,125 |
| | $ | 81,370 |
| | $ | 8,890 |
| | $ | 101,645 |
| | 8.7 | % |
The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses ("LAE")(LAE) incurred:
| | | | Direct amount | | Ceded to other companies | | Assumed from other companies | | Net amount | | Percentage of amount - assumed to net | Direct amount | | Ceded to other companies | | Assumed from other companies | | Net amount | | Percentage of amount - assumed to net |
| For the Three Months ended September 30, 2017 | | | | | | | | | | |
| For the Three Months Ended March 31, 2019 | | | | | | | | | | |
| Losses Incurred | | | | | | | | | | | | | | | | | | |
| Life insurance | $ | 8,003 |
| | $ | 4,573 |
| | $ | 178 |
| | $ | 3,608 |
| | 4.9 | % | $ | 9,958 |
| | $ | 5,904 |
| | $ | (8 | ) | | $ | 4,046 |
| | (0.2 | )% |
| Accident and health insurance | 4,456 |
| | 3,252 |
| | 190 |
| | 1,394 |
| | 13.6 | % | 3,330 |
| | 2,485 |
| | 221 |
| | 1,066 |
| | 20.7 | % |
| Property and liability insurance | 48,783 |
| | 26,571 |
| | 544 |
| | 22,756 |
| | 2.4 | % | 55,918 |
| | 35,578 |
| | 10,341 |
| | 30,681 |
| | 33.7 | % |
| Total losses incurred | 61,242 |
| | 34,396 |
| | 912 |
| | 27,758 |
| | 3.3 | % | 69,206 |
| | 43,967 |
| | 10,554 |
| | 35,793 |
| | 29.5 | % |
| | | | | | | | | | | | | | | | | | | |
| | Member benefit claims (1) | | 3,812 |
| | | Member benefit claims (1) | | 5,048 |
| | |
| | Total policy and contract benefits | | $ | 31,570 |
| | | Total policy and contract benefits | | $ | 40,841 |
| | |
| | | | | | | | | | | | | | | | | | | |
| For the Three Months ended September 30, 2016 | | | | | | | | | | |
| For the Three Months Ended March 31, 2018 | | | | | | | | | | |
| Losses Incurred | | | | | | | | | | | | | | | | | | |
| Life insurance | $ | 8,550 |
| | $ | 4,647 |
| | $ | 378 |
| | $ | 4,281 |
| | 8.8 | % | $ | 10,353 |
| | $ | 5,672 |
| | $ | 162 |
| | $ | 4,843 |
| | 3.3 | % |
| Accident and health insurance | 5,697 |
| | 4,863 |
| | 205 |
| | 1,039 |
| | 19.7 | % | 4,577 |
| | 3,544 |
| | 246 |
| | 1,279 |
| | 19.2 | % |
| Property and liability insurance | 61,431 |
| | 47,469 |
| | 632 |
| | 14,594 |
| | 4.3 | % | 53,557 |
| | 32,930 |
| | 5,963 |
| | 26,590 |
| | 22.4 | % |
| Total losses incurred | 75,678 |
| | 56,979 |
| | 1,215 |
| | 19,914 |
| | 6.1 | % | 68,487 |
| | 42,146 |
| | 6,371 |
| | 32,712 |
| | 19.5 | % |
| | | | | | | | | | | | | | | | | | | |
| | Member benefit claims (1) | | 5,967 |
| | | Member benefit claims (1) | | 3,914 |
| | |
| | Total policy and contract benefits | | $ | 25,881 |
| | | Total policy and contract benefits | | $ | 36,626 |
| | |
| | | | | | | | | | | |
| For the Nine Months ended September 30, 2017 | | | | | | | | | | |
| Losses Incurred | | | | | | | | | | |
| Life insurance | $ | 24,527 |
| | $ | 13,558 |
| | $ | 748 |
| | $ | 11,717 |
| | 6.4 | % | |
| Accident and health insurance | 13,200 |
| | 10,815 |
| | 662 |
| | 3,047 |
| | 21.7 | % | |
| Property and liability insurance | 144,535 |
| | 78,454 |
| | 1,708 |
| | 67,789 |
| | 2.5 | % | |
| Total losses incurred | 182,262 |
| | 102,827 |
| | 3,118 |
| | 82,553 |
| | 3.8 | % | |
| | | | | | | | | | | |
| | Member benefit claims (1) | | 11,811 |
| | | |
| | Total policy and contract benefits | | $ | 94,364 |
| | | |
| | | | | | | | | | | |
| For the Nine Months ended September 30, 2016 | | | | | | | | | | |
| Losses Incurred | | | | | | | | | | |
| Life insurance | $ | 24,962 |
| | $ | 12,957 |
| | $ | 1,061 |
| | $ | 13,066 |
| | 8.1 | % | |
| Accident and health insurance | 14,598 |
| | 12,203 |
| | 700 |
| | 3,095 |
| | 22.6 | % | |
| Property and liability insurance | 166,586 |
| | 128,542 |
| | 897 |
| | 38,941 |
| | 2.3 | % | |
| Total losses incurred | 206,146 |
| | 153,702 |
| | 2,658 |
| | 55,102 |
| | 4.8 | % | |
| | | | | | | | | | | |
| | Member benefit claims (1) | | 17,334 |
| | | |
| | Total policy and contract benefits | | $ | 72,436 |
| | | |
(1) - Member benefit claims are not covered by reinsurance.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following table presents the components of the reinsurance receivables:
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Prepaid reinsurance premiums: | | | | | | |
Life (1) | $ | 64,223 |
| | $ | 64,621 |
| $ | 68,317 |
| | $ | 69,436 |
|
Accident and health (1) | 55,175 |
| | 53,999 |
| 58,957 |
| | 61,606 |
|
Property (2) | 122,883 |
| | 94,091 |
| |
| Property | | 169,507 |
| | 178,498 |
|
| Total | 242,281 |
| | 212,711 |
| 296,781 |
| | 309,540 |
|
| | | | | | | |
| Ceded claim reserves: | | | | | | |
| Life | 3,015 |
| | 2,929 |
| 3,374 |
| | 3,424 |
|
| Accident and health | 9,819 |
| | 10,435 |
| 9,842 |
| | 11,039 |
|
| Property | 57,138 |
| | 49,917 |
| 75,678 |
| | 75,748 |
|
| Total ceded claim reserves recoverable | 69,972 |
| | 63,281 |
| 88,894 |
| | 90,211 |
|
| Other reinsurance settlements recoverable | 20,770 |
| | 20,242 |
| 35,321 |
| | 20,600 |
|
| Reinsurance receivables | $ | 333,023 |
| | $ | 296,234 |
| $ | 420,996 |
| | $ | 420,351 |
|
| |
(1) | Including policyholder account balances ceded. |
| |
(2) | The December 31, 2016 amount includes a non-cash transaction, as part of a reinsurance contract cancellation that resulted in a reduction of $92,854 in reinsurance receivable, offset by an increase of $88,857 in assets and a decrease of $3,997 in liabilities. |
The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from unrelatednon-affiliated reinsurers:
|
| | | |
| | As of |
| | September 30, 2017 |
| Total of the three largest receivable balances from unrelated reinsurers | $ | 78,783 |
|
|
| | | |
| | As of March 31, 2019 |
| Total of the three largest receivable balances from non-affiliated reinsurers | $ | 100,125 |
|
At September 30, 2017,As of March 31, 2019, the three unrelatednon-affiliated reinsurers from whom our specialty insurance business has the largest receivable balances were: London Life Reinsurance CorporationMFI Insurance Company, LTD (A. M. Best Rating: ANot rated); MFI, Freedom Insurance Company, LTD (A. M. Best Rating: Not rated) and London Life International Reinsurance CorporationFrandisco Property and Casualty Insurance Company (A. M. Best Rating: Not rated). The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit. At September 30, 2017,As of March 31, 2019, the Company does not believe there is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(8) Goodwill and Intangible Assets, net
The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by segment:operating segment and/or reporting unit, as appropriate:
| | | | As of September 30, 2017 | | As of December 31, 2016 | As of March 31, 2019 | | As of December 31, 2018 |
| | Specialty insurance | | Senior living | | Specialty finance | | Total | | Specialty insurance | | Senior living | | Specialty finance | | Total | Specialty Insurance | | Other (1) | | Total | | Specialty Insurance | | Other (1) | | Total |
| Customer relationships | $ | 50,500 |
| | $ | — |
| | $ | — |
| | $ | 50,500 |
| | $ | 50,500 |
| | $ | — |
| | $ | — |
| | $ | 50,500 |
| $ | 50,500 |
| | $ | — |
| | $ | 50,500 |
| | $ | 50,500 |
| | $ | — |
| | $ | 50,500 |
|
| Accumulated amortization | (10,215 | ) | | — |
| | — |
| | (10,215 | ) | | (4,614 | ) | | — |
| | — |
| | (4,614 | ) | (20,264 | ) | | — |
| | (20,264 | ) | | (18,913 | ) | | — |
| | (18,913 | ) |
| Trade names | 6,500 |
| | — |
| | 800 |
| | 7,300 |
| | 6,500 |
| | — |
| | 800 |
| | 7,300 |
| 6,500 |
| | 800 |
| | 7,300 |
| | 6,500 |
| | 800 |
| | 7,300 |
|
| Accumulated amortization | (2,018 | ) | | — |
| | (180 | ) | | (2,198 | ) | | (1,484 | ) | | — |
| | (120 | ) | | (1,604 | ) | (2,864 | ) | | (300 | ) | | (3,164 | ) | | (2,727 | ) | | (280 | ) | | (3,007 | ) |
| Software licensing | 8,500 |
| | — |
| | 640 |
| | 9,140 |
| | 8,500 |
| | — |
| | 640 |
| | 9,140 |
| 8,500 |
| | 640 |
| | 9,140 |
| | 8,500 |
| | 640 |
| | 9,140 |
|
| Accumulated amortization | (4,817 | ) | | — |
| | (206 | ) | | (5,023 | ) | | (3,542 | ) | | — |
| | (137 | ) | | (3,679 | ) | (7,367 | ) | | (343 | ) | | (7,710 | ) | | (6,942 | ) | | (320 | ) | | (7,262 | ) |
| Insurance policies and contracts acquired | 36,500 |
| | — |
| | — |
| | 36,500 |
| | 36,500 |
| | — |
| | — |
| | 36,500 |
| 36,500 |
| | — |
| | 36,500 |
| | 36,500 |
| | — |
| | 36,500 |
|
| Accumulated amortization | (35,234 | ) | | — |
| | — |
| | (35,234 | ) | | (34,184 | ) | | — |
| | — |
| | (34,184 | ) | (35,965 | ) | | — |
| | (35,965 | ) | | (35,898 | ) | | — |
| | (35,898 | ) |
Insurance licensing agreements(1)(2) | 13,749 |
| | — |
| | — |
| | 13,749 |
| | 13,000 |
| | — |
| | — |
| | 13,000 |
| 13,761 |
| | — |
| | 13,761 |
| | 13,761 |
| | — |
| | 13,761 |
|
| Leases in place | 1,317 |
| | 44,380 |
| | — |
| | 45,697 |
| | 1,317 |
| | 32,233 |
| | — |
| | 33,550 |
| |
| Accumulated amortization | (101 | ) | | (26,062 | ) | | — |
| | (26,163 | ) | | (18 | ) | | (20,413 | ) | | — |
| | (20,431 | ) | |
| Intangible assets, net | 64,681 |
| | 18,318 |
| | 1,054 |
| | 84,053 |
| | 72,475 |
| | 11,820 |
| | 1,183 |
| | 85,478 |
| 49,301 |
| | 797 |
| | 50,098 |
| | 51,281 |
| | 840 |
| | 52,121 |
|
| Goodwill | 89,854 |
| | — |
| | 2,913 |
| | 92,767 |
| | 89,854 |
| | — |
| | 2,913 |
| | 92,767 |
| 89,854 |
| | 1,708 |
| | 91,562 |
| | 89,854 |
| | 1,708 |
| | 91,562 |
|
| Total goodwill and intangible assets, net | $ | 154,535 |
| | $ | 18,318 |
| | $ | 3,967 |
| | $ | 176,820 |
| | $ | 162,329 |
| | $ | 11,820 |
| | $ | 4,096 |
| | $ | 178,245 |
| $ | 139,155 |
| | $ | 2,505 |
| | $ | 141,660 |
| | $ | 141,135 |
| | $ | 2,548 |
| | $ | 143,683 |
|
| |
(1) | Other is primarily comprised of mortgage operations. |
| |
(2) | Represents intangible assets with an indefinite useful life. Impairment tests are performed at least annually on these assets.assets. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Goodwill
The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to discontinued operations or impairment related charges:
|
| | | | | | | | | | | |
| | Specialty insurance | | Specialty finance | | Total |
| Balance at December 31, 2016 | $ | 89,854 |
| | $ | 2,913 |
| | $ | 92,767 |
|
| Balance at September 30, 2017 | $ | 89,854 |
| | $ | 2,913 |
| | $ | 92,767 |
|
|
| | | | | | | | | | | |
| | Specialty Insurance | | Other | | Total |
| Balance at December 31, 2018 | $ | 89,854 |
| | $ | 1,708 |
| | $ | 91,562 |
|
| Balance at March 31, 2019 | $ | 89,854 |
| | $ | 1,708 |
| | $ | 91,562 |
|
| | | | | | |
| Accumulated impairments | $ | — |
| | $ | 699 |
| | $ | 699 |
|
The Company conducts annual impairment tests of its goodwill as of October 1. 1. For the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, no impairment was recorded on the Company’s goodwill or intangibles.
Intangible Assets, net
The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation adjustments made for acquisitions, as well as any reduction attributable to discontinued operations or impairment-related charges:
|
| | | | | | | | | | | | | | | |
| | Specialty insurance | | Senior living | | Specialty finance | | Total |
| Balance at December 31, 2016 | $ | 72,475 |
| | $ | 11,820 |
| | $ | 1,183 |
| | $ | 85,478 |
|
| Intangible assets acquired in 2017 | 749 |
| | 12,147 |
| | — |
| | 12,896 |
|
| Less: amortization expense | (8,543 | ) | | (5,649 | ) | | (129 | ) | | (14,321 | ) |
| Balance at September 30, 2017 | $ | 64,681 |
| | $ | 18,318 |
| | $ | 1,054 |
| | $ | 84,053 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
During the nine months ended September 30, 2017 a subsidiary in our specialty insurance business acquired 100% of the outstanding stock of an insurance company, licensed in several states but having no operations and no net insurance exposures. The purpose of this transaction was to acquire additional licenses to expand the Company’s direct writing capabilities to New York and Wisconsin. The transaction was accounted for as an asset acquisition, resulting in $749 recorded as an indefinite life intangible asset for the cost attributed to the insurance licenses. |
| | | | | | | | | | | |
| | Specialty Insurance | | Other | | Total |
| Balance at December 31, 2018 | $ | 51,281 |
| | $ | 840 |
| | $ | 52,121 |
|
| Less: amortization expense | (1,980 | ) | | (43 | ) | | (2,023 | ) |
| Balance at March 31, 2019 | $ | 49,301 |
| | $ | 797 |
| | $ | 50,098 |
|
The following table presents the amortization expense on finite-lived intangible assets for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Amortization expense on intangible assets | $ | 4,359 |
| | $ | 3,702 |
| | $ | 14,321 |
| | $ | 14,246 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Amortization expense on intangible assets | $ | 2,023 |
| | $ | 2,475 |
|
The following table presents the amortization expense on finite-lived intangible assets for the next five years by segment:operating segment and/or reporting unit, as appropriate:
|
| | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Specialty insurance (VOBA) | | Specialty insurance (other) | | Senior living | | Specialty finance | | Total |
| Remainder of 2017 | $ | 200 |
| | $ | 2,482 |
| | $ | 1,730 |
| | $ | 42 |
| | $ | 4,454 |
|
| 2018 | 465 |
| | 9,187 |
| | 3,086 |
| | 171 |
| | 12,909 |
|
| 2019 | 217 |
| | 7,619 |
| | 958 |
| | 171 |
| | 8,965 |
|
| 2020 | 123 |
| | 5,137 |
| | 958 |
| | 171 |
| | 6,389 |
|
| 2021 | 82 |
| | 4,361 |
| | 958 |
| | 171 |
| | 5,572 |
|
| 2022 and thereafter | 179 |
| | 20,880 |
| | 10,628 |
| | 328 |
| | 32,015 |
|
| Total | $ | 1,266 |
| | $ | 49,666 |
| | $ | 18,318 |
| | $ | 1,054 |
| | $ | 70,304 |
|
|
| | | | | | | | | | | |
| | As of March 31, 2019 |
| | Specialty Insurance | | Other | | Total |
| Remainder of 2019 | $ | 5,746 |
| | $ | 128 |
| | $ | 5,874 |
|
| 2020 | 5,150 |
| | 171 |
| | 5,321 |
|
| 2021 | 4,333 |
| | 171 |
| | 4,504 |
|
| 2022 | 3,649 |
| | 126 |
| | 3,775 |
|
| 2023 | 3,212 |
| | 80 |
| | 3,292 |
|
| 2024 and thereafter | 13,450 |
| | 121 |
| | 13,571 |
|
| Total | $ | 35,540 |
| | $ | 797 |
| | $ | 36,337 |
|
(9) Derivative Financial Instruments and Hedging
The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk and interest rate risk. In addition, the Company is also subject to additional counterparty risk should itsit’s counterparties fail to meet the contract terms. The derivative financial instruments are located within derivative assets at fair value and are reported in other investments. Derivative liabilities are reported within other liabilities and accrued expenses.
Derivatives, at fair value
Credit Derivatives
Credit derivatives are generally defined as over‑the‑counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity.
Credit Default Swap Indices (CDX) are credit derivatives that reference multiple names through underlying baskets or portfolios of single name credit default swaps. The Company enters into these contracts as both a buyer of protection and seller of protection to manage the credit risk exposure of its investment portfolio. At inception of the investment into theCDX position, the Company was required to deposit cash collateral for these positions equal to an initial 2.25% of the notional amount of the sold protection side subject to increase based on additional maintenance margin as a result of decreases in value. As of September 30, 2017, the required collateral balance was $6,668 posted by the Company to cover its liabilities as a seller of protection. As of September 30, 2017, there is a cash collateral balance of $1,632 held by the Company as collateral for the payments due to the Company as buyer of protection, which is netted against the overall investment position.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
Derivatives, at fair value
Interest Rate Lock Commitments
The Company enters into interest rate lock commitments (IRLCs) with customers in connection with its mortgage banking activities to fund residential mortgage loans with certain terms at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value typically resulting in recognition of a gain when the Company enters into IRLCs. In estimating the fair value of an IRLC, the Company assigns a probability that the loan commitment will be exercised and the loan will be funded (“pull through”). The fair value of the commitments is derived from the fair value of related mortgage loans, net of estimated costs to complete. Outstanding IRLCs expose the Company to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To manage this risk, the Company utilizes forward delivery contracts and TBA mortgage backed securities to economically hedge the risk of potential changes in the value of the loans that would result from the commitments.
Forward Delivery Contracts and TBA Mortgage Backed Securities
The Company enters into forward delivery contracts with loan aggregators and other investors as one of the tools to manage the interest rate risk associated with IRLCs and loans held for sale.
TBA Mortgage Backed Securities
The In addition, the Company enters into to be announced (TBA) mortgage backed securities which facilitate hedging and funding by allowing the Company to prearrange prices for mortgages that are in the process of originating. The Company utilizes these hedging instruments for Agency (Fannie Mae and Freddie Mac) and FHA/VA (Ginnie Mae) eligible IRLCs and typically commit them to investors at prices higher than otherwise available.IRLCs.
Interest Rate Swaps
The Company is exposed to interest rate risk when there is an unfavorable change in the value of investments as a result of adverse movements in the market interest rates. The Company enters into interest rate swaps (IRS) to protect against such adverse movements in interest rates. The Company is required to post collateral for the benefit of the counterparty. This is included in other assets in the condensed consolidated balance sheets.
The Company uses interest rate swaps to hedge the variability of floating rate borrowings. Cash flow hedge accounting was applied to the floating rate borrowings in its specialty insurance business, and during the second quarter of 2016, the Company elected to apply cash flow hedge accounting to such transactions in its senior living business.
The following table summarizes the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Notional
values | | Asset
derivatives | | Liability
derivatives | | Notional
values | | Asset
derivatives | | Liability
derivatives |
| Credit risk: | | | | | | | | | | | |
| Credit derivatives sold protection | $ | 295,973 |
| | $ | 18,409 |
| | $ | — |
| | $ | 297,612 |
| | $ | 28,731 |
| | $ | — |
|
| Credit derivatives bought protection | 294,767 |
| | — |
| | 3,742 |
| | 298,173 |
| | — |
| | 14,501 |
|
| Sub-total | 590,740 |
| | 18,409 |
| | 3,742 |
| | 595,785 |
| | 28,731 |
| | 14,501 |
|
| | | | | | | | | | | | |
| Foreign currency risk: | | | | | | | | | | | |
| Foreign currency forward contracts | — |
| | — |
| | — |
| | 965 |
| | — |
| | 3 |
|
| | | | | | | | | | | | |
| Interest rate risk: | | | | | | | | | | | |
| Interest rate lock commitments | 276,776 |
| | 6,537 |
| | — |
| | 203,815 |
| | 4,872 |
| | — |
|
| Forward delivery contracts | 61,094 |
| | 49 |
| | — |
| | 66,731 |
| | — |
| | 84 |
|
| TBA mortgage backed securities | 253,750 |
| | 284 |
| | 283 |
| | 249,750 |
| | 1,678 |
| | 269 |
|
| Interest rate swaps | 133,143 |
| | 1,284 |
| | 426 |
| | 134,343 |
| | 1,388 |
| | 1,042 |
|
| Sub-total | 724,763 |
|
| 8,154 |
|
| 709 |
| | 654,639 |
| | 7,938 |
|
| 1,395 |
|
| Total | $ | 1,315,503 |
|
| $ | 26,563 |
|
| $ | 4,451 |
| | $ | 1,251,389 |
| | $ | 36,669 |
|
| $ | 15,899 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The Company nets the credit derivative assets and liabilities as these credit derivatives are subject to legally enforceable netting arrangements with the same party. The following table presents derivative instruments that are subject to offset by a master netting agreement:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
| Derivatives subject to netting arrangements: | | | |
| Credit default swap indices sold protection | $ | 18,409 |
| | $ | 28,731 |
|
| Credit default swap indices bought protection | (3,742 | ) | | (14,501 | ) |
| Gross assets recognized | 14,667 |
| | 14,230 |
|
| Cash collateral | (1,632 | ) | | (1,632 | ) |
| Net assets recognized (included in other investments) | $ | 13,035 |
| | $ | 12,598 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | | As of December 31, 2018 |
| | Notional
values | | Asset
derivatives | | Liability
derivatives | | Notional
values | | Asset
derivatives | | Liability
derivatives |
| Interest rate risk: | | | | | | | | | | | |
| Interest rate lock commitments | $ | 184,074 |
| | $ | 5,494 |
| | $ | — |
| | $ | 122,477 |
| | $ | 3,460 |
| | $ | — |
|
| Forward delivery contracts | 47,402 |
| | — |
| | 55 |
| | 41,383 |
| | 5 |
| | 52 |
|
| TBA mortgage backed securities | 163,000 |
| | 138 |
| | 1,086 |
| | 129,000 |
| | 39 |
| | 824 |
|
| Total | $ | 394,476 |
|
| $ | 5,632 |
|
| $ | 1,141 |
| | $ | 292,860 |
| | $ | 3,504 |
|
| $ | 876 |
|
Derivatives Designated as Cash Flow Hedging Instruments
A subsidiary in our specialty insurance business had an IRS with a counterparty, pursuant to which the subsidiary swapped the floating rate portion of its outstanding preferred trust securities to a fixed rate. This IRS was designated as a cash flow hedge and expired in June 2017.
Subsidiaries in our senior living business have IRSs with the same counterparty as the respective lenders, pursuant to which our subsidiary swapped the floating rate portion of its outstanding debt to a fixed rate. These IRSs are designated as cash flow hedges and expire between November 30, 2017 and August 1, 2023.
The following table presents the fair value and the related outstanding notional amounts of the Company's cash flow hedging derivative instruments and indicates where the Company records each amount in its condensed consolidated balance sheets:
|
| | | | | | | | | |
| | | | As of |
| | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
| Derivatives designated as cash flow hedging instruments: | | | | | |
| Notional value | | | $ | 133,143 |
| | $ | 134,343 |
|
| Fair value of interest rate swaps | Other investments | | $ | 1,284 |
| | $ | 1,388 |
|
| Fair value of interest rate swaps | Other liabilities and accrued expenses | | $ | 426 |
| | $ | 1,042 |
|
| Unrealized gain (loss), net of tax, on the fair value of interest rate swaps | AOCI | | $ | 1,606 |
| | $ | 1,759 |
|
| | | | | | |
| Range of variable rates on interest rate swaps | | | 1.23% to 1.24% | | 0.67% to 0.96% |
| | | |
| | |
| Range of fixed rates on interest rate swaps | | | 1.31% to 4.99% | | 1.31% to 4.99% |
The following table presents the pretax impact of the cash flow hedging derivative instruments on the condensed consolidated financial statements for the following periods:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Gains (losses) recognized in AOCI on the derivative-effective portion | $ | (33 | ) | | $ | 156 |
| | $ | (411 | ) | | $ | (515 | ) | $ | — |
| | $ | 1,111 |
|
| | | | | | | | | | | |
| (Gains) losses reclassified from AOCI into income-effective portion | $ | (25 | ) | | $ | 172 |
| | $ | 212 |
| | $ | (56 | ) | $ | — |
| | $ | (3,845 | ) |
| | | | | | | | | |
| Gains (losses) recognized in income on the derivative-ineffective portion | $ | — |
| | $ | 48 |
| | $ | (2 | ) | | $ | (3 | ) | |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following table presents the estimated amount to be reclassified to earnings from AOCI during the next 12 months. These net (gains) losses are reclassified into earnings through interest expense.
|
| | | |
| | As of |
| | September 30, 2017 |
| Estimated (gains) losses to be reclassified to earnings from AOCI during the next 12 months | $ | (199 | ) |
(10) Assets and Liabilities of Consolidated CLOs
The CLOs are considered variable interest entities (VIE) and the Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.
On January 18, 2017, the Company sold its ownership in the subordinated notes of a CLO. As a result of the sale, the Company determined that it no longer had the controlling interest in such entity. The Company, therefore, deconsolidated its ownership in the subordinated notes of the CLO and is no longer reporting the assets and liabilities of the CLO in its condensed consolidated balance sheet as of September 30, 2017, or the revenue and expenses of the CLO in its condensed consolidated statement of operations for the three and nine months ended September 30, 2017.
On August 10, 2017, the Company’s ownership in the subordinated notes of a CLO was redeemed for cash as part of the complete liquidation of the CLO. The operations of the CLO were consolidated in the Company’s condensed consolidated financial statements through the redemption date.
The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s condensed consolidated balance sheets as of the dates indicated:
|
| | | | | | | |
| | As of |
| | September 30, 2017 | | December 31, 2016 |
| Assets: | | | |
| Cash and cash equivalents | $ | 20,586 |
| | $ | 45,589 |
|
Loans, at fair value (1) | 343,382 |
| | 928,240 |
|
| Other assets | 8,806 |
| | 15,666 |
|
| Total assets of consolidated CLOs | $ | 372,774 |
| | $ | 989,495 |
|
| Liabilities: | | | |
| Debt | $ | 326,716 |
| | $ | 912,034 |
|
| Other liabilities and accrued expenses | 27,621 |
| | 19,935 |
|
| Total liabilities of consolidated CLOs | $ | 354,337 |
| | $ | 931,969 |
|
| | | | |
| Net | $ | 18,437 |
| | $ | 57,526 |
|
| |
(1) | The unpaid principal balance for these loans is $352,958 and $952,225 and the difference between their fair value and UPB is $9,576 and $23,985 at September 30, 2017 and December 31, 2016, respectively. |
The Company’s beneficial interests and maximum exposure to loss related to the consolidated CLOs are limited to (i) ownership in the subordinated notes and related participations in management fees of the CLOs and (ii) accrued management fees. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative results in the net amount of the CLOs shown above to be equivalent to the beneficial interests retained by the Company as illustrated in the below table:
|
| | | | | | | |
| Beneficial interests: | As of |
| | September 30, 2017 | | December 31, 2016 |
| Subordinated notes and related participations in management fees | $ | 18,128 |
| | $ | 56,820 |
|
| Accrued management fees | 309 |
| | 706 |
|
| Total beneficial interests | $ | 18,437 |
| | $ | 57,526 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table represents revenue and expenses of the consolidated CLOs included in the Company’s condensed consolidated statements of operations for the periods indicated:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Income: | | | | | | | |
| Net realized and unrealized gains (losses) | $ | 1,889 |
| | $ | (1,422 | ) | | $ | 3,457 |
| | $ | (2,913 | ) |
| Interest income | 5,327 |
| | 13,978 |
| | 20,567 |
| | 37,626 |
|
| Total revenue | 7,216 |
| | 12,556 |
| | 24,024 |
| | 34,713 |
|
| Expenses: | | | | | | | |
| Interest expense | 4,580 |
| | 8,267 |
| | 13,629 |
| | 22,667 |
|
| Other expense | 53 |
| | 257 |
| | 1,002 |
| | 1,997 |
|
| Total expense | 4,633 |
| | 8,524 |
| | 14,631 |
| | 24,664 |
|
| | | | | | | | |
| Net income (loss) attributable to consolidated CLOs | $ | 2,583 |
| | $ | 4,032 |
| | $ | 9,393 |
| | $ | 10,049 |
|
As summarized in the table below, the application of the measurement alternative results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the CLOs which are eliminated upon consolidation:
|
| | | | | | | | | | | | | | | |
| Economic interests: | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Distributions received and realized and unrealized gains (losses) on the subordinated notes held by the Company, net | $ | 2,272 |
| | $ | 3,289 |
| | $ | 8,355 |
| | $ | 7,880 |
|
| Management fee income | 311 |
| | 743 |
| | 1,038 |
| | 2,169 |
|
| Total economic interests | $ | 2,583 |
| | $ | 4,032 |
| | $ | 9,393 |
| | $ | 10,049 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(11) Debt, net
The following table summarizes the balance of the Company’s debt obligations, net of discounts and deferred financing costs, excluding notes payable of consolidated CLOs (See Note—(10) Assets and Liabilities of Consolidated CLOs):costs.
| | | | | Maximum borrowing capacity as of | | As of | | Stated interest rate or range of rates | | Maximum borrowing capacity as of | | As of |
| Debt Type | | Stated maturity date | | Stated interest rate or range of rates | | September 30, 2017 | | September 30, 2017 | | December 31, 2016 | | Stated maturity date | | March 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| Corporate debt | | | | | | | |
| Secured corporate credit agreements | | September 2018 - December 2019 | | LIBOR + 2.50% to 6.50% | | $ | 251,250 |
| | $ | 167,000 |
| | $ | 164,000 |
| | April 2019 - September 2020 | | LIBOR + 1.00% to 5.50% | | $ | 131,120 |
| | $ | 78,683 |
| | $ | 72,090 |
|
Asset based revolving financing (1) (2) | | September 2018 - July 2022 | | LIBOR + 2.25% to 5.75% | | 365,000 |
| | 261,163 |
| | 250,557 |
| |
| Junior subordinated notes | | | October 2057 | | 8.50% | | 125,000 |
| | 125,000 |
| | 125,000 |
|
| Preferred trust securities | | | June 2037 | | LIBOR + 4.10% | | 35,000 |
| | 35,000 |
| | 35,000 |
|
| Total corporate debt | | | | | 238,683 |
| | 232,090 |
|
Asset based debt (1) | | | | | | | |
Asset based revolving financing (2) | | | April 2019 | | LIBOR + 2.60% | | 25,000 |
| | 6,769 |
| | 86,092 |
|
Residential mortgage warehouse borrowings (3) | | March 2018 - August 2018 | | LIBOR + 2.50% to 2.75% | | 171,000 |
| | 95,729 |
| | 101,402 |
| | May 2019 - August 2019 | | LIBOR + 2.00% to 2.50% | | 76,000 |
| | 45,693 |
| | 46,091 |
|
| Real estate commercial mortgage borrowings: | | | | | | | |
| Fixed rate | | August 2019 - July 2048 | | 4.00% to 5.12% | | 99,283 |
| | 97,433 |
| | 82,133 |
| |
| Variable rate (LIBOR based) | | October 2019 - January 2023 | | LIBOR + 2.05% to 6.95% | | 206,074 |
| | 203,779 |
| | 158,618 |
| |
| Subordinated debt | | April 2020 | | 12.50% | | 20,000 |
| | 12,500 |
| | 8,500 |
| |
| Preferred trust securities | | June 2037 | | LIBOR + 4.10% | | 35,000 |
| | 35,000 |
| | 35,000 |
| |
| Preferred notes payable | | January 2021 | | 12.00% | | | | 1,386 |
| | 1,232 |
| |
| Total asset based debt | | | | | 52,462 |
| | 132,183 |
|
| Total debt, face value | | | | 873,990 |
| | 801,442 |
| | | | 291,145 |
| | 364,273 |
|
| Unamortized discount, net | | | | (471 | ) | | (382 | ) | | | | (428 | ) | | (504 | ) |
| Unamortized deferred financing costs | | | | (7,890 | ) | | (8,051 | ) | | | | (7,919 | ) | | (9,686 | ) |
| Total debt, net | | | | $ | 865,629 |
| | $ | 793,009 |
| | | | $ | 282,798 |
| | $ | 354,083 |
|
(1) Asset based revolving financing is generally recourse only to specific assets and related cash flows.
(2) The weighted average coupon rate for asset based revolving financing was 3.89% and 3.53% at September 30, 2017 and December 31, 2016, respectively.
(3) The weighted average coupon rate for residential mortgage warehouse borrowings was 4.10% and 3.51% at September 30, 2017 and December 31, 2016, respectively. Includes debt having a maximum borrowing capacity of $171,000 with a stated interest rate of LIBOR + 2.50% to LIBOR +2.75% and a floor of 3.00%. | |
(1) | Asset based debt is generally recourse only to specific assets and related cash flows. |
| |
(2) | The weighted average coupon rate for asset based revolving financing was 5.09% and 4.30% at March 31, 2019 and December 31, 2018, respectively. |
| |
(3) | The weighted average coupon rate for residential mortgage warehouse borrowings was 4.63% and 4.66% at March 31, 2019 and December 31, 2018, respectively. |
The table below presents the amount of interest expense the Company incurred on its debt for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Interest expense on debt | $ | 10,427 |
| | $ | 7,769 |
| | $ | 28,650 |
| | $ | 20,612 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Interest expense - corporate debt | $ | 4,994 |
| | $ | 3,852 |
|
| Interest expense - asset based debt | 1,926 |
| | 2,094 |
|
| Interest expense on debt | $ | 6,920 |
| | $ | 5,946 |
|
The following table presents the future maturities of the unpaid principal balance on the Company’s long-term debt as of:
|
| | | |
| | September 30, 2017 |
| Remainder of 2017 | $ | 8,689 |
|
| 2018 | 182,173 |
|
| 2019 | 267,685 |
|
| 2020 | 121,514 |
|
| 2021 | 21,899 |
|
| Thereafter | 272,030 |
|
| Total | $ | 873,990 |
|
|
| | | |
| | March 31, 2019 |
| Remainder of 2019 | $ | 60,025 |
|
| 2020 | 71,120 |
|
| 2021 | — |
|
| 2022 | — |
|
| 2023 | — |
|
| 2024 and thereafter | 160,000 |
|
| Total | $ | 291,145 |
|
The following narrative is a summary of certain terms of our debt agreements for the period ended March 31, 2019:
F-35Corporate Debt
Secured Corporate Credit Agreements
As of March 31, 2019 and December 31, 2018, a total of $71,120 and $72,090, respectively, was outstanding under the Operating Company credit agreement.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following narrative isAs of March 31, 2019 and December 31, 2018, a summarytotal of certain$7,563 and $0, respectively, was outstanding under the revolving line of credit in our specialty insurance business. During April 2019, the termsmaturity date of our debt agreements for the periods ended September 30, 2017:this borrowing was extended to April 2020 with a new rate of LIBOR plus 1.20%.
Asset Based Debt
Asset Backed Revolving Financing
An asset backed revolving borrowing in our asset management business entered into an amendment that changed the stated interest from LIBOR plus 2.50%, to LIBOR plus 2.25%, and extended the maturity date from July 2021 to July 2022.
An asset backed revolving borrowing in our specialty finance business increased its maximum borrowing capacity from $125,000 to $150,000The $81,343 balance as of September 30, 2017 and also changed its maturing date from October 2019 to October 2020.
An asset backed revolving borrowingDecember 31, 2018 of the corporate loan financing agreement in our specialty insurance business was paid off and the borrowing was extinguished during the three months ended March 31, 2019.
As of March 31, 2019 and December 31, 2018, a total of $6,769 and $4,749 , respectively, was outstanding under the borrowing related to our premium finance business in our specialty insurance business. During April 2019, the maturity date of this borrowing was extended to April 2021 with a maximum borrowing capacity of $15,000 matured in April 2017. A new borrowing maturing in April 2019 with an interest rate of LIBOR plus 2.60% and a maximum borrowing capacity of $25,000 was used to pay off the matured borrowing.2.40%.
Residential Mortgage Warehouse Borrowings
The maximum borrowing amount for threeAs of the six warehouse lines of credit, through subsidiaries in our specialty finance business, decreased by $18,000, from $88,000 as ofMarch 31, 2019 and December 31, 2016 to $70,000 as2018, a total of September 30, 2017.
The maturity dates for warehouse lines of credit through subsidiaries in our specialty finance business were extended during the nine months ended September 30, 2017. One borrowing extended its maturity from April 2017 to March 2018, one borrowing extended its maturity from June 2017 to March 2018,$45,693 and two borrowings extended their maturity from June 2017 to June 2018.
Real Estate Commercial Mortgage Borrowings
On February 3, 2017, in connection with an acquisition in the senior living business, the Company along with our partners entered into a $10,000, five year mortgage borrowing, which includes 12 months of interest only payments. The loan carries a variable rate of LIBOR plus 3.75%. If on or after February 3,$46,091, respectively, was outstanding under such financing agreements. During May 2019, the facility has achieved certain occupancy and minimum debt service coverage ratio, then the interest rate will be reduced to a rate of LIBOR plus 2.75% as of such date. This note matures on February 1, 2022.
On February 9, 2017, in connection with assets acquired in the senior living business, a pre-existing Housing and Urban Development (HUD) loan was assumed by a subsidiary in our senior living business. The 35 year loan was originally dated June 1, 2013 for $8,072. The loan carriesmortgage business extended the maturity date of a fixed interest rate$50,000 warehouse line of 3.08% per annum, and matures on July 1, 2048. As of the acquisition date, this debt had a balance of $7,586. All terms of the note assumed remain consistent with the original note.
On April 18, 2017, in connection with an acquisition in the senior living business, the Company entered into a $7,000, five year mortgage borrowing. The loan carries a variable rate of LIBOR plus 3.00% and matures oncredit from May 1, 2022.
On2019 to May 31, 2017, in connection with an acquisition of seven skilled nursing facilities in the senior living business, the Company entered into a $28,800, three year mortgage borrowing. The loan carries a variable rate of LIBOR plus 6.95% and matures on May 31, 2020.
On June 14, 2017, in connection with an acquisition in the senior living business, the Company entered into a $9,150, five year mortgage borrowing. The loan carries a fixed interest rate of 4.60% and matures on July 1, 2022.
Covenant Compliance
As of September 30, 2017,March 31, 2019, the Company is in compliance with the representations and covenants for outstanding borrowings or has obtained waivers for any events of non-compliance.
(12)(11) Fair Value of Financial Instruments
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note—Note (2) Summary of Significant Accounting Policies to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.
The Company’s fair value measurement is based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources. In addition, the Company utilizes an income approach to measure the fair value of NPLs, as discussed below.
The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.
Available for Sale Securities
Available for sale securities are generally classified within either Level 1 or Level 2 of the fair value hierarchy and are based
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
on prices provided by an independent pricing service and a third party investment manager who provide a single price or quote per security.
The following details the methods and assumptions used to estimate the fair value of each class of available for sale securities and the applicable level each security falls within the fair value hierarchy:
U.S Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset-Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third party investment manager. The prices provided by the independent pricing service are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 of the fair value hierarchy.
Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.
Equity Securities: securities
The fair values of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service and fall under Level 1 of the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks were based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 of the fair value hierarchy.
The Company’s investment in Invesque is subject to certain contractual and functional sale restrictions. The functional restriction period is sequential to the contractual restriction period. As of March 31, 2019, the weighted average estimated contractual sale restriction period was 1.25 months, with 50% of the shares restricted from sale for a period from 1 to 4 months. In addition, as of March 31, 2019, the weighted average estimated functional restriction period was 0.4 months, with 70% of the shares restricted for a period from 0.25 to 0.75 months. The fair value of the Invesque shares is based on the market price adjusted for the impact of these restrictions, and as a result of the discount on the Invesque investment, the fair value measurement falls under Level 2 of the fair value hierarchy.
Loans, at fair value
Corporate Loans (including those of consolidated CLOs): These loans are comprised of a diversified portfolio of middle market and broadly syndicated leveraged loans and are generally classified within either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices which include those provided from pricing vendors, where available. We perform internal price verification procedures to ensure that the prices and quotes provided from the independent pricing vendors are reasonable. Such verification procedures include comparison of pricing sources and analysis of variances among pricing sources. The Company has evaluated each loan’s respective liquidity and has additionally performed valuation benchmarking. The key characteristics which were evaluated as part of this determination were liquidity ratings, price changes to index benchmarks, depth of quotes, credit ratings and industry trends.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified as Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third party investors, including estimated loan costs, and reserves. For non-performing mortgage loans held for sale, fair value is based upon estimated selling prices from third party investors of such types of loans.
Nonperforming Loans and REO: The Company determines the purchase price for NPLs at the time of acquisition and for each subsequent valuation by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to REO. The significant unobservable inputs used in the fair value measurement of our NPLs are discount rates, loan resolution timeline, and the value of underlying properties. The fair values of NPLs which are making payments (generally based on a modification or a workout plan) are primarily based upon secondary market transaction prices, which are expressed as a percentage of unpaid principal balance (UPB). Observable inputs to the model include loan amounts, payment history, and property types. Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible. NPLs are included in loans, at fair value and fall under Level 3 of the fair value hierarchy.
NPLs that have become REOs were measured at fair value on a non-recurring basis at the time of transfer during the ninethree months ended September 30, 2017March 31, 2019 and the year ended December 31, 2016.2018. The carrying value of REOs at September 30, 2017March 31, 2019 and December 31, 20162018 was $13,079$9,863 and $13,366,$10,019 , respectively. Upon conversion to REO, the fair value is estimated using broker
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
price opinion (BPO). BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales. REO is included in real estate, net.other investments. Subsequent to conversion, REOs are carried at lower of cost or market.
Derivative Assets and Liabilities
Derivatives are comprised of credit default swaps (CDS), index credit default swaps (CDX), interest rate lock commitments (IRLC), and to be announced mortgage backed securities (TBA) and interest rate swaps (IRS). The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. In general, the fair value of CDSs and CDXs are based on dealer quotes. Because significant inputs, other than unadjusted quoted prices in active markets are used to determine the dealer quotes, such as price volatility, the Company classifies them as Level 2 in the fair value hierarchy. The fair value of IRS is based upon either valuation pricing models, which represent the amount the Company would expect to pay at the balance sheet date if the contracts were exited, or by obtaining broker or counterparty quotes. Because there are observable inputs used to arrive at these prices, the Company has classified IRS within Level 2 of the fair value hierarchy. Our mortgage origination subsidiaries issue IRLCs to its customers, which are carried at estimated fair value on the Company’s condensed consolidated balance sheet. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected fall out assumption. The fair values of these commitments generally result in a Level 3 classification. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally result in a Level 2 classification.
The following tables present the Company’s fair value hierarchies for financial assets and liabilities, including the balances associated with the consolidated CLOs, measured on a recurring basis:
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| Assets: | | | | | | | |
| Available for sale securities, at fair value: | | | | | | | |
| Equity securities | $ | 615 |
| | $ | — |
| | $ | 47 |
| | $ | 662 |
|
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | — |
| | 36,354 |
| | — |
| | 36,354 |
|
| Obligations of state and political subdivisions | — |
| | 47,633 |
| | — |
| | 47,633 |
|
| Obligations of foreign governments | — |
| | 579 |
| | — |
| | 579 |
|
| Certificates of deposit | 896 |
| | — |
| | — |
| | 896 |
|
| Asset backed securities | — |
| | 24,100 |
| | — |
| | 24,100 |
|
F-38 |
| | | | | | | | | | | | | | | |
| | As of March 31, 2019 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| Assets: | | | | | | | |
| Available for sale securities, at fair value: | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | — |
| | $ | 79,285 |
| | $ | — |
| | $ | 79,285 |
|
| Obligations of state and political subdivisions | — |
| | 63,782 |
| | — |
| | 63,782 |
|
| Obligations of foreign governments | — |
| | 4,893 |
| | — |
| | 4,893 |
|
| Certificates of deposit | 1,096 |
| | — |
| | — |
| | 1,096 |
|
| Asset backed securities | — |
| | 39,642 |
| | 1,549 |
| | 41,191 |
|
| Corporate securities | — |
| | 93,682 |
| | — |
| | 93,682 |
|
| Total available for sale securities, at fair value | 1,096 |
| | 281,284 |
| | 1,549 |
| | 283,929 |
|
| | | | | | | | |
| Loans, at fair value: |
| |
|
| |
|
| |
|
|
| Corporate loans | — |
| | 7,331 |
| | 39,763 |
| | 47,094 |
|
| Mortgage loans held for sale | — |
| | 53,512 |
| | — |
| | 53,512 |
|
| Non-performing loans | — |
| | — |
| | 24,539 |
| | 24,539 |
|
| Total loans, at fair value | — |
|
| 60,843 |
|
| 64,302 |
|
| 125,145 |
|
| | | | | | | | |
| Equity securities | 6,610 |
| | 115,630 |
| | 352 |
| | 122,592 |
|
| | | | | | | | |
| Other investments, at fair value | — |
| | 138 |
| | 10,867 |
| | 11,005 |
|
| | | | | | | | |
| Total | $ | 7,706 |
|
| $ | 457,895 |
|
| $ | 77,070 |
|
| $ | 542,671 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 1,141 |
|
| — |
|
| 1,141 |
|
| Total | $ | — |
|
| $ | 1,141 |
|
| $ | — |
|
| $ | 1,141 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| Corporate securities | — |
| | 53,869 |
| | — |
| | 53,869 |
|
| Total available for sale securities | 1,511 |
| | 162,535 |
| | 47 |
| | 164,093 |
|
| | | | | | | | |
| Loans, at fair value: |
| |
|
| |
|
| |
|
|
| Corporate loans | — |
| | 33,427 |
| | 129,085 |
| | 162,512 |
|
| Mortgage loans held for sale | — |
| | 114,461 |
| | — |
| | 114,461 |
|
| Non-performing loans | — |
| | — |
| | 44,980 |
| | 44,980 |
|
| Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
| Total loans, at fair value | — |
|
| 147,888 |
|
| 175,234 |
|
| 323,122 |
|
| | | | | | | | |
| Equity securities, trading, at fair value | 28,106 |
| | — |
| | — |
| | 28,106 |
|
| | | | | | | | |
| Other investments: | | | | | | | |
| Derivative assets: | | | | | | | |
| Interest rate swaps | — |
| | 1,284 |
| | — |
| | 1,284 |
|
| Forward delivery contracts | — |
| | 49 |
| | — |
| | 49 |
|
| Interest rate lock commitments | — |
| | — |
| | 6,537 |
| | 6,537 |
|
| TBA mortgage backed securities | — |
| | 284 |
| | — |
| | 284 |
|
| Credit derivatives | — |
| | 13,035 |
| | — |
| | 13,035 |
|
| Total derivative assets | — |
| | 14,652 |
| | 6,537 |
| | 21,189 |
|
| CLOs | — |
| | — |
| | 2,045 |
| | 2,045 |
|
| Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
| Total other investments | — |
| | 18,609 |
| | 8,582 |
| | 27,191 |
|
| | | | | | | | |
| Total financial instruments attributable to non-CLOs included in consolidated assets | 29,617 |
|
| 329,032 |
|
| 183,863 |
|
| 542,512 |
|
| | | | | | | | |
| Financial instruments included in assets of consolidated CLOs: | | | | | | | |
| Loans, at fair value | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
| Total financial instruments included in assets of consolidated CLOs | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
| | | | | | | | |
| Total | $ | 29,617 |
|
| $ | 461,655 |
|
| $ | 394,622 |
|
| $ | 885,894 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Derivative liabilities: | | | | | | | |
| Interest rate swaps | $ | — |
| | $ | 426 |
| | $ | — |
| | $ | 426 |
|
| TBA mortgage backed securities | — |
| | 283 |
| | — |
| | 283 |
|
| Foreign currency forward contracts | — |
| | — |
| | — |
| | — |
|
| Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 709 |
|
| — |
|
| 709 |
|
| Contingent consideration payable | — |
| | — |
| | 52 |
| | 52 |
|
| Preferred notes payable | — |
| | — |
| | 1,386 |
| | 1,386 |
|
| Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 709 |
|
| 1,438 |
| | 2,147 |
|
| | | | | | | | |
| Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
| Notes payable of CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
| Total financial instruments included in liabilities of consolidated CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
| Total | $ | — |
|
| $ | 709 |
|
| $ | 328,154 |
|
| $ | 328,863 |
|
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| Assets: | | | | | | | |
| Available for sale securities, at fair value: | | | | | | | |
| Equity securities | $ | 736 |
| | $ | — |
| | $ | 48 |
| | $ | 784 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | — |
| | 26,799 |
| | — |
| | 26,799 |
|
| Obligations of state and political subdivisions | — |
| | 56,934 |
| | — |
| | 56,934 |
|
| Obligations of foreign governments | — |
| | 728 |
| | — |
| | 728 |
|
| Certificates of deposit | 895 |
| | — |
| | — |
| | 895 |
|
| Asset backed securities | — |
| | 1,460 |
| | — |
| | 1,460 |
|
| Corporate bonds | — |
| | 58,571 |
| | — |
| | 58,571 |
|
| Total available for sale securities, at fair value | 1,631 |
|
| 144,492 |
|
| 48 |
|
| 146,171 |
|
| | | | | | | | |
| Loans, at fair value: | | | | | | | |
| Corporate loans | — |
| | 46,352 |
| | 129,206 |
| | 175,558 |
|
| Mortgage loans held for sale | — |
| | 121,439 |
| | — |
| | 121,439 |
|
| Non-performing loans | — |
| | — |
| | 74,923 |
| | 74,923 |
|
| Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
| Total loans, at fair value | — |
|
| 167,791 |
|
| 205,298 |
|
| 373,089 |
|
| | | | | | | | |
| Equity securities, trading, at fair value | 48,612 |
| | — |
| | — |
| | 48,612 |
|
| | | | | | | | |
| Other investments: | | | | | | | |
| Derivative assets: |
| | | | | | |
| Interest rate swaps | — |
| | 1,388 |
| | — |
| | 1,388 |
|
| Interest rate lock commitments | — |
| | — |
| | 4,872 |
| | 4,872 |
|
| TBA mortgage backed securities | — |
| | 1,678 |
| | — |
| | 1,678 |
|
| Credit derivatives | — |
| | 12,598 |
| | — |
| | 12,598 |
|
| Total derivative assets | — |
| | 15,664 |
| | 4,872 |
| | 20,536 |
|
| CLOs | — |
| | — |
| | 974 |
| | 974 |
|
| Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
| Total other investments | — |
| | 19,621 |
| | 5,846 |
| | 25,467 |
|
| | | | | | | | |
| Total financial instruments attributable to non-CLOs included in consolidated assets | 50,243 |
|
| 331,904 |
|
| 211,192 |
|
| 593,339 |
|
| | | | | | | | |
| Financial instruments included in assets of consolidated CLOs: | | | | | | | |
| Loans, at fair value | — |
| | 342,370 |
| | 585,870 |
| | 928,240 |
|
| Total financial instruments included in assets of consolidated CLOs | — |
|
| 342,370 |
|
| 585,870 |
|
| 928,240 |
|
| Total | $ | 50,243 |
|
| $ | 674,274 |
|
| $ | 797,062 |
|
| $ | 1,521,579 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Derivative liabilities: | | | | | | | |
| Interest rate swaps | $ | — |
| | $ | 1,042 |
| | $ | — |
| | $ | 1,042 |
|
| Forward delivery contracts | — |
| | 84 |
| | — |
| | 84 |
|
| TBA mortgage backed securities | — |
| | 269 |
| | — |
| | 269 |
|
| Foreign currency forward contracts | — |
| | 3 |
| | — |
| | 3 |
|
| Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 1,398 |
|
| — |
|
| 1,398 |
|
| Contingent consideration payable | — |
| | — |
| | 1,852 |
| | 1,852 |
|
| Preferred notes payable | — |
| | — |
| | 1,232 |
| | 1,232 |
|
| Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 1,398 |
|
| 3,084 |
|
| 4,482 |
|
| | | | | | | | |
| Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
| Notes payable of CLOs | — |
| | — |
| | 912,034 |
| | 912,034 |
|
| Total financial instruments included in liabilities of consolidated CLOs | — |
|
| — |
|
| 912,034 |
|
| 912,034 |
|
| | | | | | | | |
| Total | $ | — |
|
| $ | 1,398 |
|
| $ | 915,118 |
|
| $ | 916,516 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2018 |
| | Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
| Assets: | | | | | | | |
| Available for sale securities, at fair value: | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | — |
| | $ | 71,748 |
| | $ | — |
| | $ | 71,748 |
|
| Obligations of state and political subdivisions | — |
| | 67,446 |
| | — |
| | 67,446 |
|
| Obligations of foreign governments | — |
| | 6,751 |
| | — |
| | 6,751 |
|
| Certificates of deposit | 1,241 |
| | — |
| | — |
| | 1,241 |
|
| Asset backed securities | — |
| | 39,144 |
| | 1,508 |
| | 40,652 |
|
| Corporate bonds | — |
| | 95,725 |
| | — |
| | 95,725 |
|
| Total available for sale securities, at fair value | 1,241 |
|
| 280,814 |
|
| 1,508 |
|
| 283,563 |
|
| | | | | | | | |
| Loans, at fair value: | | | | | | | |
| Corporate loans | — |
| | 22,697 |
| | 108,213 |
| | 130,910 |
|
| Mortgage loans held for sale | — |
| | 56,917 |
| | — |
| | 56,917 |
|
| Non-performing loans | — |
| | — |
| | 27,556 |
| | 27,556 |
|
| Total loans, at fair value | — |
|
| 79,614 |
|
| 135,769 |
|
| 215,383 |
|
| | | | | | | | |
| Equity securities | 9,323 |
| | 113,138 |
| | 518 |
| | 122,979 |
|
| | | | | | | | |
| Other investments, at fair value | — |
| | 44 |
| | 8,487 |
| | 8,531 |
|
| | | | | | | | |
| Total | $ | 10,564 |
|
| $ | 473,610 |
|
| $ | 146,282 |
|
| $ | 630,456 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Derivative liabilities (included in other liabilities and accrued expenses) | $ | — |
|
| $ | 876 |
|
| $ | — |
|
| $ | 876 |
|
| Total | $ | — |
|
| $ | 876 |
|
| $ | — |
|
| $ | 876 |
|
The following table represents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:
| | | | Nine Months Ended September 30, | | | | | |
| | 2017 | | 2016 (3) | Three Months Ended March 31, |
| | Non-CLO assets | | CLO assets | | Non-CLO assets | | CLO assets | 2019 (1) | | 2018 (1) |
| Balance at January 1, | $ | 211,192 |
| | $ | 585,870 |
| | $ | 239,944 |
| | $ | 520,892 |
| $ | 146,282 |
| | $ | 162,666 |
|
| Net realized gains (losses) | 7,279 |
| | (1,667 | ) | | 4,450 |
| | 402 |
| 118 |
| | (77 | ) |
| Net unrealized gains (losses) | 2,800 |
| | 89 |
| | 5,482 |
| | 15,584 |
| 644 |
| | 1,106 |
|
| Origination of IRLC | 54,468 |
| | — |
| | 38,554 |
| | — |
| 14,817 |
| | 11,372 |
|
| Purchases | 41,458 |
| | 76,122 |
| | 101,161 |
| | 157,144 |
| — |
| | 23,298 |
|
Sales (1) | (74,010 | ) | | (193,205 | ) | | (56,824 | ) | | (72,612 | ) | (68,896 | ) | | (22,633 | ) |
| Issuances | 590 |
| | 676 |
| | 1,716 |
| | 1,546 |
| 65 |
| | 77 |
|
Transfer into Level 3 (2) | 9,286 |
| | 17,601 |
| | 23,184 |
| | 32,858 |
| |
Transfer adjustments (out of) Level 3 (2) | (7,641 | ) | | (23,427 | ) | | (15,280 | ) | | (66,215 | ) | |
| Deconsolidation of CLO due to sale | 1,342 |
| | (251,300 | ) | | — |
| | — |
| |
Transfer into Level 3 (1) | | 6,110 |
| | 7,624 |
|
Transfer adjustments (out of) Level 3 (1) | | (7,329 | ) | | (7,420 | ) |
| Conversion to real estate owned | (9,793 | ) | | — |
| | (10,288 | ) | | — |
| (1,958 | ) | | (3,435 | ) |
| Conversion to mortgage held for sale | (53,069 | ) | | — |
| | (36,378 | ) | | — |
| |
| Warehouse transfer to CLO | — |
| | — |
| | (104,098 | ) | | 104,098 |
| |
| Other | (39 | ) | | — |
| | — |
| | — |
| |
| Balance at September 30, | $ | 183,863 |
| | $ | 210,759 |
| | $ | 191,623 |
| | $ | 693,697 |
| |
| Conversion to mortgage loans held for sale | | (12,783 | ) | | (12,061 | ) |
| Balance at March 31, | | $ | 77,070 |
| | $ | 160,517 |
|
| | | | | | | | | | | |
| Changes in unrealized gains (losses) included in earnings related to assets still held at period end | $ | 4,790 |
| | $ | (168 | ) | | $ | 4,023 |
| | $ | 11,325 |
| $ | (635 | ) | | $ | 1,105 |
|
| |
(1) | Included within the CLO assets amount are sales related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
| |
(2) | All transfers are deemed to occur at end of period. Transfers between Level 2 and 3 were a result of subjecting third-party pricing on both CLO and Non-CLO assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation. |
| |
(3) | Items within the Level 3 rollforward have been restated to reflect assets purchased during a period as purchases rather than transfers. The presentation of gross origination of IRLC’s and gross conversion to mortgage held for sale have also been restated to show the break out from net realized and unrealized gains and losses, conversion to real estate owned, and transfers out of Level 3 assets. These changes have no impact on the total amount of Level 3 assets. |
The following table represents additional information about liabilities that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Non-CLO liabilities | | CLO liabilities | | Non-CLO liabilities | | CLO liabilities |
| Balance at January 1, | $ | 3,084 |
| | $ | 912,034 |
| | $ | 2,498 |
| | $ | 683,827 |
|
| Net unrealized (gains) losses | — |
| | (3,071 | ) | | (262 | ) | | 23,169 |
|
| Issuances | — |
| | — |
| | — |
| | 222,303 |
|
Settlements (1) | (4,838 | ) | | (155,194 | ) | | (377 | ) | | — |
|
| Dispositions | — |
| | (49,010 | ) | | — |
| | (1,317 | ) |
| FV adjustment | 3,192 |
| | — |
| | — |
| | — |
|
| Deconsolidation of CLO due to sale | — |
| | (378,043 | ) | | — |
| | — |
|
| Balance at September 30, | $ | 1,438 |
| | $ | 326,716 |
| | $ | 1,859 |
| | $ | 927,982 |
|
| | | | | | | | |
| Changes in unrealized (gains) losses included in earnings related to liabilities still held at period end | $ | 154 |
| | $ | (6,119 | ) | | $ | (262 | ) | | $ | 23,169 |
|
| |
(1) | Included within the CLO liabilities amount are settlements related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
The following is quantitative information about Level 3 assets with significant unobservable inputs used in fair valuation.
| | | | Fair Value as of | | | | | | Actual or Range (Weighted average) | Fair Value as of | | | | | | Actual or Range (Weighted average) |
Assets (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 | | Valuation technique | | Unobservable input(s) | | March 31, 2019 | | December 31, 2018 |
| Interest rate lock commitments | $ | 6,537 |
| | $ | 4,872 |
| | Internal model | | Pull through rate | | 45% - 95% | | 45% - 95% | $ | 5,494 |
| | $ | 3,460 |
| | Internal model | | Pull through rate | | 50% - 95% | | 50% - 95% |
| NPLs | 44,980 |
| | 74,923 |
| | Discounted cash flow | | See table below (2) | | See table below | | See table below | 24,539 |
| | 27,556 |
| | Discounted cash flow | | See table below (1) | | See table below | | See table below |
| Total | $ | 51,517 |
| | $ | 79,795 |
| | $ | 30,033 |
| | $ | 31,016 |
| |
| |
(1) | Financial assets classified as Level 3 and fair valued using significant unobservable inputs classified as Level 3 have not been provided as these are not readily available to the Company (including servicing release premium for interest rate lock commitments and forward delivery contracts). |
| |
(2) | Significant changes in any of these inputs in isolation could result in a significant change to the fair value measurement. A decline in the discount rate in isolation would increase the fair value. A decrease in the housing pricing index in isolation would decrease the fair value. Individual loan characteristics, such as location and value of underlying collateral, affect the loan resolution timeline. An increase in the loan resolution timeline in isolation would decrease the fair value. A decrease in the value of underlying properties in isolation would decrease the fair value. |
The following table sets forth quantitative information about the significant unobservable inputs used to measure the fair value of our NPLs. For NPLs that are not making payments, discount rate, loan resolution time-line, value of underlying properties, holdings costs and liquidation costs are the primary inputs used to measure fair value. For NPLs that are making payments, note rate and secondary market transaction prices/UPB are the primary inputs used to measure fair value.
| | | | | As of September 30, 2017 | | As of December 31, 2016 | | As of March 31, 2019 | | As of December 31, 2018 |
| Unobservable inputs | | High | | Low | | Average(1) | | High | | Low | | Average(1) | | High | | Low | | Average(1) | | High | | Low | | Average(1) |
| Discount rate | | 30.0% | | 16.0% | | 23.2% | | 30.0% | | 16.0% | | 22.9% | | 30.0% | | 16.0% | | 23.3% | | 30.0% | | 16.0% | | 23.6% |
| Loan resolution time-line (Years) | | 2.59 | | 0.48 | | 1.26 | | 2.3 | | 0.5 | | 1.2 | | 2.3 | | 0.6 | | 1.3 | | 2.1 | | 0.6 | | 1.2 |
| Value of underlying properties | | $2,400 | | $40 | | $307 | | $1,800 | | $32 | | $234 | | $1,780 | | $55 | | $376 | | $1,780 | | $55 | | $383 |
| Holding costs | | 22.0% | | 5.5% | | 7.7% | | 24.1% | | 5.4% | | 8.3% | | 14.2% | | 5.3% | | 7.1% | | 14.7% | | 5.0% | | 6.9% |
| Liquidation costs | | 20.8% | | 8.1% | | 9.4% | | 25.0% | | 8.5% | | 9.6% | | 14.2% | | 8.4% | | 9.2% | | 14.2% | | 8.4% | | 9.2% |
| Note rate | | 6.0% | | 3.0% | | 5.2% | | 6.0% | | 3.0% | | 4.8% | | 6.0% | | 3.0% | | 4.9% | | 6.0% | | 3.0% | | 4.9% |
| Secondary market transaction prices/UPB | | 88.5% | | 75.5% | | 85.2% | | 88.5% | | 75.5% | | 83.7% | | 88.3% | | 74.5% | | 83.3% | | 88.3% | | 74.5% | | 83.3% |
| |
(1) | Weighted based on value of underlying properties (excluding the value of underlying properties line item).properties. |
|
| | | | | | | | | | | | | | | |
| | Fair Value as of | | | | | | Actual or Range (Weighted average) |
Liabilities (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 |
Contingent consideration payable - Reliance (2) | $ | — |
| | $ | 1,800 |
| | Cash Flow model (3) | | Forecast EBITDA | | $1,000 - $8,000 | | $951 - $6,005 |
| | | | Book value growth rate | | N/A | | 5.0% |
| | | | Asset volatility | | N/A | | 1.4% - 23.7% |
| Contingent consideration payable - Luxury | 52 |
| | 52 |
| | Cash Flow model | | Projected cash available for distribution | | $1,059 - $1,316 | | $1,059 - $1,316 |
| Preferred notes payable | 1,386 |
| | 1,232 |
| | Cash Flow model | | Discount rate | | 12.0% | | 12.0% |
| Total | $ | 1,438 |
|
| $ | 3,084 |
| | | | | | | | |
|
| | | | | | | | | | | |
(1) | Not included in this table are the debt obligations of consolidated CLOs, measured and leveled on the basis of the fair value of the (more observable) financial assets of the consolidated CLOs. See Note—(10) Assets and Liabilities of Consolidated CLOs. | | | | | | | | | | |
(2) Settled in Q3 2017 with Class A common shares. See Note—(17) Stockholders’ Equity.
(3) Monte Carlo simulation is run, as needed.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:
| | | | As of September 30, 2017 | | As of December 31, 2016 | As of March 31, 2019 | | As of December 31, 2018 |
| | Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value | Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value |
| Assets: | | | | | | | | | | | | | | | | |
| Debentures | | 2 | | $ | 5,182 |
| | $ | 5,182 |
| | 2 | | $ | 5,134 |
| | $ | 5,134 |
|
| Notes and accounts receivable, net | 2 | | $ | 19,310 |
| | $ | 19,310 |
| | 2 | | $ | 28,293 |
| | $ | 28,732 |
| 2 | | 16,338 |
| | 16,338 |
| | 2 | | 13,057 |
| | 13,057 |
|
| Total assets | | $ | 19,310 |
| | $ | 19,310 |
| | $ | 28,293 |
| | $ | 28,732 |
| | $ | 21,520 |
| | $ | 21,520 |
| | $ | 18,191 |
| | $ | 18,191 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Debt, net | 3 | | $ | 876,444 |
| | $ | 872,133 |
| | 3 | | $ | 798,806 |
| | $ | 799,828 |
| 3 | | $ | 295,092 |
| | $ | 290,717 |
| | 3 | | $ | 363,769 |
| | $ | 363,769 |
|
| Total liabilities | | $ | 876,444 |
| | $ | 872,133 |
| | $ | 798,806 |
| | $ | 799,828 |
| | $ | 295,092 |
| | $ | 290,717 |
| | $ | 363,769 |
| | $ | 363,769 |
|
Debentures: Sinceinterest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts.
Notes and Accounts Receivable: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized as Level 2 of the fair value hierarchy.
Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes payable is determined based on contractual cash flows discounted at market rates for mortgage notes payable and either dealer quotes or contractual cash flows discounted at market rates for other notes payable.quotes. Categorized as Level 3 of the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Additionally, the following financial assets and liabilities on the condensed consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:
Loans Owned, at Amortized Cost: The fair value of loans owned, at amortized cost approximates its carrying value because the interest rates on the loans are based on a variable market interest rate. Categorized as Level 3 of the fair value hierarchy.
Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized as Level 1 of the fair value hierarchy.
Accounts and Premiums Receivable, net, retrospective commissions receivable and other receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized as Level 2 of the fair value hierarchy. See Note—Note (6) Notes and Accounts Receivable, net.
Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short‑term nature. Categorized as Level 2 of the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(13)(12) Liability for Unpaid Claims and Claim Adjustment Expenses
Roll forward of Claim Liability
The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short-duration contracts for the following periods:
| | | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| Policy liabilities and unpaid claims balance as of January 1 | $ | 103,391 |
| | $ | 80,663 |
| |
| Policy liabilities and unpaid claims balance as of January 1, | | $ | 131,611 |
| | $ | 112,003 |
|
| Less : liabilities of policy-holder accounts balances, gross | (17,417 | ) | | (19,037 | ) | (13,659 | ) | | (15,474 | ) |
| Less : non-insurance warranty benefit claim liabilities | (91 | ) | | (116 | ) | (94 | ) | | (58 | ) |
| Gross liabilities for unpaid losses and loss adjustment expenses | 85,883 |
| | 61,510 |
| 117,858 |
| | 96,471 |
|
| Less : reinsurance recoverable on unpaid losses - short duration | (63,112 | ) | | (42,341 | ) | (90,016 | ) | | (73,778 | ) |
| Less : other lines, gross | (208 | ) | | (163 | ) | (227 | ) | | (224 | ) |
| Net balance as of January 1, short duration | 22,563 |
| | 19,006 |
| 27,615 |
| | 22,469 |
|
| | | | | | | |
| Incurred (short duration) related to: | | | | | | |
| Current year | 78,174 |
| | 55,461 |
| 33,137 |
| | 25,002 |
|
| Prior years | 2,958 |
| | (1,987 | ) | 2,362 |
| | 6,966 |
|
| Total incurred | 81,132 |
| | 53,474 |
| 35,499 |
| | 31,968 |
|
| | | | | | | |
| Paid (short duration) related to: | | | | | | |
| Current year | 57,875 |
| | 34,822 |
| 29,713 |
| | 14,434 |
|
| Prior years | 20,600 |
| | 13,992 |
| 4,973 |
| | 14,179 |
|
| Total paid | 78,475 |
| | 48,814 |
| 34,686 |
| | 28,613 |
|
| | | | | | | |
| Net balance as of September 30, short duration | 25,220 |
| | 23,666 |
| |
| Net balance as of March 31, short duration | | 28,428 |
| | 25,824 |
|
| Plus : reinsurance recoverable on unpaid losses - short duration | 69,813 |
| | 60,236 |
| 88,695 |
| | 76,619 |
|
| Plus : other lines, gross | 193 |
| | 164 |
| 230 |
| | 172 |
|
| Gross liabilities for unpaid losses and loss adjustment expenses | 95,226 |
| | 84,066 |
| 117,353 |
| | 102,615 |
|
| Plus : liabilities of policy-holder accounts balances, gross | 15,652 |
| | 17,766 |
| 13,138 |
| | 15,048 |
|
| Plus : non-insurance warranty benefit claim liabilities | 50 |
| | 80 |
| 94 |
| | 77 |
|
| Policy liabilities and unpaid claims balance as of September 30, | $ | 110,928 |
| | $ | 101,912 |
| |
| Policy liabilities and unpaid claims balance as of March 31, | | $ | 130,585 |
| | $ | 117,740 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
The following schedule reconciles the total on short duration contracts per the table above to the amount of total losses incurred as presented in the condensed consolidated statement of operations, excluding the amount for member benefit claims:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Total incurred | $ | 27,236 |
| | $ | 19,247 |
| | $ | 81,132 |
| | $ | 53,474 |
| |
| Short duration incurred | | $ | 35,499 |
| | $ | 31,968 |
|
| Other lines incurred | 81 |
| | 44 |
| | 78 |
| | 74 |
| — |
| | 46 |
|
| Unallocated loss adjustment expense | 441 |
| | 623 |
| | 1,343 |
| | 1,554 |
| 294 |
| | 698 |
|
| Total losses incurred | $ | 27,758 |
| | $ | 19,914 |
| | $ | 82,553 |
| | $ | 55,102 |
| $ | 35,793 |
| | $ | 32,712 |
|
For the ninethree months ended September 30, 2017,March 31, 2019, the Company’s specialty insurance business experienced an increase in prior year case development of $2,958.$2,362 primarily from its non-standard auto business.
For the three months ended March 31, 2018, the Company’s specialty insurance business experienced an increase in prior year case development of $6,966. This included $1,772$3,295 in non-standard auto and $1,852$3,831 in warranty. This development was partially offset by favorable development in its credit lines of business. The warranty and credit lines of business are primarily in retrospective commission arrangements that minimally impact the operating income of the Company.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
For the nine months ended September 30, 2016, the Company’s specialty insurance business experienced a decrease in prior year case development of $1,987. This decrease was due to the favorable development in credit lines of business. This development was partially offset by increased case development of $1,644 in non-standard auto and $1,328 in warranty. The warranty and credit lines of business are primarily in retrospective commission arrangements that minimally impacts the operating income of the Company.
(13) Revenue From Contracts with Customers
Revenue from contracts with customers is primarily comprised of asset management fee income included as a part of other revenue, and warranty coverage, car club and other revenues included as a part of service and administrative fees in our specialty insurance business. The table below presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Asset management fee income | $ | 1,267 |
| | $ | 1,577 |
|
| Warranty coverage revenue | 6,822 |
| | 6,123 |
|
| Car club revenue | 8,701 |
| | 7,829 |
|
| Other | 1,708 |
| | 2,097 |
|
| Revenue from contracts with customers | $ | 18,498 |
| | $ | 17,626 |
|
Management Fees
The Company earns asset management fee income in the form of base management fees and incentive fees from the CLOs it manages. These base management fees are billed as the services are provided and paid periodically in accordance with the terms of the individual management agreements for as long as the Company manages the funds. Base management fees typically consist of fees based on the amount of assets held in the CLOs. Base management fees are recognized as revenue when earned. The Company does not recognize incentive fees until all contractual contingencies have been removed.
Service and Administrative Fees
Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable.
Administrative fee revenue includes the administration of premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation programs, motor club programs, and warranty programs. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Information on Remaining Performance Obligations
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2019.
Contract Balances
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
The table below presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the three months ended March 31, 2019.
|
| | | | | | | | | | | | | | | |
| | January 1, 2019 | | | | | | March 31, 2019 |
| | Beginning balance | | Additions | | Amortizations | | Ending balance |
| Deferred costs | | | | | | | |
| Warranty coverage revenue | $ | 1,274 |
| | $ | 79 |
| | $ | 267 |
| | $ | 1,086 |
|
| Car club revenue | 12,189 |
| | 5,662 |
| | 6,608 |
| | 11,243 |
|
| Total | $ | 13,463 |
| | $ | 5,741 |
| | $ | 6,875 |
| | $ | 12,329 |
|
|
| | | | | | | | | | | | | | | |
| Deferred revenue | | | | | | | |
| Warranty coverage revenue | $ | 39,835 |
| | $ | 9,092 |
| | $ | 6,822 |
| | $ | 42,105 |
|
| Car club revenue | 16,128 |
| | 7,456 |
| | 8,701 |
| | 14,883 |
|
| Total | $ | 55,963 |
| | $ | 16,548 |
| | $ | 15,523 |
| | $ | 56,988 |
|
Bad debt expense was not material for any period presented.
(14) Other Assets and Other Liabilities and Accrued Expenses
Other Assets
The following table presents the components of other assets as reported in the condensed consolidated balance sheets:
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Due from brokers | $ | 1,505 |
| | $ | 2,027 |
| |
Right of use asset - Operating leases (1) | | $ | 29,564 |
| | $ | — |
|
| Furniture, fixtures and equipment, net | 5,669 |
| | 5,936 |
| 8,876 |
| | 6,122 |
|
| Prepaid expenses | 9,441 |
| | 5,020 |
| 7,079 |
| | 7,351 |
|
| Accrued interest receivable | 3,154 |
| | 2,052 |
| |
| Management fee receivable | 4,375 |
| | 4,308 |
| |
| Other fee receivable | 5,159 |
| | 5,022 |
| |
| Income tax receivable | 4,140 |
| | 4,842 |
| 2,098 |
| | 2,307 |
|
Subsidiary sale receivable (2) | | 1,000 |
| | 10,676 |
|
| Other | 15,101 |
| | 8,679 |
| 21,848 |
| | 19,578 |
|
| Total other assets | $ | 48,544 |
|
| $ | 37,886 |
| $ | 70,465 |
|
| $ | 46,034 |
|
| |
(1) | See Note (2) Summary of Significant Accounting Policies and Note (20) Commitments and Contingencies for additional information. |
| |
(2) | Related to the gain contingency on sale of Care recorded in December 2018.$9,676 was received in cash in January 2019. The remaining amount is expected to be paid off by 2021. See Note (3) Dispositions, Assets Held for Sale & Discontinued Operations. |
The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Depreciation expense related to furniture, fixtures and equipment | $ | 656 |
| | $ | 667 |
| | $ | 1,883 |
| | $ | 1,978 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Depreciation expense related to furniture, fixtures and equipment | $ | 479 |
| | $ | 497 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
(15) Other Liabilities and Accrued Expenses
The following table presents the components of other liabilities and accrued expenses as reported in the condensed consolidated balance sheets:
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Accounts payable and accrued expenses | $ | 46,544 |
| | $ | 67,837 |
| $ | 70,822 |
| | $ | 63,755 |
|
Operating lease liability(1) | | 31,473 |
| | — |
|
| Deferred tax liabilities, net | 30,789 |
| | 32,296 |
| 26,864 |
| | 25,433 |
|
| Due to brokers | 7,733 |
| | 8,457 |
| |
| Commissions payable | 11,007 |
| | 7,466 |
| 9,602 |
| | 11,076 |
|
| Accrued interest payable | 2,127 |
| | 1,729 |
| 5,111 |
| | 3,452 |
|
| Derivative liabilities, at fair value | 709 |
| | 1,398 |
| |
| Other liabilities | 16,949 |
| | 14,552 |
| |
| Other | | 19,352 |
| | 20,474 |
|
| Total other liabilities and accrued expenses | $ | 115,858 |
| | $ | 133,735 |
| $ | 163,224 |
| | $ | 124,190 |
|
| |
(1) | See Note (2) Summary of Significant Accounting Policies and Note (20) Commitments and Contingencies for additional information. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(15) Other Revenue, Other Expenses and Other Income
(16) Other Income and Other ExpensesRevenue
The following table presents the components of other incomerevenue as reported in the condensed consolidated statement of operations,operations. Other revenue is primarily comprised of interest income and loan fee income relatedgenerated by Tiptree Capital non-insurance activities except as noted in the footnote to both loans at fair value and loans at amortized costs, net in our specialty finance business, and management fees from our asset management business:the table.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Interest income | $ | 5,254 |
| | $ | 4,215 |
| | $ | 14,439 |
| | $ | 13,455 |
|
| Loan fee income | 3,201 |
| | 3,915 |
| | 9,451 |
| | 9,296 |
|
| Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
| Other | 1,383 |
| | 450 |
| | 3,352 |
| | 1,477 |
|
| Total other income | $ | 11,379 |
| | $ | 12,419 |
| | $ | 33,820 |
| | $ | 31,725 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
Other investment income (1) | $ | 9,881 |
| | $ | 5,108 |
|
| Management fee income | 1,267 |
| | 1,577 |
|
Other (2) | 931 |
| | 1,294 |
|
| Total other revenue | $ | 12,079 |
| | $ | 7,979 |
|
| |
(1) | See Note (5) Investments for the components of Other investment income. |
| |
(2) | Includes $841 and $696 related to Specialty Insurance for the three months ended March 31, 2019 and 2018, respectively. |
Other Expenses
The following table presents the components of other expenses as reported in the condensed consolidated statement of operations:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Professional fees | $ | 4,506 |
| | $ | 5,283 |
| | $ | 13,980 |
| | $ | 17,581 |
| $ | 4,176 |
| | $ | 5,001 |
|
| Acquisition and transaction costs | 25 |
| | 248 |
| | 302 |
| | 631 |
| |
| General and administrative | 4,015 |
| | 3,178 |
| | 11,552 |
| | 10,788 |
| 4,984 |
| | 3,820 |
|
| Premium taxes | 2,810 |
| | 1,637 |
| | 8,840 |
| | 5,480 |
| 3,324 |
| | 3,622 |
|
| Mortgage origination expenses | 2,406 |
| | 2,308 |
| | 6,728 |
| | 5,944 |
| 2,478 |
| | 2,183 |
|
| Property operating expenses | 2,635 |
| | 1,854 |
| | 7,798 |
| | 5,439 |
| |
| Rent and related | 2,992 |
| | 3,091 |
| | 8,998 |
| | 9,189 |
| 3,277 |
| | 2,379 |
|
| Loss on extinguishment of debt | | 1,241 |
| | 428 |
|
| Other | 3,775 |
| | 4,087 |
| | 15,182 |
| | 13,299 |
| 4,357 |
| | 1,732 |
|
| Total other expense | $ | 23,164 |
| | $ | 21,686 |
| | $ | 73,380 |
| | $ | 68,351 |
| |
| Total other expenses | | $ | 23,837 |
| | $ | 19,165 |
|
(17)(16) Stockholders’ Equity
All shares of our Class A common stock have equal rights as to earnings, assets, dividends and voting. Shares of Class B common stock have the voting rights as the Class A common stock but no economic rights (including no right to receive dividends or other distributions upon liquidation, dissolution or otherwise). Distributions may be paid to holders of Class A common stock when duly authorized by our board of directors and declared out of legally available assets.
TFP owns a warrant to purchase 652,500 shares of Class A common stock at $11.33 per share which is immediately exercisable and expires on September 30, 2018. Such an exercise would be accounted for as treasury stock held at TFP and would have no impact on Tiptree’s financial statements.Stock Repurchases
On June 5, 2017,December 10, 2018, the Company engaged a broker in settlementconnection with a daily stock repurchase program for the repurchase of an option, TFP delivered 1,510,920up to $10.0 million of shares of the Company’s Class A common stock to Tricadia for total consideration of approximately $8,100.
outstanding Common Stock. On June 21, 2017, a subsidiary of Tiptree purchased 1,000,000 shares of Class A common stock of Tiptree for aggregate consideration of $7,300. The shares acquired are accounted for as treasury shares and therefore are not outstanding for accounting or voting purposes.
On AugustDecember 10, 2017,2018, the Company settled a contingent consideration payable related to the acquisition of Reliance in 2015 with 756,046 shares of Class A common stock.Company’s Board
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
of Directors authorized the Company to make block repurchases of up to $10.0 million of shares in the aggregate, at the discretion of the Company's Executive Committee. On January 24, 2019, the Company’s Board of Directors replenished the block repurchase authorization to repurchase up to $10.0 million of shares of the Company’s outstanding Common Stock.
|
| | | | | | | | | | |
| | Three Months Ended
March 31, 2019 | | As of March 31, 2019 |
| | Number of shares purchased | | Average price per share | | Remaining repurchase authorization |
| Share repurchase programs: | 60,421 |
| | $ | 5.86 |
| | $ | 9,277 |
|
| Block repurchase program | 1,412,309 |
| | 6.18 |
| | 10,000 |
|
| Total | 1,472,730 |
| | $ | 6.17 |
| | $ | 19,277 |
|
The Company declared cash dividends per share for the following periods presented below:
|
| | | | | | | |
| | | | |
| | Dividends per share for |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| First Quarter | $ | 0.030 |
| | $ | 0.025 |
|
| Second Quarter | 0.030 |
| | 0.025 |
|
| Third Quarter | 0.030 |
| | 0.025 |
|
| Total cash dividends declared | $ | 0.090 |
| | $ | 0.075 |
|
|
| | | | | | | |
| | Dividends per share for the |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
First Quarter (1) | $ | 0.040 |
| | $ | 0.035 |
|
(1) See Note (23) Subsequent Events for when dividend was declared.
Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions
The Company's regulated insurance company subsidiaries may pay dividends to the Company,our insurance holding company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Companyour insurance holding company are permitted only with prior approval of the insurance department of the applicable state of domicile. The Company eliminated all dividends from its subsidiaries in the condensed consolidated financial statements. For the three and nine months ended September 30, 2017 and 2016, respectively, the Company’s insurance company subsidiaries did not pay any ordinary or extraordinary dividends.
|
| | | | | | | |
| The following table presents the dividends paid to our insurance holding company by its regulated insurance company subsidiaries for the following periods: |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Ordinary dividends | $ | 9,001 |
| | $ | — |
|
| Extraordinary dividends | 1,188 |
| | — |
|
| Total dividends | $ | 10,189 |
| | $ | — |
|
The following table presents the combined statutory capital and surplus of the Company's insurance company subsidiaries, the required minimum statutory capital and surplus, as required by the laws of the states in which they are domiciled, and the combined amount available for ordinary dividends of the Company's insurance company subsidiaries for the following periods:
| | | | As of | As of |
| | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | December 31, 2018 |
| Combined statutory capital and surplus of the Company's insurance company subsidiaries | $ | 108,666 |
| | $ | 100,920 |
| $ | 122,471 |
| | $ | 131,859 |
|
| | | | | | | |
| Required minimum statutory capital and surplus | $ | 19,200 |
| | $ | 17,200 |
| $ | 17,950 |
| | $ | 17,950 |
|
| | | | | | | |
| Amount available for ordinary dividends of the Company's insurance company subsidiaries | $ | 9,425 |
| | $ | 9,049 |
| $ | 4,531 |
| | $ | 13,532 |
|
At September 30, 2017,March 31, 2019, the maximum amount of dividends that our regulated insurance company subsidiaries could pay under applicable laws and regulations without regulatory approval was approximately $9,425.$4,531. The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought.
Under the National Association of Insurance Commissioners (NAIC) Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's insurance
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of September 30, 2017.March 31, 2019.
The following table presents the net income of the Company’s statutory insurance companies for the following periods: |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income of statutory insurance companies | $ | 391 |
| | $ | 4,199 |
| | $ | 6,745 |
| | $ | 10,326 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Net income of statutory insurance companies | $ | 951 |
| | $ | 6,172 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(18)(17) Accumulated Other Comprehensive Income (Loss)
The following table presents the activity in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods:
| | | | Unrealized gains (losses) on | | | | Amount attributable to noncontrolling interests | | | Unrealized gains (losses) on | | Amount attributable to noncontrolling interests | | |
| | Available for sale securities | | Interest rate swaps | | Total AOCI | | TFP | | Other | | Total AOCI to Tiptree Inc. | Available for sale securities | | Interest rate swaps | | Total AOCI (loss) | | TFP | | Other | | Total AOCI (loss) to Tiptree Inc. |
| Balance at December 31, 2015 | $ | (222 | ) | | $ | 111 |
| | $ | (111 | ) | | $ | — |
| | $ | — |
| | $ | (111 | ) | |
| Balance at December 31, 2017 | | $ | (460 | ) | | $ | 2,074 |
| | $ | 1,614 |
| | $ | (222 | ) | | $ | (426 | ) | | $ | 966 |
|
| Other comprehensive income (losses) before reclassifications | | (1,789 | ) | | 835 |
| | (954 | ) | | 61 |
| | 210 |
| | (683 | ) |
| Amounts reclassified from AOCI | | 415 |
| | — |
| | 415 |
| | — |
| | — |
| | 415 |
|
Reclassification of AOCI - interest rate swaps (1) | | — |
| | (2,909 | ) | | (2,909 | ) | | 502 |
| | 226 |
| | (2,181 | ) |
| Period change | | (1,374 | ) | | (2,074 | ) | | (3,448 | ) | | 563 |
| | 436 |
| | (2,449 | ) |
| Balance at March 31, 2018 | | $ | (1,834 | ) | | $ | — |
| | $ | (1,834 | ) | | $ | 341 |
| | $ | 10 |
| | $ | (1,483 | ) |
| | | | | | | | | | | | | |
| Balance at December 31, 2018 | | $ | (2,069 | ) | | $ | — |
| | $ | (2,069 | ) | | $ | — |
| | $ | 11 |
| | $ | (2,058 | ) |
| Other comprehensive income (losses) before reclassifications | 2,448 |
| | (357 | ) | | 2,091 |
| | (237 | ) | | 29 |
| | 1,883 |
| 2,415 |
| | — |
| | 2,415 |
| | — |
| | (11 | ) | | 2,404 |
|
| Amounts reclassified from AOCI | (715 | ) | | (26 | ) | | (741 | ) | | — |
| | — |
| | (741 | ) | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
| Period change | 1,733 |
| | (383 | ) | | 1,350 |
| | (237 | ) | | 29 |
| | 1,142 |
| 2,419 |
| | — |
| | 2,419 |
| | — |
| | (11 | ) | | 2,408 |
|
| Balance at September 30, 2016 | $ | 1,511 |
| | $ | (272 | ) | | $ | 1,239 |
| | $ | (237 | ) | | $ | 29 |
| | $ | 1,031 |
| |
| | | | | | | | | | | | | |
| Balance at December 31, 2016 | $ | (700 | ) | | $ | 1,759 |
| | $ | 1,059 |
| | $ | (128 | ) | | $ | (376 | ) | | $ | 555 |
| |
| Other comprehensive income (losses) before reclassifications | 1,165 |
| | (296 | ) | | 869 |
| | (154 | ) | | 48 |
| | 763 |
| |
| Amounts reclassified from AOCI | (238 | ) | | 143 |
| | (95 | ) | | — |
| | — |
| | (95 | ) | |
| Period change | 927 |
| | (153 | ) | | 774 |
| | (154 | ) | | 48 |
| | 668 |
| |
| Balance at September 30, 2017 | $ | 227 |
| | $ | 1,606 |
| | $ | 1,833 |
| | $ | (282 | ) | | $ | (328 | ) | | $ | 1,223 |
| |
Adoption of accounting standard (2) | | (99 | ) | | — |
| | (99 | ) | | — |
| | — |
| | (99 | ) |
| Balance at March 31, 2019 | | $ | 251 |
| | $ | — |
| | $ | 251 |
| | $ | — |
| | $ | — |
| | $ | 251 |
|
| |
(1) | Relates to the sale of Care. See Note (3) Dispositions, Assets Held for Sale & Discontinued Operations. |
| |
(2) | Amounts reclassified to retained earnings due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies. |
The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the condensed consolidated statement of operations for the following periods:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Affected line item in Condensed Consolidated Statement of Operations | Three Months Ended
March 31, | Affected line item in condensed consolidated statement of operations |
| Components of AOCI | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Unrealized gains (losses) on available for sale securities | $ | 394 |
| | $ | 960 |
| | $ | 367 |
| | $ | 1,100 |
| Net realized and unrealized gains (losses) | $ | (5 | ) | | $ | (527 | ) | Net realized and unrealized gains (losses) |
| Related tax (expense) benefit | (138 | ) | | (336 | ) | | (129 | ) | | (385 | ) | Provision for income tax | 1 |
| | 112 |
| Provision for income tax |
| Net of tax | $ | 256 |
| | $ | 624 |
| | $ | 238 |
| | $ | 715 |
|
| $ | (4 | ) | | $ | (415 | ) |
|
| | | | | | | | | | | | | |
| Unrealized gains (losses) on interest rate swaps | $ | 25 |
| | $ | (172 | ) | | $ | (212 | ) | | $ | 56 |
| Interest expense | |
Reclassification of AOCI - interest rate swaps (1) | | $ | — |
| | $ | 3,845 |
| Gain on sale of discontinued operations |
| Related tax (expense) benefit | (8 | ) | | 54 |
| | 69 |
| | (30 | ) | Provision for income tax | — |
| | (936 | ) | Provision for income tax |
| Net of tax | $ | 17 |
| | $ | (118 | ) | | $ | (143 | ) | | $ | 26 |
|
| $ | — |
| | $ | 2,909 |
|
|
(19) Stock Based Compensation | |
(1) | Relates to the sale of Care. See Note (3) Dispositions, Assets Held for Sale & Discontinued Operations. |
Equity Plans
2007 Manager Equity Plan
The Care Investment Trust Inc. Manager Equity Plan (Manager Plan) was adopted in June 2007. On June 6, 2017, the 134,629 remaining shares of Class A common stock available for issuance under the Manager Plan was rolled into the 2017 Equity Plan and the Manager Plan was simultaneously terminated.
2013 Omnibus Incentive Plan
The Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) was adopted on August 8, 2013. On June 6, 2017, the 7,359 remaining shares of Class A common stock available for issuance under the 2013 Equity Plan was rolled into the 2017 Equity Plan and the 2013 Equity Plan was simultaneously terminated.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2019
(in thousands, except share data)
(18) Stock Based Compensation
2017 Omnibus Incentive Plan
The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of stock units, stock, and stock options up to a maximum of 6,100,000 shares of Class A common stock.Common Stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on the 10th anniversary of its adoption.
June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2013 and 2017 Equity Plan for the periods indicated:indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Common Stock:
|
| | |
2013 Equity Plan | Number of shares (1) |
Available for issuance as of December 31, 20162018 | 961,6505,474,214 |
|
SharesRSU and option awards granted | (954,291 | ) |
Shares rolled into 2017 Equity Plan | (7,359659,898 | ) |
Available for issuance as of September 30, 2017March 31, 2019 | — |
|
| |
2017 Equity Plan | Number of shares (1)
|
Available for issuance as of December 31, 2016 | — |
|
Available from 2017 Equity Plan | 6,100,000 |
|
Shares granted | (71,016 | ) |
Available for issuance as of September 30, 2017 | 6,028,9844,814,316 |
|
(1) Excludes shares granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Class A common stock.
| |
(1) | Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Common Stock. |
Restricted Stock Units (RSUs)(RSUs)
Tiptree Corporate Incentive Plans
Generally, the Tiptree RSUs shall vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.
The following table summarizes changes to the issuances of Class A common stock and RSUs under the 2017 Equity Plan for the periods indicated:
| | | | | Number of shares issuable | | Weighted average grant date fair value | Number of shares issuable | | Weighted average grant date fair value |
| Unvested units as of December 31, 2016 | | 299,817 |
| | $ | 6.27 |
| |
| Unvested units as of December 31, 2018 | | 676,630 |
| | $ | 6.27 |
|
Granted (1) | | 454,680 |
| | 6.60 |
| 434,083 |
| | 6.24 |
|
| Vested | | (155,615 | ) | | 6.42 |
| (143,785 | ) | | 6.45 |
|
| Unvested units as of September 30, 2017 | | 598,882 |
| | $ | 6.48 |
| |
| Unvested units as of March 31, 2019 | | 966,928 |
| | $ | 6.23 |
|
(1) Includes grants of 27,192 shares of Class A common stock | |
(1) | Includes grants of 14,028, shares of Common Stock to directors. |
The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stockCommon Stock price. Included in vested shares for 20172019 are 16,71635,622 shares surrendered to pay taxes on behalf of the employees with shares vesting. During the ninethree months ended September 30, 2017,March 31, 2019, the Company granted 427,488420,055 RSUs to employees of the Company. 142,175307,148 shares vest ratably over a period of three years that began in February 20172019 and the remaining 285,313112,907 shares will cliff vest in February 2020.2021.
Subsidiary Incentive Plans
Certain of Tiptree’sthe Company’s subsidiaries have established RSU programs under which they are authorized to issue RSUs or their equivalents, representing equity of such subsidiaries to certain of their employees. Such awards are accounted for as equity. These RSUs are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting RSUs) and time-vesting subject to continued employment (time vesting RSUs). Following the service period, such vested RSUs may be exchanged at fair market value, at the option of the holder, for Tiptree Class A common stockCommon Stock under the 2017 Equity Plan.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The Company has the option, but not the obligation to settle the exchange right in shares or cash.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
The following table summarizes changes to the issuances of subsidiary RSU’s under the subsidiary incentive plans for the periods indicated:
|
| | | | |
| | | Grant date fair value of equity shares issuable |
| Unvested balance as of December 31, 2016 | | $ | 8,089 |
|
| Vested | | (2,436 | ) |
Grant value adjustment (1) | | (210 | ) |
Unvested balance as of September 30, 2017 (2) | | $ | 5,443 |
|
|
| | | |
| | Grant date fair value of equity shares issuable |
| Unvested balance as of December 31, 2018 | $ | 8,710 |
|
| Granted | — |
|
| Vested | (4,644 | ) |
| Unvested balance as of March 31, 2019 | $ | 4,066 |
|
(1) Due to the approval of the 2017 Equity Plan, Tiptree changed the classification of the subsidiary RSU’s during the three months ended September 30, 2017 from liability to equity awards, because the Company expects to settle these awards in stock.
(2) The vested and unvested balance (assuming full vesting) translates to 1,093,139an aggregate of 2,584,667 shares of Class A common stockCommon Stock if converted as of September 30, 2017.March 31, 2019.
Stock Options - Tiptree Corporate
Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stockCommon Stock on the date of grant; thosegrant. The option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and generally vest over five years beginningone third on each of the 3rdthird, fourth and fifth anniversary of the grant date. Options granted during the year ended December 31, 2016 contained aThe market requirement that, at any time during the option term, the 20-day volume weighted average stock price must exceed the December 31, 2015is a book value per share. Options granted in 2017 contained a market requirementshare target that at any time during the option term, the 20-day volume weighted average stock price plus the sum of actual cash dividends paid must exceed the December 31, 2016 as exchanged book value per share. The market requirement maycan be met at any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted in 2018 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date.
The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.
The following table presents the assumptions used to estimate the fair values of the stock options granted for the following period:periods:
|
| | | | | |
Valuation Input | | Nine Months Ended September 30, 2017 |
| | Assumption | | Average |
Historical volatility | | 47.20 | % | | N/A |
Risk-free rate | | 2.44 | % | | N/A |
Dividend yield | | 1.80 | % | | N/A |
Expected term (years) | | | | 6.5 |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
|
| | | | | | | | |
| Valuation Input | | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 |
| | | Assumption | | Average | | Assumption | | Average |
| Historical volatility | | 27.69% | | N/A | | 30.63% | | N/A |
| Risk-free rate | | 2.62% | | N/A | | 2.85% | | N/A |
| Dividend yield | | 2.21% | | N/A | | 2.03% | | N/A |
| Expected term (years) | |
| | 6.5 | | | | 6.5 |
The following table presents the Company's stock option activity for the current period:
|
| | | | | | | | | | | | | |
| | Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
| Balance, December 31, 2016 | 251,237 |
| | $ | 5.69 |
| | $ | 2.62 |
| | — |
|
| Granted | 570,627 |
| | 6.65 |
| | 2.91 |
| | — |
|
| Balance, September 30, 2017 | 821,864 |
| | $ | 6.36 |
| | $ | 2.82 |
| | — |
|
| | | | | | | | |
| Weighted average remaining contractual term at September 30, 2017 (in years) | 9.1 |
| | | | | | |
|
| | | | | | | | | | | | | |
| | Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
Balance, December 31, 2018 (1) | 1,064,527 |
| | $ | 6.24 |
| | $ | 2.61 |
| | — |
|
| Granted | 225,815 |
| | 6.26 |
| | 1.69 |
| | — |
|
| Balance, March 31, 2019 | 1,290,342 |
| | 6.24 |
| | 2.45 |
| | — |
|
| | | | | | | | |
| Weighted average remaining contractual term at March 31, 2019 (in years) | 8.2 |
| | | | | | |
| |
(1) | Book value targets for grants in 2018, 2017, and 2016 are $10.79, $9.97, and $10.14, respectively. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Stock-based Compensation Expense
The following table presents the total time-based and performance-based stock-based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Employee compensation and benefits | $ | 1,135 |
| | $ | 633 |
| | $ | 4,275 |
| | $ | 1,597 |
| $ | 1,331 |
| | $ | 1,233 |
|
Professional fees (1) | — |
| | 35 |
| | — |
| | 99 |
| |
| Director compensation | | 77 |
| | 74 |
|
| Income tax benefit | (401 | ) | | (236 | ) | | (1,509 | ) | | (599 | ) | (304 | ) | | (282 | ) |
| Net stock-based compensation expense | $ | 734 |
| | $ | 432 |
| | $ | 2,766 |
| | $ | 1,097 |
| $ | 1,104 |
| | $ | 1,025 |
|
| |
(1) | Professional fees consist of the value of restricted stock units and options granted to persons providing services to the Company. |
Additional information on total non-vested stock-based compensation is as follows:
| | | | As of | As of |
| | September 30, 2017 | March 31, 2019 |
| | Stock options | | Restricted stock awards and RSUs | Stock options | | Restricted stock awards and RSUs |
| Unrecognized compensation cost related to non-vested awards | $ | 1,798 |
| | $ | 9,176 |
| $ | 1,449 |
| | $ | 6,973 |
|
| Weighted - average recognition period (in years) | 3.1 |
| | 1.8 |
| 2.15 |
| | 1.47 |
|
(20) Related Party Transactions
On June 30, 2012, TAMCO, TFP and Tricadia Holdings LP (Tricadia) entered into the Transition Services Agreement (TSA) in connection with the internalization of the management of Tiptree which was assigned to the Company in connection with the Contribution Transactions. Pursuant to the TSA, Tricadia provides the Company with the services of its Executive Chairman and office space and in 2016, information technology services. Payments to Tricadia for the services of our Executive Chairman are included in employee compensation and benefits.
TFP and Back Office Services Group, Inc. (BOSG) entered into an administrative services agreement on June 12, 2007 (Administrative Services Agreement), which was assigned to Tiptree on July 1, 2013 in connection with the Contribution Transactions, under which BOSG provided certain back office, administrative and accounting services to the Company and its subsidiaries. BOSG is an affiliate of Mariner Investment Group (Mariner). As of June 30, 2016, the Company has concluded that Mariner no longer meets the definition of a related party. This agreement was terminated on December 31, 2016.Payments under the TSA and Administrative Services Agreement in the three and nine months ended September 30, 2017 and 2016 were not material.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(21)(19) Income Taxes
The following table represents the income tax expense (benefit):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Income tax expense (benefit) | $ | (2,052 | ) | | $ | 3,712 | | | $ | (2,761 | ) | | $ | 5,298 | | |
| Total income tax expense (benefit) from continuing operations | | $ | 854 | | | $ | (1,568 | ) |
| | | | | | | | | | | | | | | | | |
| Effective tax rate (ETR) | 37.8 | % | (1) | | 32.3 | % | (1) | | 27.3 | % | (2) | | 19.2 | % | (3) | 16.6 | % | (1) | | 22.3 | % | (2) |
| | | | | | | |
| Income tax expense (benefit) from discontinued operations | | $ | — | | | $ | 12,327 | |
(1) Bears a customary relationship to the federal statutory income tax rate.
(2) Lower than the federal statutory income tax rate, primarily due a change in fair value of a contingent consideration liability, an increase in a valuation allowance on net operating losses, and various other discrete items. The ETR for the nine months ended September 30, 2017 excluding the effect of discrete items was 28.1%, which is lower than the federal statutory income tax rate, primarily due to a state tax benefit and the effect of non-controlling interests at certain subsidiaries.
(3) Lower than the federal statutory income tax rate primarily due to $4,044 of discrete tax benefits for the period, primarily related to the tax restructuring that resulted in a consolidated corporate tax group effective January 1, 2016. | |
(1) | Lower than the U.S. federal statutory income tax rate of 21% due to the effect of the dividends received deduction and other discrete items, partially offset by the impact of valuation allowance, state taxes, and the impact of foreign operations. |
| |
(2) | Higher than the U.S. federal statutory income tax rate of 21% due to the effect of state income taxes and the dividends received deduction, partially offset by the impact of valuation allowance and other discrete items. |
(22)(20) Commitments and Contingencies
Contractual ObligationsOperating Leases
The table below summarizesAll leases are office space leases and are classified as operating leases that expire through 2028. Some of our office leases include the Company’s contractual obligations by period that payments are due:option to extend for up to five years or less at management’s discretion. Such extension options were not included in the measurement of the lease liability. Below is a summary of our right of use asset and lease liability as of March 31, 2019.
|
| | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
| | Less than one year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Operating lease obligations (1) | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
| Total | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
|
| | | |
| | As of March 31, 2019 |
| Right of use asset - Operating leases | $ | 29,564 |
|
| | |
| Operating lease liability | $ | 31,473 |
|
| | |
| Weighted-average remaining lease term (years) | 7.2 |
|
| | |
Weighted-average discount rate (1) | 7.0 | % |
(1) Discount rate was determined by applying available market rates to lease obligations based upon their term.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
As of March 31, 2019, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows:
|
| | | | | | | | | |
(1) | Minimum rental obligations for Tiptree, Care, Siena, Luxury, Reliance and Fortegra office leases. | | | | | | | | |
|
| | | |
| | March 31, 2019 |
| Remainder of 2019 | $ | 4,425 |
|
| 2020 | 6,597 |
|
| 2021 | 6,293 |
|
| 2022 | 5,020 |
|
| 2023 | 4,394 |
|
| 2024 and thereafter | 15,925 |
|
| Total minimum payments | 42,654 |
|
| Less: liabilities held for sale | (601 | ) |
| Less: present value adjustment | (10,580 | ) |
| Total | $ | 31,473 |
|
The following table presents rent expense for the Company’s office leases recorded on the condensed consolidated statements of operations:operations for the following periods:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Rent expense for office leases | $ | 1,745 |
| �� | $ | 1,630 |
| | $ | 5,230 |
| | $ | 4,820 |
|
In August 2017, Tiptree entered into a lease for office space. The terms of the lease are $2,322 per annum for five years starting on the one year anniversary of the commencement date. Upon the six year anniversary of the commencement date, the lease escalates to $2,520 per annum for five years. The expected commencement date is July 1, 2018.
In addition, Tiptree’s subsidiary Siena issues standby letters of credit for credit enhancements that are required by its borrower’s respective businesses. As of September 30, 2017, there was $400 outstanding relating to these letters of credit. |
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Rent expense for office leases | $ | 2,349 |
| | $ | 1,495 |
|
Litigation
The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006, in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015,
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
the trial court issued an Order denying Fortegra’sthe Company’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied Fortegra’sthe Company’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on such motion with respectpolicies. In January 2018, the court vacated its November 2017 order granting Company’s Motion for Summary Judgment as to the life insurance policiescertificates at issue. In June, a new Special Master was appointed.issue with leave to refile. No trial or additional hearings are currently scheduled.
The Company considers such litigation customary in the insurance industry. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible.
The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’sthe Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on the Company’s financial position.
(23)(21) Earnings Per Share
The Company calculates basic net income per Class A common share of Common Stock (Common Share) based on the weighted average number of Class A common sharesCommon Shares outstanding (inclusive of vested restricted share units). The unvested restricted share units have the non-forfeitable right to participate in dividends declared and paid on the Company’s common stockCommon Stock on an as vested basis and are therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method, and for the three and nine months ended September 30, 2017March 31, 2019 and September 30, 2016,2018, the income available to common stockholdersCommon Stockholders was allocated to the unvested restricted stock units.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Diluted net income per Class A common sharesCommon Share for the period includes the effect of potential equity of subsidiaries as well as potential Class A common stock, if dilutive.subsidiaries. For the three months and nine months ended September 30, 2017,March 31, 2019, the assumed exercise of all potentially dilutive instruments were anti-dilutive, and therefore, were not included in the diluted net income per Class A common share calculation.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents a reconciliation of basic and diluted net income per common shareCommon Share for the following periods:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Net income (loss) | $ | (3,378 | ) | | $ | 7,838 |
| | $ | (7,360 | ) | | $ | 22,273 |
| |
| Net income (loss) from continuing operations | | $ | 4,301 |
| | $ | (5,475 | ) |
| Less: | | | | | | | | | | |
| Net income (loss) attributable to non-controlling interests | (264 | ) | | 1,933 |
| | (903 | ) | | 4,680 |
| 376 |
| | (1,116 | ) |
| Net income allocated to participating securities | — |
| | 60 |
| | — |
| | 148 |
| 85 |
| | — |
|
| Net income (loss) attributable to Tiptree Inc. Class A common shares - basic | $ | (3,114 | ) | | $ | 5,845 |
| | $ | (6,457 | ) | | $ | 17,445 |
| |
| Net income (loss) from continuing operations attributable to Common Shares | | 3,840 |
| | (4,359 | ) |
| | | | | |
| Net income (loss) from discontinued operations | | — |
| | 34,481 |
|
| Less: | | | | |
| Net income (loss) from discontinued operations attributable to non-controlling interests | | — |
| | 6,562 |
|
| Net income allocated to participating securities | | — |
| | — |
|
| Net income (loss) from discontinued operations attributable to Common Shares | | — |
| | 27,919 |
|
| Net income (loss) attributable to Common Shares - basic | | $ | 3,840 |
| | $ | 23,560 |
|
| Effect of Dilutive Securities: | | | | | | | | | | |
| Securities of subsidiaries | — |
| | (50 | ) | | — |
| | (148 | ) | (170 | ) | | — |
|
| Adjustments to income relating to exchangeable interests, net of tax | — |
| | 1,362 |
| | — |
| | — |
| — |
| | — |
|
| Net income (loss) attributable to Tiptree Inc. Class A common shares - diluted | $ | (3,114 | ) | | $ | 7,157 |
| | $ | (6,457 | ) | | $ | 17,297 |
| |
| Net income (loss) attributable to Common Shares - diluted | | $ | 3,670 |
| | $ | 23,560 |
|
| | | | | | | | | | | |
| Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - basic | 29,455,462 |
| | 29,143,470 |
| | 28,908,195 |
| | 32,845,124 |
| |
| Weighted average number of incremental shares of Tiptree Inc. Class A common stock issuable from exchangeable interests and contingent considerations | — |
| | 8,087,180 |
| | — |
| | 67,392 |
| |
| Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - diluted | 29,455,462 |
| | 37,230,650 |
| | 28,908,195 |
| | 32,912,516 |
| |
| Weighted average number of shares of Common Stock outstanding - basic | | 34,673,054 |
| | 29,861,496 |
|
| Weighted average number of incremental shares of Common Stock issuable from exchangeable interests and contingent considerations | | — |
| | — |
|
| Weighted average number of shares of Common Stock outstanding - diluted | | 34,673,054 |
| | 29,861,496 |
|
| | | | | | | | | | | |
| Basic: | | | | | | | | | | |
| Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.20 |
| | $ | (0.22 | ) | | $ | 0.53 |
| |
| Net income (loss) from continuing operations | | $ | 0.11 |
| | $ | (0.15 | ) |
| Net income (loss) from discontinued operations | | — |
| | 0.94 |
|
| Net income (loss) attributable to Common Shares | | $ | 0.11 |
| | $ | 0.79 |
|
| | | | | | | | | | | |
| Diluted: | | | | | | | | | | |
| Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.19 |
| | $ | (0.22 | ) | | $ | 0.53 |
| |
| Net income (loss) from continuing operations | | $ | 0.11 |
| | $ | (0.15 | ) |
| Net income (loss) from discontinued operations | | — |
| | 0.94 |
|
| Net income (loss) attributable to Common Shares | | $ | 0.11 |
| | $ | 0.79 |
|
(24)(22) Related Party Transactions
On February 15, 2019, the Company and Corvid Peak (formerly known as Tricadia), entered into a Strategic Combination Agreement and Amended and Restated Transition Services Agreement (the Transition Services Agreement). Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman. Tiptree agreed to invest $75 million to seed new investment funds to be managed by Corvid Peak.
No consideration was paid at the closing of the Strategic Combination Agreement. Tiptree will over time receive a 51% economic interest in certain profit shares interests in Corvid Peak, in increments stepping up by 10.2% each year, beginning in 2021. Beginning on January 1, 2026, Tiptree has the right to acquire the remaining economic interests in Corvid Peak that are held by Mr. Barnes, based upon a fair value-based formula. Beginning on January 1, 2027, Mr. Barnes has the reciprocal right to put his remaining economic interests in Corvid Peak to Tiptree using the same formula. Mr. Barnes has substantive participating rights over specified actions at Corvid Peak so long as he owns at least 10% of the equity of Corvid Peak. Tiptree and Corvid Peak have agreed to provide each other with certain support services on an arms’-length basis, pursuant to the Transition Services Agreement. The Company has concluded that it will account for any ownership interest it obtains in Corvid Peak using the equity method of accounting until such time as a controlling financial interest (as defined in the applicable accounting guidance) in Corvid Peak is obtained.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)
Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another (the Services). At the present time, the Services consist primarily of Tiptree providing to Corvid Peak office space, legal and compliance services, information technology services, insurance coverage, and certain finance, accounting and tax services. The Services are provided on arms’-length terms. The effective date of the Transition Services Agreement is January 1, 2019.
The Transition Services Agreement will terminate upon a change of control of Corvid Peak. Corvid Peak may terminate any Services upon 30 days written notice and Tiptree may terminate any Services upon 150 days written notice, but Tiptree may not terminate any Services prior June 30, 2020.
Payments under the Transition Services Agreement in the three months ended March 31, 2019 and 2018 were not material.
(23) Subsequent Events
On NovemberMay 2, 2017,2019, the Company’s board of directors declared a quarterly cash dividend of $0.03$0.04 per share to Class A stockholdersholders of Common Stock with a record date of NovemberMay 20, 2017,2019, and a payment date of NovemberMay 27, 2017.
On October 16, 2017, Fortegra completed a private placement offering of $125,000 of 8.50% Fixed Rate Resetting Junior Subordinated Notes due 2057 (the “Notes”). Substantially all of the net proceeds from the Notes were used to repay Fortegra’s existing credit facility, which was terminated thereafter. The Notes, which are issued under an indenture, are the unsecured obligations of Fortegra and rank in right of payment and upon liquidation, junior to all of Fortegra’s current and future senior indebtedness. The Notes are not obligations of or guaranteed by any of Fortegra’s subsidiaries or any other Tiptree entities. So long as no event of default has occurred and is continuing, Fortegra may defer all or part of the interest payments on the Notes on one or more occasions for up to five consecutive years per deferral period. The indenture governing the Notes contains customary affirmative and negative covenants and events of default.2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Conditions and Results of Operations is presented in this section as follows:
Overview
Results of Operations
Non-GAAP Reconciliations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
Off-Balance Sheet Arrangements
OVERVIEW
Tiptree is a holding company focused on enhancing shareholder value by generating consistent and growing earnings at ourthat combines insurance operations with investment management capabilities. Our principal operating companies. Our strategy employssubsidiary is a differentiated model, where we combine aleading provider of specialty insurance underwriting platform with our broader asset managementproducts and related services. We also allocate capital allocation capabilities,across a broad spectrum of businesses, assets and other investments, which we believe distinguishes us from many other insurance companies.refer to as Tiptree Capital. When considering capital allocation decisions, we take a diversified approach looking across sectors, geographies and asset classes, all with a longer-term horizon for our businesses and investments.investment horizon. We evaluate our performance primarily by the comparison of our shareholder’s long-term total return on capital, as measured by Adjusted EBITDA, Operating EBITDA and growth in book value per share plus dividends.
During the first quarter 2019, we executed on several strategic initiatives:
Overall:
Delivered a quarterly return of 3.1%, as measured by growth in book value per share plus dividends paid.
Year-to-date 2019, we purchased and retired 1,472,730 shares of our Common Stock for $9.1 million through open market purchases and block purchases.
Increased our quarterly dividend for the third consecutive year to $0.04 per share, a 14.3% increase.
We currently have four reporting segments: specialtyInsurance:
Gross written premiums for first quarter 2019 were $198.4 million, down 1.1% from the prior year. Net written premiums were $121.0 million, up 10.8%, driven by growth in credit and warranty products.
Within our insurance investment portfolio, we reduced our exposure to levered credit by selling approximately $80.0 million of assets and repaying asset-based debt.
Tiptree Capital:
In 2019, began re-positioning our asset management senior living,platform, by agreeing to invest $75 million to seed new investment funds in exchange for management control of, and specialty finance. Corporate and other primarily contains corporate expenses not allocated to the operating businesses. See Note—(4) Operating Segment Data,a profit participation in, the notes to the accompanying condensed consolidated financial statements for detailed information regarding our segments. Since different factors affect the financial condition and results of operation of each segment, the following discussion is presented on both a consolidated and segment basis.Corvid Peak (formerly known as Tricadia).
Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth, business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the other factors set forth in Item 1A. “Risk Factors” ofin our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.10-K. Generally, our businesses are positively affected by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and the aging U.S. population.global growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition.
Our specialty insurance business generally focuses on products which have low severity but high frequency loss experiences and are short-duration. Our insurance business has historically generated significant fee based revenues. In general, the types of products we offer tend to have limited aggregation risk, and thus, limited exposure to catastrophic and residual risk. We mitigate our underwriting risk through a combination of reinsurance and retrospective commission structures with our distribution partners and/or third-party reinsurers. Our insurance results primarily depend on the appropriateness of our pricing, underwriting, risk retention and the accuracy of our methodology for the establishment of reserves, for future policyholder benefits and claims, thereinsurance arrangements, returns on and values of invested assets, and our ability to estimate policy and contract renewals and run-off. While our insurance operations have historically maintained a high percentage of fees to total revenue and a relatively stable combined ratio which support steady earnings, our initiatives to change our business mix along with economic factors could generate different results than we have historically seen. Inexperienced. We believe there are additional growth opportunities to expand our senior living operations, occupancy levelswarranty and operational costs could impact margins. While the aging demographics of the U.S. population generally favor seniors housing in the long term, in the short term, imbalances in the supplyspecialty programs insurance business model to other niche products and demand for available units could dampen occupancy levels and competition for qualified employees could increase payroll costs. In our asset management segment, improving business conditions and growing corporate loan demand, especially from small to medium sized businesses has generally supported growth in AUM. Slowing economic growth and/or economic uncertainty could reduce business investment and loan demand, slowing the growth in AUM and associated fees. Risk retention rules mandated by Dodd-Frank has also impacted our formation of new CLOs, while pressure to reduce management fees in more recent CLOs has slowed management fee growth.markets.
Our profitability is affected by netinsurance company investment portfolio primarily serves as a source to pay claims and secondarily as a source of income and realized and unrealized gains and losses.for our operations. Our invested assets are held principally ininvestments include fixed maturity securities, equity securities, loans, CLOs, credit investment funds, equity securities, real estate
and senior living related assets.CLOs. Many of our investments are held at fair value. Changes in fair value of this latter categoryfor loans, credit investment funds, equity securities and CLO assets and liabilities are reported quarterly as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, or market risk, including specific company or industry factors. Credit risk can impact our financial results in a number of ways, including the performance of our corporate loans, mortgage loans, holdings in CLO subordinated notes and other investments. When credit markets are performing well, loans held in our CLOs and credit fund investments may prepay, subjecting those investments to reinvestment risk. In deteriorating credit environments, default risk can impact the performance of our investments, as well as flowing through income as unrealized losses. Disruption in the credit markets can also impact our ability to raise third party funds to invest and grow our asset management fees. Our equity holdings are relatively concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value of our holdings and can result in unrealized gains and losses affecting our results. In addition, both as part of our insurance company investments and separately in Tiptree Capital, as of February 1, 2018, common shares of Invesque represent a significant asset on our balance sheet. Any change in the fair value of Invesque’s common stock or Invesque’s dividend policy could have a significant impact on our financial condition and results of operations.
The shipping industry is highly competitive and fragmented. Demand is a function of world economic conditions and the consequent requirement for commodities, production and consumption patterns, as well as events, which interrupt production, trade routes, and consumption. The shipping industry is cyclical with high volatility in charter hire rates and profitability. General market conditions, along with company and industry specific factors, can impact the fair value of our vessels and their operating results.
Our business iscan also be impacted in various ways by changes in interest rates. In addition to the impact interest rates, which can have on theresult in fluctuations in fair value of the assets, interest rates can also impact theour investments, revenues associated with floating rate loans, volume and revenues in our specialty finance business. In addition, most of our subsidiaries use debt financing to fund theirmortgage business activities, much of which isand interest expense associated with floating rate debt and the majority of which have LIBOR floors, LIBOR floors can result in a reduction in net interest margins in a declining interest rate environment, if earnings on our assets do not have similar floors or are based on different benchmarks than LIBOR, such as treasury rates or the prime rate. Certainused to fund many of our subsidiaries have also entered into interest rate swap agreements to fix all or a portion of their interest rate exposure which are currently designated as hedging relationships for accounting purposes.
All interim financial information included in the Management’s Discussion and Analysis of Financial Conditions and Results of Operations are unaudited.operations.
RESULTS OF OPERATIONS
The following is a summary of our consolidated financial results for the three and nine months ended September 30, 2017March 31, 2019 and 2016. Management2018. In addition to GAAP results, management uses the Non-GAAP measures Operating EBITDA, Adjusted EBITDA on a consolidated and segment basis, and book value per share as exchanged, as measurements of operating performance which are non-GAAP measures.performance. Management believes the use of Adjusted EBITDA providesthese measures provide supplemental information useful to investors as it isthey are frequently used by the financial community to analyze financial performance, and to analyze a company’s ability todebt service its debt and to facilitate comparison among companies. Management uses Operating EBITDA as part of its capital allocation process and to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. The Company defines Adjusted EBITDA isas GAAP net income of the Company adjusted to add (i) corporate interest expense, consolidated income taxes and consolidated depreciation and amortization expense, (ii) adjust for the effect of purchase accounting, (iii) adjust for non-cash fair value adjustments, and (iv) any significant non-recurring expenses. Operating EBITDA represents Adjusted EBITDA plus stock based compensation expense, less realized and unrealized gains and losses and less third party non-controlling interests. Operating EBITDA and Adjusted EBITDA are not a measurementmeasurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. Book
Selected Key Metrics
|
| | | | | | | |
| ($ in millions, except per share information) | Three Months Ended
March 31, |
| GAAP: | 2019 | | 2018 |
| Total revenues | $ | 183.9 |
| | $ | 148.1 |
|
| Net income (loss) before non-controlling interests | 4.3 |
| | 29.0 |
|
| Net income (loss) attributable to Common Stockholders | 3.9 |
| | 23.6 |
|
| Diluted earnings per share | 0.11 |
| | 0.79 |
|
| Cash dividends paid per common share | — |
| | — |
|
| | | | |
Non-GAAP: (1) | | | |
| Operating EBITDA | 12.6 |
| | 8.9 |
|
| Adjusted EBITDA | 14.6 |
| | 5.4 |
|
Book value per share (2) | 11.12 |
| | 10.59 |
|
(1) For information relating to Operating and Adjusted EBITDA and book value per share, as exchanged assumesincluding a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
(2) For periods prior to April 10, 2018, book value per share assumed full exchange of the limited partners units of TFP for Tiptree Class A common stock. Management believes the use of this financial measure provides supplemental information useful to investors as it is frequently used by the financial community to analyze company growth on a relative per share basis.
Summary Consolidated Statements of Operations
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| GAAP: | 2017 | | 2016 | | 2017 | | 2016 |
| Total revenues | $ | 164,519 |
| | $ | 132,160 |
| | $ | 486,297 |
| | $ | 395,059 |
|
| Net income before non-controlling interests | (3,378 | ) | | 7,838 |
| | (7,360 | ) | | 22,273 |
|
| Net income attributable to Tiptree Inc. Class A common stockholders | (3,114 | ) | | 5,905 |
| | (6,457 | ) | | 17,593 |
|
| Diluted earnings per share | (0.11 | ) | | 0.19 |
| | (0.22 | ) | | 0.53 |
|
| Cash dividends paid per common share | 0.03 |
| | 0.025 |
| | 0.09 |
| | 0.075 |
|
| | | | | | | | |
Non-GAAP: (1) | | | | | | | |
| Adjusted EBITDA | $ | 4,776 |
|
| $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
| Book Value per share, as exchanged | 9.67 |
| | 9.93 |
| | 9.67 |
| | 9.93 |
|
| |
(1) | For further information relating to the Company’s Adjusted EBITDA and book value per share, as exchanged, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.” |
Consolidated Results of OperationsCommon Stock.
Revenues
For the three months ended September 30, 2017, the Company reportedMarch 31, 2019, revenues of $164.5were $183.9 million, an increase of $32.4which increased $35.8 million, or 24.5%24.2%, fromover the three months ended September 30, 2016. For the nine months ended September 30, 2017, revenues were $486.3 million, anprior year period. The increase of $91.2 million, or 23.1%, from the nine months ended September 30, 2016. The primary drivers of the increase in revenues for the three and nine months werewas driven by growth in earned premiums, and net investment income in our specialty insurance segment, increases in rental income attributable to acquisitions of seniors housing properties and improved specialty finance originations margins, partially offset by reduced service and administrative fees, ceding commissions,and realized and unrealized losses, as compared to prior period gains, in our specialty insurance segment investment portfolio.
Net Income before non-controlling interests
For the three months ended September 30, 2017, the Company incurred a net loss of $3.4gains. Earned premiums were $119.0 million compared to net income of $7.8 million in the 2016 period. The primary drivers of the decline were the unrealized losses in our specialty insurance investment portfolio in the three months ended September 30, 2017 compared to unrealized gains in the 2016 period, run-off in our older vintage CLOs
resulting in reduced management fees, and reduced CLO distributions as the Company reduced its investments over the last twelve months.
For the nine months ended September 30, 2017, the Company incurred a net loss of $7.4 million compared to net income of $22.3 million in the 2016 period, a decrease of $29.6 million. The decline was primarily a result of the unrealized losses in our specialty insurance investment portfolio in the nine months ended September 30, 2017, compared to unrealized gains in the prior period, combined with increased stock-based compensation expense in the specialty insurance segment and an increase in the fair value of the contingent earn-out liability associated with our Reliance acquisition. These drivers were partially offset by reduced losses in our senior living and improved operating results in our specialty finance segments, excluding the impact of the Reliance earn-out. Additionally, the tax provision has increased year-over-year as a result of a $4.0 million tax benefit infor the three months ended March 31, 2016 which was2019, up from $101.6 million in the comparable 2018 period driven by growth in net written premiums. The combination of unearned premiums and deferred
revenues on the tax reorganization effective January 1, 2016. A discussionbalance sheet grew by $84.9 million, or 14.7%, from March 31, 2018 to March 31, 2019 as a result of the changesincreased written premiums in revenues, expensescredit protection, warranty and net income is presented belowother specialty programs.
Income (loss) before taxes (from continuing and in more detail in our segment analysis.discontinued operations)
The following table below highlights certain non-cash, key drivers impacting our consolidated results for the three and nine months ended September 30, 2017 and 2016. We believe highlighting these significant, non-cash items provides useful additional information to investors. As we mentioned above,on a pre-tax basis. Many of our investments are focused on a longer term investment horizon. In addition, our equity securities holdings are relatively concentrated, and are carried at fair value and marked to market through the current reporting period.unrealized gains and losses. As a result, we expect our earnings relating to these securitiesinvestments to be relatively volatile between periods in contrast to our fixed income securities, which are marked to market through AOCI,accumulated other comprehensive income (“AOCI”) in stockholders equity. On February 1, 2018, we sold our senior living operations to Invesque in exchange for a net of 16.6 million shares of Invesque common stock which is more consistent with the treatment used by other insurance companies. In order for investors to be able to compare the returnsresulted in a pre-tax gain on sale of both types$56.9 million in 2018, of investments, and to the portfolio performance of other insurance companies, we are highlighting the impact attributable to the unrealized and realized gains (losses) on equity securities in the table below.
We have also highlighted the impact of stock based compensation on the two periods below. Since a significant portion of our stock based compensation is performance based, and vests over multiple years, we believe that providing this information separately to investors allows them to evaluate the alignment of non-cash compensation to management, both at the holding company and at certain of our subsidiaries, with our overall performance trends.
In connection with our acquisition of Reliance, a portion of the purchase pricewhich $46.2 million was contingent on Reliance’s performancerecorded in the three years post acquisition, payable in Tiptree stock to the sellers. That contingent purchase price is carried as a liability on our balance sheetmonths ended March 31, 2018.
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| 2019 | | 2018 |
Net realized and unrealized gains (losses)(1) | $ | 4.0 |
| | $ | (7.7 | ) |
Discontinued operations (Care)(2) | $ | — |
| | $ | 46.8 |
|
is re-valued in each period. Increases or decreases in each period flow through the income statement,unrealized gains and are not deductible for tax purposes. Given Reliance’s performance over the latest performance measurement period, the contingent earn-out liability has increased, with the incremental value treated as an added expense in our financial statementslosses - Performing and NPLs.(2) Represents Care for the ninethree months ended September 30, 2017.March 31, 2018 including a $46.2 million pre-tax gain on sale.
Lastly, depreciation and amortization has increased, primarily as
Net Income (Loss) before non-controlling interests
For the three months ended March 31, 2019, net income before non-controlling interests was $4.3 million compared to $29.0 million in the 2018 period, a resultdecrease of additional acquisitions at$24.7 million. The decrease was driven by the non-repeat gain on sale of Care in 2018, partially offset by the reduction in VOBA at Fortegra. Because we carry our real estate assets at original cost,improved insurance operating performance and increased realized and unrealized gains on investments within Tiptree Capital and our strategy at Care is to purchase properties that require actions to improve their performance, we believe that highlighting the impact depreciation and amortization have on Tiptree’s overall results period over period, and on the carrying value of our real estate assets, is useful additional information for investors.insurance investment portfolio.
Key Non-Cash Drivers of Pre-tax Income and Adjusted EBITDA
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | Variance | | 2017 | | 2016 | | Variance |
| Unrealized & realized gains (losses) on equity securities | | $ | (11,125 | ) | | $ | 1,365 |
| | $ | (12,490 | ) | | $ | (21,183 | ) | | $ | 10,787 |
| | $ | (31,970 | ) |
| Stock-based compensation | | (1,135 | ) | | (633 | ) | | (502 | ) | | (4,275 | ) | | (1,597 | ) | | (2,678 | ) |
Reliance contingent earn-out liability (1) | | 422 |
| | — |
| | 422 |
| | (3,039 | ) | | — |
| | (3,039 | ) |
Depreciation and amortization (1) | | (7,775 | ) | | (6,437 | ) | | (1,338 | ) | | (23,781 | ) | | (21,899 | ) | | (1,882 | ) |
| |
(1) | Added back to Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to GAAP financials, see “—Non-GAAP Reconciliations.” |
Net Income (Loss) Available to Class A Common Stockholders
For the three months ended September 30, 2017,March 31, 2019, net lossincome available to Class A common stockholdersCommon Stockholders was $3.1$3.9 million, a decrease of $9.0 million from the prior year period. For the nine months ended September 30, 2017, net income available to Class A common stockholders was $6.5 million, a decrease of $24.1$19.6 million from the prior year period. The key drivers of net income available to Class A common stockholdersCommon Stockholders were the same factors which impacted the net income before non-controlling interests.
Operating and Adjusted EBITDA - Non-GAAP
Operating EBITDA for the three months ended March 31, 2019 was $12.6 million compared to $8.9 million for the 2018 period, an increase of $3.7 million, or 41.6%. The key drivers of the change were driven by increased Operating EBITDA from specialty insurance operations, improved performance in Tiptree Capital, and reduced corporate expenses.
Total Adjusted EBITDA for the three months ended September 30, 2017March 31, 2019 was $4.8$14.6 million compared to $20.1$5.4 million for the 20162018 period, a decrease of $15.3 million, or 76.0%. Total Adjusted EBITDA for the nine months ended September 30, 2017 was $23.3 million compared to $52.9 million for the 2016 period, a decrease of $29.5 million, or 55.8%. The key drivers of the change in Adjusted EBITDA were the same as those which impacted our net income, excluding the increase in the Reliance earn-outdriven by improved specialty insurance operations, realized and the year-over-year change in the tax provision.unrealized gains on investments, and reduced corporate expenses. See “— “— Non-GAAP Reconciliations” for a reconciliation to GAAP net income.
Book Value per share as exchanged- Non-GAAP
As exchanged bookTotal stockholders’ equity was $394.6 million as of March 31, 2019 compared to $407.7 million as of March 31, 2018, primarily driven by net income, which was more than offset by share repurchases and dividends paid. Over the past twelve months, Tiptree returned $28.0 million to shareholders through share repurchases and dividends paid. Book value per share for the period ended September 30, 2017March 31, 2019 was $9.67, down$11.12, an increase from $9.93book value per share, as exchanged, of $10.59 as of September 30, 2016.March 31, 2018. The key drivers of the year-over-yearperiod-over-period impact were increases from trailing twelve month diluted earnings per share and re-purchasesthe purchase of 1.03.6 million shares at an average 28%40% discount to book value. Those increases were more thanpartially offset by cumulative dividends paid of $0.115,$0.135 per share and officer and director compensation share issuances over the last twelve months and the exercise of the Tricadia Option in June 2017 resulting in 1.5 million shares being issued at $5.36 per share. Given the strike price of the option, the impact was a $0.19 reduction to book value per share.issuances.
Results by Segment
EffectiveTiptree is a holding company that combines insurance operations with investment management capabilities. Our principal operating subsidiary is a leading provider of specialty insurance products and related services. We also allocate capital across a broad spectrum of businesses, assets and other investments, which we refer to as Tiptree Capital. We classify our business into
one reportable segment, specialty insurance, with the remainder of our non-insurance operations aggregated into Tiptree Capital. For the year ended December 31, 2016, Tiptree realigned2018, Mortgage and Asset Management, which previously were reportable segments, no longer met the principal investments formerlyquantitative threshold for disclosure. Those are now reported in Other, which we refer to as Tiptree Capital. Prior year segments have been conformed to the corporatecurrent year presentation. Corporate activities include holding company interest expense, employee compensation and benefits, and other segment into their new reportable segments to align withexpenses. The following table presents the Company’s operating strategy. The table below reflects the creditcomponents of total pre-tax income including continuing and equity investments contributed to our insurance subsidiary in the specialty insurance segment and the CLO subordinated notes and related warehouse income in the asset management segment for the three and nine months ended September 30, 2017 and 2016.
Pre-tax Income by Segment
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Specialty insurance | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
|
| Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
| Senior living | (1,535 | ) | | (473 | ) | | (5,359 | ) | | (5,487 | ) |
| Specialty finance | 2,595 |
| | 4,181 |
| | 2,629 |
| | 5,510 |
|
| Corporate and other | (7,118 | ) | | (9,292 | ) | | (22,198 | ) | | (22,751 | ) |
| Pre-tax income | $ | (5,430 | ) | | $ | 11,550 |
| | $ | (10,121 | ) | | $ | 27,571 |
|
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| 2019 | | 2018 |
| Specialty Insurance | $ | 8.1 |
| | $ | 1.3 |
|
| Tiptree Capital | 5.9 |
| | (1.7 | ) |
| Corporate | (8.9 | ) | | (6.7 | ) |
| Pre-tax income (loss) from continuing operations | $ | 5.1 |
| | $ | (7.1 | ) |
Pre-tax income (loss) from discontinued operations (1) | $ | — |
| | $ | 46.8 |
|
| |
| (1) | Represents Care for the three months ended March 31, 2018 which includes $46.2 million pre-tax gain on sale. |
Invested Capital, Total Capital and Operating EBITDA by Segment - Non-GAAP (1)
Management evaluates the return on Invested Capital and Total Capital, which are non-GAAP financial measures, when making capital investment decisions. Invested Capital represents its total equity investment, including any re-investment of earnings, and acquisition costs, net of tax. Total Capital represents Invested Capital plus Corporate Debt. Management believes the use of these financial measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze how the Company has allocated capital over-time and provide a basis for determining the return on capital to shareholders. Management uses both of these measures when making capital investment decisions, including reinvesting cash, and evaluating the relative performance of its businesses and investments. The following tables present the components of Invested Capital, Total Capital, Operating EBITDA and Adjusted EBITDA.
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Specialty insurance | $ | 2,318 |
| | $ | 14,220 |
| | $ | 15,566 |
| | $ | 45,556 |
|
| Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
| Senior living | 2,859 |
| | 2,869 |
| | 8,293 |
| | 7,194 |
|
| Specialty finance | 2,382 |
| | 4,479 |
| | 6,288 |
| | 6,327 |
|
| Corporate and other | (5,756 | ) | | (7,915 | ) | | (19,897 | ) | | (20,867 | ) |
| Adjusted EBITDA | $ | 4,776 |
| | $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
|
| | | | | | | | | | | | | | | |
| As of March 31, |
| ($ in millions) | Invested Capital | | Total Capital |
| 2019 | | 2018 |
| 2019 | | 2018 |
| Specialty Insurance | $ | 297.6 |
|
| $ | 281.5 |
|
| $ | 465.2 |
|
| $ | 441.5 |
|
| Tiptree Capital | 175.9 |
|
| 147.2 |
|
| 175.9 |
|
| 147.2 |
|
| Corporate | (40.9 | ) |
| 15.2 |
|
| 30.2 |
|
| 43.2 |
|
| Total Tiptree | $ | 432.6 |
|
| $ | 443.9 |
|
| $ | 671.3 |
|
| $ | 631.9 |
|
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| 2019 | | 2018 |
| Specialty Insurance | $ | 13.7 |
| | $ | 13.3 |
|
Tiptree Capital (2) | 4.7 |
| | 3.3 |
|
| Corporate | (5.8 | ) | | (7.7 | ) |
| Operating EBITDA | $ | 12.6 |
| | $ | 8.9 |
|
| Stock-based compensation expense | (1.4 | ) | | (1.2 | ) |
| Vessel depreciation, net of capital expenditures | (0.6 | ) | | — |
|
Realized and unrealized gains (losses) (3) | 4.0 |
| | (2.2 | ) |
Third party non-controlling interests (4) | — |
| | (0.1 | ) |
| Adjusted EBITDA | $ | 14.6 |
| | $ | 5.4 |
|
| |
(1) | For further information relating to the Company’sInvested Capital, Total Capital, Operating EBITDA and Adjusted EBITDA, including a reconciliation of the Company’s segments’ Adjusted EBITDA to GAAP total stockholders equity and pre-tax income, see “—Non-GAAP Reconciliations.” |
| |
| (2) | Includes discontinued operations related to Care for the 2018 period. As of February 1, 2018, invested capital from Care discontinued operations is represented by our Invesque common shares. For more information, see “Note—(3) Dispositions, Assets Held for Sale & Discontinued Operations.” |
| |
| (3) | Excludes Mortgage realized and unrealized gains and losses - Performing and NPLs. |
| |
| (4) | Removes the Operating EBITDA associated with third party non-controlling interests. Does not remove the non-controlling interests related to employee based shares. |
Specialty Insurance
FortegraOur principal operating subsidiary is a provider of specialty insurance company that offers assetproducts and related services, including credit protection insurance, warranty products, throughand insurance programs which underwrite niche commercialpersonal and personalcommercial lines of insurance. We also offer fee-based administration and fronting services for our self-insured clients who own captive producer owned reinsurance companies (“PORCs”).
Our specialty insurance business generates We generate income from insurance underwriting operations and anour investment portfolio. Insurance underwriting operations revenues are primarily generated from net earned premiums, service and administrative fees and ceding commissions. We measure insurance underwriting operations performance by as adjusted underwriting margin, combined ratio and Adjusted
Operating EBITDA. The investment portfolio income consists of investment income, gains and losses and is measured by net portfolio income which is the equivalent of Adjusted EBITDA.income.
The following tables present the specialty insurance segment results for the three months ended March 31, 2019 and 2018.
Operating Results
| | | ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| ($ in millions) | | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Gross written premiums | | $ | 198.4 |
| | $ | 200.7 |
|
| Net written premiums | | 121.0 |
| | 109.2 |
|
| Revenues: | | | | | | | | | | |
| Net earned premiums | $ | 96,073 |
| | $ | 47,609 |
| | $ | 272,781 |
| | $ | 138,516 |
| $ | 119.0 |
| | $ | 101.6 |
|
| Service and administrative fees | 24,018 |
| | 25,842 |
| | 70,861 |
| | 84,421 |
| 25.9 |
| | 24.6 |
|
| Ceding commissions | 2,513 |
| | 1,397 |
| | 6,801 |
| | 22,645 |
| 2.5 |
| | 2.3 |
|
| Net investment income | 3,840 |
| | 3,307 |
| | 12,032 |
| | 8,409 |
| 4.3 |
| | 4.2 |
|
| Net realized and unrealized gains (losses) | (8,554 | ) | | 3,745 |
| | (13,618 | ) | | 12,767 |
| 2.1 |
| | (3.4 | ) |
| Other income | 824 |
| | 730 |
| | 2,874 |
| | 1,985 |
| 0.8 |
| | 0.7 |
|
| Total revenues | $ | 118,714 |
| | $ | 82,630 |
| | $ | 351,731 |
| | $ | 268,743 |
| $ | 154.6 |
| | $ | 130.0 |
|
| Expenses: | | | | | | | | | | |
| Policy and contract benefits | 31,570 |
| | 25,881 |
| | 94,364 |
| | 72,436 |
| 40.8 |
| | 36.6 |
|
| Commission expense | 63,066 |
| | 24,032 |
| | 176,405 |
| | 91,906 |
| 74.9 |
| | 62.6 |
|
| Employee compensation and benefits | 10,073 |
| | 9,180 |
| | 30,800 |
| | 28,065 |
| 12.0 |
| | 10.9 |
|
| Interest expense | 3,499 |
| | 2,322 |
| | 10,534 |
| | 6,018 |
| 4.1 |
| | 4.5 |
|
| Depreciation and amortization expenses | 3,134 |
| | 3,032 |
| | 9,625 |
| | 10,414 |
| 2.3 |
| | 2.7 |
|
| Other expenses | 9,717 |
| | 7,524 |
| | 28,279 |
| | 24,277 |
| 12.4 |
| | 11.4 |
|
| Total expenses | $ | 121,059 |
| | $ | 71,971 |
| | $ | 350,007 |
| | $ | 233,116 |
| $ | 146.5 |
| | $ | 128.7 |
|
| Pre-tax income (loss) | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
| $ | 8.1 |
| | $ | 1.3 |
|
Results
Our specialty insurance segment isoperations are currently expanding product lines in an effort to increase written premiums, and commensurately grow the duration of our products and increase investable assets.insurance portfolio. As part of this process, the business is investing in products and people to grow warranty and program products,other specialty programs, while maintaining a leading position in theour credit protection space.markets. That, combined with the earnings performance of the investment portfolio, are key drivers in comparing 20172019 versus 20162018 results. The combinationgrowth in written premiums, combined with higher retention in select products, has resulted in an increase of unearned premiums and deferred revenue on the balance sheet are key indicators of volume growth and contract duration extension which over the trailing twelve months has increased by 12.7%14.7% from $469.3$579.4 million as of September 30, 2016March 31, 2018 to $529.0$664.3 million as of September 30, 2017.March 31, 2019.
In the fourth quarter of 2016, our captive reinsurance subsidiary replaced a third party as reinsurer of certain credit protection products, thus avoiding reinsurance costs and gaining additional investment flexibility. This transactionPre-tax income was consistent with our strategy to grow underwriting and investment profits at our specialty insurance subsidiaries. As a result, several income statement line items increased$8.1 million for the three and nine months ended September 30, 2017 when compared to prior periods including earned premiums, commission expense and policy and contract benefits, partially offset by the decline in ceding commissions.
The application of push-down accounting to the acquisition of Fortegra resulted in purchase price accounting adjustments (Value of Business Acquired or “VOBA”) whereby deferred service and administrative fees and costs associated with deferred commission expense on acquired contracts were recognized differently from those related to newly originated contracts. For the nine months ended September 30, 2017 and 2016, the VOBA impacts on pre-tax income were modest at $1.0 million and $1.5 million, respectively. Where significant to the period over period comparisons of revenue and expense, VOBA impacts are discussed separately below.
For the three months ended September 30, 2017, the specialty insurance segment incurred a pre-tax lossMarch 31, 2019, an increase of $2.3 million, a decrease of $13.0$6.8 million, over the prior year operating results.period. The primary drivers of the decline in resultsincrease were associated with our investment portfolio including a period-over-period reduction in net realized and unrealized gains and losses of $12.3$2.1 million increases in interest expense of $1.2 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases2019 period versus $3.4 million of losses in net investment income of $0.5 million. From insurance operations, underwriting margins were up $3.1 million compared to prior year partially offset by increases in employee payroll and compensation of $0.9 million and increases in other expenses of $2.2 millionthe 2018 period, primarily related to premium tax related toequities and loans held at fair value in the growth in written premiums.
Pre-tax income was $1.7 million for the nine months ended September 30, 2017, a decrease of $33.9 million, or 95.2%, overportfolio. Insurance operations results improved versus the prior year operating results. The primary drivers of the decline in results were associated with our investment portfolio including period-over-period reductions in net realized and unrealized gains and losses of $26.4 million, increases in interest expense of $4.5 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases in net investment
income of $3.6 million. Insurance operations results were down versus prior yearperiod, driven primarily by increases in stock-based compensation expenseincreased underwriting margin of $2.7$2.5 million, and increased other expenses of $4.0 million primarily related to premium tax, which was partially offset by increased underwriting marginother expenses of $2.4 million.$1.0 million primarily associated with debt extinguishment expenses on asset-based debt. Interest expense decreased by $0.4 million from the prior year period, primarily associated with a reduction of asset-based debt on consolidated loan funds from $103.4 million as of March 31, 2018, compared to $6.8 million as of March 31, 2019.
Revenues
Revenues are generated by the sale of the following insurance products: credit protection, warranty, other specialty programs, services and other. Credit protection products include credit life, credit disability, credit property, involuntary unemployment, and accidental death and dismemberment. Warranty products include mobile device protection,vehicle service contracts, furniture and appliance service contracts and auto service contracts. Programsmobile device protection. Other specialty programs are primarily personal and commercial lines and other property-casualty products. Earned premiums associated with these products are recognized over the life of these contracts. Services and other revenues principally represent investment income, unrealized and realized gains and losses, fees for insurance sales and business process outsourcing services, and interest for premium financing, and also include the impact to fee income, ceding commissions, and commissions expense from the purchase accounting effect of VOBA related to the insurance contracts.
Total revenues were $118.7 million forFor the three months ended September 30, 2017,March 31, 2019, total revenues were $154.6 million, up $36.1$24.6 million, or 43.7%18.9%, over the prior year period. The increase was primarily driven by an increase in earned premiums of $48.5$17.3 million or 101.8%, which were partially offset by decreasesand increases in service and administrative fees of $1.8 million, or 7.1%, and ceding commissions of $1.1$1.3 million. For the nine months ended September 30, 2017, total revenues were $351.7 million, up $83.0 million, or 30.9%, over the prior year period. The increase was primarily driven by an increase in earned premiums of $134.3 million, or 96.9%, and other income of $0.9 million, which were partially offset by decreases in service and administrative fees of $13.6 million, or 16.1%, and ceding commissions of $15.8 million. For both periods, the increase in earned premiums was driven by growth in our credit, protectionwarranty and warranty products withother specialty product lines. For the primary driver being our captive reinsurance subsidiary replacing a third party as reinsurer of certain credit protection products. Ceding commissions declines are consistent with this strategy to retain a higher portion of written business which results in less revenues from experience refunds. Service and administrative fees are lower year-over-year primarily from a reduction in fee-related revenues on our mobile protection and roadside assistance products.
Thethree months ended March 31, 2019, revenues on the investment portfolio including net investment income and realized and unrealized gains, were a loss of $4.7contributed $6.4 million for the three months ended September 30, 2017 compared to income of $7.1$0.8 million in the 20162018 period, a decreasean increase of $11.8 million. For the nine months ended September 30, 2017, revenues on the investment portfolio, including net investment income and realized and unrealized gains, were a loss of $1.6 million compared to $21.2 million of income in the 2016 period, a decrease of $22.8$5.6 million. See “—Specialty Insurance Investment Portfolio” for further discussion of the investment results.
Expenses
Total expenses include policy and contract benefits, commissions expense and operating expenses. For the three months ended September 30, 2017,March 31, 2019, total expenses were $121.1$146.5 million compared to $72.0$128.7 million in the 2016 period. For the nine months ended September 30, 2017, total expenses were $350.0 million compared to $233.1 million in the 20162018 period. The primary drivers of the increase were policy and contract benefits and commission expense as net written premiumsinsurance revenues increased over the 20162018 period.
There are two types of expenses for claims payments under insurance and warranty service contracts which are included in policy and contract benefits:benefits which are member benefit claims and net losses and loss adjustment expenses. Member benefit claims represent the costs of services and replacement devices incurred in warranty protection and car club and warranty protection service contracts. Net losses and loss adjustment expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded, and the costs of administering claims for credit life and other insurance lines, such as non-standard auto.lines. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Loss occurrences in our insurance products are characterized by low severity and high frequency. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements.
For the three months ended September 30, 2017,March 31, 2019, policy and contract benefits were $31.6$40.8 million, up $5.7$4.2 million, from the prior year. For the nine months ended September 30, 2017, policy and contract benefits were $94.4 million, up $21.9 million from the prior year primarily as a result of increased retentiongrowth in ourearned premiums. Losses as a percentage of underwriting revenues decreased over the prior year period which was driven by credit protection programs, and program products.partially offset by increased commissions paid to our distribution partners.
Commission expense is incurred on most product lines, the majority of which are retrospective commissions paid to distributors and retailers selling our products, including credit insurance policies, motor club memberships,warranty and mobile device protection service contracts, and warranty service contracts.motor club memberships. Credit insurance commission rates are, in many cases, set by state regulators and are also impacted by market conditions and retention levels. Total commission expense for the three months ended September 30, 2017March 31, 2019 was $63.1$74.9 million compared to $24.0$62.6 million in 2016. Total commission expense for nine months ended September 30, 2017 was $176.4 million compared to $91.9 million in 2016.the 2018 period. The primary drivers of the increase were the commission expense associated with the growth in written premiums and higher retention rate on our credit protection products along with VOBA purchase accounting impacts.
and warranty products.
Operating expenses are composed ofinclude employee compensation and benefits, interest expense, depreciation and amortization expenses and other expenses. For the three months ended September 30, 2017, operating expenses were $26.4 million compared to $22.1 million in the 2016 period. For the nine months ended September 30, 2017, operating expenses were $79.2 million compared to $68.8 million in the 2016 period. The increases for the three and nine months were driven primarily by increased stock-based compensation, increased premium taxes as written premiums grow, and increased interest expense on asset based borrowings within the insurance investment portfolio. For the nine months ended September 30, 2017 totalMarch 31, 2019, employee compensation and benefits were $30.8$12.0 million, up $2.7$1.1 million, from 2016 primarily as a result ofdriven by increased stock based compensation expense.associated with warranty and program products. Interest expense of $10.5$4.1 million in nine months ended September 30, 2017 increased2018 decreased by $4.5$0.4 million versus the prior year period, primarily from increasedreduced asset based borrowings on certain investments within the investment portfolio. Other expenses for the ninethree months ended September 30, 2017March 31, 2019 were $28.3$12.3 million, up $4.0$1.1 million from 20162018 primarily as a result of increased premium taxes as written and earned premiums grew.from debt extinguishment expenses associated with asset-based debt. Depreciation and amortization expense was lower year-over-yearperiod-over-period as a result of the decline in VOBA purchase accounting impact from the amortization of the fair value attributed to the insurance policies and contracts acquired, which was $0.2 million for the nine months ended September 30, 2017 versus $3.0 million for the prior year period. This was partially offset by amortization of other intangibles including customer relationships and trade names.acquired.
Insurance Operating Ratios
We use the combined ratio as an insurance operating metric to evaluate our underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net earned premiums, service and administrative fees, and other income. Investors use this ratio to evaluate our ability to profitably underwrite the risks we assume over time and manage our operating costs. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. Since VOBA purchase accounting adjustments impact revenues and expenses related to acquired contracts differently from newly originated, we also show the combined ratio on an as adjusted basis, eliminating the accounting effects of VOBA. Management believes showing an as adjusted combined ratio provides useful information to investors to compare period-over-period operating results. Following is a summary of these performance metrics for the three and nine months ended September 30, 2017 and 2016.
Operating Ratios
|
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Insurance operating ratios: | 2017 | | 2016 | | 2017 | | 2016 |
| Combined ratio | 92.6 | % |
| 87.9 | % | | 93.2 | % | | 86.3 | % |
As adjusted Combined ratio - Non-GAAP (1) | 92.8 | % |
| 89.4 | % | | 93.6 | % |
| 88.5 | % |
(1) For further information relating to the Company’s as adjusted combined ratio, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
The as adjusted combined ratios were 92.8% and 93.6% for the three and nine months ended September 30, 2017, compared to 89.4% and 88.5% for the corresponding prior year periods. The increases across both the three and nine months were driven primarily by the higher retention impacting underwriting margins and higher premium tax, combined with the increased stock based compensation mentioned above. These factors caused the combined ratio to deteriorate modestly in the nine month period.
Key Operating Metrics and Non-GAAP Operating Results
Adjusted EBITDA
Adjusted EBITDA was $2.3 millionand$15.6 million for the three and nine months ended September 30, 2017, compared to $14.2 million and $45.6 million for the comparable prior year periods. Net portfolio income from the investment portfolio was a loss of $6.4 million and $6.7 million for the three and nine months ended September 30, 2017, compared to income of $6.4 million and $19.5 million in the respective prior year periods. Adjusted EBITDA from insurance underwriting operations was $8.7 million and $22.3 million for the three and nine months ended September 30, 2017 compared to $7.9 million and $26.1 million for the respective prior year periods. The increase for the three months and decrease for the nine months were driven by the same factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Gross & Net Written Premiums
Gross written premiums represents total premiums from insurance policies and warranty service contracts that we writewritten during a reporting period based on the effective date of the individual policy.period. Net written premiums are gross written premiums less that portion of premiums that we cedeceded to third partythird-party reinsurers or the PORCs under reinsurance agreements.PORCs. The amount ceded to each reinsurer
is based on the contractual formula contained in the individual reinsurance agreements. Net earned premiums are the earned portion of our net written premiums. We earn insurance premiums on a pro-rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums, which are earned in subsequent periods over the remaining term of the policy.
|
| | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | Gross Written Premiums | | Net Written Premiums |
| Insurance Products: | 2019 | | 2018 | | 2019 | | 2018 |
| Credit protection | $ | 132.3 |
| | $ | 116.9 |
| | $ | 89.0 |
| | $ | 76.7 |
|
| Warranty | 41.6 |
| | 25.7 |
| | 22.8 |
| | 15.5 |
|
| Other specialty programs | 24.5 |
| | 58.1 |
| | 9.2 |
| | 17.0 |
|
| Total | $ | 198.4 |
|
| $ | 200.7 |
| | $ | 121.0 |
|
| $ | 109.2 |
|
Total gross written premiums for the three months ended March 31, 2019 were $198.4 million, which represented a decrease of $2.3 million, or 1.1%, from the prior year period. The decline was driven by our other specialty programs where certain non-standard auto programs were discontinued. The amount of business retained was 61.0%, up from 54.4% in the prior year period. Total net premiums written for the three months ended March 31, 2019 were $121.0 million, up $11.8 million, or 10.8%, driven primarily by growth in credit and warranty programs. We believe our warranty service contracts and light commercial programs provide opportunity for growth through expanded product offerings, new clients and geographic expansion.
Product Underwriting Margin - Non-GAAP
The following tables presenttable presents product specific revenue and expenses within the specialty insurance segment for the three and nine months ended September 30, 2017 and 2016. As mentioned above, wesegment. We generally limit the underwriting risk we assume through the use ofusing both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid adjustare adjusted based on the actual underlying losses incurred), which manage and mitigate our risk. Period-over-period comparisons of revenues and expenses are often impacted by the PORCs and distribution partners choice as to whether to retain risk, specifically with respect to the relationship between service and administration expenses and ceding commissions, both components of revenue, and the offsetting policy and contract benefits and commissions paid to our partners and reinsurers. Generally, when losses are incurred, the risk which is retained by our partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the net financial impact of the risk retained by the Company of the insurance contracts written and the impact on profitability, we use the Non-GAAP metric - As Adjusted Underwriting Margin. For the same reasons that we adjust our combined ratio for the effects of purchase accounting, VOBA impacts can also mask the actual relationship between revenues earned and the offsetting reductions in commissions paid, and thus the period-over-period net financial impact of the risk retained by the Company. As such, we believe that presenting underwriting margin provides useful information to investors and aligns more closely to how management measures the underwriting performance of the business.
Written Premium MetricsUnderwriting Revenues and As Adjusted Underwriting Margin - Non-GAAP(1)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| ($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| Gross written premiums | $ | 149,115 |
| $ | 132,111 |
|
| $ | 25,530 |
| $ | 16,618 |
|
| $ | 34,512 |
| $ | 32,674 |
|
| $ | 11 |
| $ | 8 |
|
| $ | 209,168 |
| $ | 181,411 |
|
| Net written premiums | 96,375 |
| 30,987 |
|
| 17,217 |
| 13,142 |
|
| 5,418 |
| 11,884 |
|
| — |
| — |
|
| 119,010 |
| 56,013 |
|
| | | | | | | | | | | | | | | |
| As Adjusted Revenues: | | | | | | | | | | | | | | |
| Net earned premiums | $ | 78,951 |
| $ | 29,173 |
| | $ | 10,900 |
| $ | 9,139 |
| | $ | 6,222 |
| $ | 9,297 |
| | $ | — |
| $ | — |
| | $ | 96,073 |
| $ | 47,609 |
|
| Service and administrative fees | 10,434 |
| 10,865 |
| | 9,409 |
| 11,788 |
| | 2,721 |
| 2,504 |
| | 1,690 |
| 1,819 |
| | 24,254 |
| 26,976 |
|
| Ceding commissions | 2,523 |
| 1,465 |
| | — |
| 1 |
| | — |
| — |
| | — |
| — |
| | 2,523 |
| 1,466 |
|
| Other income | 135 |
| 71 |
| | — |
| (22 | ) | | — |
| 5 |
| | 689 |
| 676 |
| | 824 |
| 730 |
|
| Less product specific expenses: | | | | | | | | | | | | | | |
| Policy and contract benefits | 14,420 |
| 7,918 |
| | 11,694 |
| 10,099 |
| | 5,456 |
| 7,900 |
| | — |
| (36 | ) | | 31,570 |
| 25,881 |
|
| Commission expense | 59,949 |
| 18,386 |
| | 2,287 |
| 5,979 |
| | 1,178 |
| 1,611 |
| | 190 |
| 176 |
| | 63,604 |
| 26,152 |
|
As Adjusted underwriting margin (1) | $ | 17,674 |
| $ | 15,270 |
| | $ | 6,328 |
| $ | 4,828 |
| | $ | 2,309 |
| $ | 2,295 |
| | $ | 2,189 |
| $ | 2,355 |
| | $ | 28,500 |
| $ | 24,748 |
|
Total gross written premiums for the three months ended September 30, 2017 were $209.2 million, an increase of $27.8 million, or 15.3%, from the prior year period. The amount of business retained was 56.9%, up from 30.9% in the prior year period as the Company retained more risk in 2017 than 2016. Total net premiums written were $119.0 million, up $63.0 million over prior year, or 112.5%. Credit protection net premiums written for the three months ended September 30, 2017 were $96.4 million, higher than the prior year period by $65.4 million. The increase in retention and net written premiums was consistent with the Company’s strategy and was largely driven by our captive reinsurer retaining credit protection products as discussed above. Warranty product net written premiums were $17.2 million, up $4.1 million and program products were $5.4 million, down $6.5 million from prior year period, primarily driven by the run-off of certain non-standard auto programs.
As adjusted underwriting margin for the three months ended September 30, 2017 was $28.5 million, up from $24.7 million in 2016. Credit protection increased by $2.4 million primarily from increased product retention over 2016. Warranty increased by $1.5 million driven by increased policies written for furniture, appliances and auto products. The amount of warranty product ceded year-over-year increased as we enter new products and continue to build our underwriting performance and relationships with distributors. Programs written premiums declined as we continue to run-off non-core specialty programs that did not meet underwriting performance standards. We believe there are additional opportunities to expand our warranty and programs insurance business model to other niche products and markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| ($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| Gross written premiums | 371,123 |
| 364,842 |
|
| 83,075 |
| 44,078 |
|
| 106,348 |
| 131,306 |
|
| 23 |
| 21 |
|
| 560,569 |
| 540,247 |
|
| Net written premiums | 238,658 |
| 90,212 |
|
| 44,641 |
| 35,045 |
|
| 19,025 |
| 27,120 |
|
| — |
| — |
|
| 302,324 |
| 152,377 |
|
| | | | | | | | | | | | | | | |
| As Adjusted Revenues: | | | | | | | | | | | | | | |
| Net earned premiums | $ | 221,080 |
| $ | 88,192 |
|
| $ | 31,525 |
| $ | 27,394 |
|
| $ | 20,176 |
| $ | 22,930 |
|
| $ | — |
| $ | — |
|
| $ | 272,781 |
| $ | 138,516 |
|
| Service and administrative fees | 31,204 |
| 33,975 |
|
| 27,330 |
| 41,093 |
|
| 8,108 |
| 8,577 |
|
| 4,961 |
| 5,752 |
|
| 71,603 |
| 89,397 |
|
| Ceding commissions | 6,847 |
| 23,018 |
|
| — |
| 2 |
|
| — |
| — |
|
| — |
| 1 |
|
| 6,847 |
| 23,021 |
|
| Other income | 338 |
| 199 |
|
| — |
| 64 |
|
| — |
| 5 |
|
| 2,536 |
| 1,717 |
|
| 2,874 |
| 1,985 |
|
| Less product specific expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Policy and contract benefits | 44,226 |
| 21,727 |
|
| 32,406 |
| 30,529 |
|
| 17,548 |
| 20,172 |
|
| 184 |
| 8 |
|
| 94,364 |
| 72,436 |
|
| Commission expense | 165,990 |
| 76,707 |
|
| 7,919 |
| 20,280 |
|
| 3,747 |
| 4,036 |
|
| 641 |
| 377 |
|
| 178,297 |
| 101,400 |
|
As Adjusted underwriting margin (1) | $ | 49,253 |
| $ | 46,950 |
|
| $ | 18,530 |
| $ | 17,744 |
|
| $ | 6,989 |
| $ | 7,304 |
|
| $ | 6,672 |
| $ | 7,085 |
|
| $ | 81,444 |
| $ | 79,083 |
|
|
| | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | Underwriting Revenues | | Underwriting Margin |
| Insurance products: | 2019 | | 2018 | | 2019 | | 2018 |
| Credit protection | $ | 106.4 |
| | $ | 92.7 |
| | $ | 19.5 |
| | $ | 18.1 |
|
| Warranty | 28.5 |
| | 22.2 |
| | 8.5 |
| | 6.4 |
|
| Other specialty programs | 10.9 |
| | 12.0 |
| | 2.0 |
| | 3.0 |
|
| Services and other | 2.4 |
| | 2.3 |
| | 2.5 |
| | 2.5 |
|
| Total | $ | 148.2 |
| | $ | 129.2 |
| | $ | 32.5 |
| | $ | 30.0 |
|
(1) For further information relating to the Company’s adjusted underwriting margin, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
Total gross written premiumsUnderwriting margin for the ninethree months ended September 30, 2017 were $560.6March 31, 2019 was $32.5 million, which representedup from $30.0 million in the 2018 period. Credit protection underwriting margin was $19.5 million, an increase from the 2018 period of $20.3$1.4 million, or 3.8%7.7%. Credit protection products continue to provide opportunities for steady growth through a combination of expanded product offerings and new clients. Underwriting margin for warranty products was $8.5 million for the 2018 period, up $2.1 million, or 32.8%, from the prior year period. The amount of business retainedimprovement was 53.9%, up from 28.2% in the prior year period. Total net premiums written for the nine months ended September 30, 2017 were $302.3 million, up $149.9 million, or 98.4%. Credit protection net premiums written for the nine months ended September 30, 2017 were $238.7 million, higher than the prior year period by $148.4 million. For the nine months ended September 30, 2017, warranty product net written premiums were $44.6 million, up $9.6 million from 2016 and program products were $19.0 million, down $8.1 million from the 2016 period. The factors that drove the variances were the same for the three and nine months.
As adjusted underwriting margin for the nine months ended September 30, 2017 was $81.4 million, up from $79.1 million in 2016. Credit protection as adjusted underwriting margin was $49.3 million, an increase from 2016 results by $2.3 million, or 4.9%. As adjusted underwriting margin for warranty products was $18.5 million for 2017, up $0.8 million, or 4.4%, from 2016. The effects experienced in previous periods from our mobile protection products has slowed, and was more than offsetdriven primarily by growth in furniture, appliances, and auto warranty business. Programs as adjustedbusinesses. Specialty programs underwriting margin for 2017the three months ended March 31, 2019 was $7.0$2.0 million, down 4.3%33.0% from 2016,2018, as certaina distribution partner, non-standard auto programs were exited over the last year. We believe our warranty service contracts and light commercial programs provide opportunity for growth through expanded product offerings, new clients and geographic expansion.program was discontinued. Services and other contributed $6.7$2.5 million in 2017, down $0.4 million from 2016 as certain business processing services are in run-off.three months ended March 31, 2019.
PolicyInvested Capital, Total Capital, Operating EBITDA and Insurance Operating Ratios
We use the combined ratio as an operating metric to evaluate our insurance underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, which includecommission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net losses, loss adjustmentsearned premiums, service and member benefit claims, were $94.4 millionadministrative fees, and other income. Investors use this ratio to evaluate our ability to profitably underwrite the risks we assume over time and manage our operating costs. A combined ratio less than 100% indicates an underwriting profit, while a combined
ratio greater than 100% reflects an underwriting loss. The below table outlines the insurance operating ratios, capital invested and the drivers of Operating EBITDA split between underwriting and investments as management evaluates the return on the investment portfolio separately from the returns from underwriting activities.
Invested Capital, Total Capital, Operating EBITDA and Operating Ratios - Non-GAAP(1) |
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| | 2019 | | 2018 |
Invested Capital(1) | $ | 297.6 |
| | $ | 281.5 |
|
Total Capital(1) | $ | 465.2 |
| | $ | 441.5 |
|
| | | | |
| Operating EBITDA drivers: | | | |
| Underwriting | $ | 9.8 |
| | $ | 9.2 |
|
| Investments | 3.9 |
| | 4.1 |
|
Specialty Insurance Operating EBITDA(1) | $ | 13.7 |
| | $ | 13.3 |
|
| Insurance operating ratios: | | | |
| Combined ratio | 93.5 | % | | 93.8 | % |
(1) For further information relating to the Company’s Operating EBITDA, Invested and Total Capital, adjusted combined ratio, and Net Portfolio Income (Loss), including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
The combined ratio was 93.5% for the ninethree months ended September 30, 2017, up $21.9 million period-over-period. The increase in net losses overMarch 31, 2019, compared to 93.8% for the prior year period was a function of growthperiod. The combined ratio from 2015-2018 averaged 91.0%. The increase from our four-year average in earned premiums, including the contract assumptions mentioned above, partially offset by lower claims in mobile devices consistent with the decline in written premiums.
Commission expense, excluding the impacts of VOBA, was $178.3 million for the nine months ended September 30, 2017, up $76.9 million,recent quarters has been driven primarily by our investment in new products and geographies which we believe will result in premium growth in future periods. See “—Specialty Insurance Investment Portfolio” for further discussion of the increase in retention of credit insurance products, partially offset by declines in commissions relatedinvestment results and “—Non-GAAP Reconciliations” for a reconciliation to the mobile protection and other warranty products.GAAP pre-tax income.
Specialty Insurance Investment Portfolio
TheOur investment portfolio consists of assets contributed by Tiptree, cash generated from operations, and from written premiums. The investment portfolio of our regulated insurance companies, captive reinsurance company and warranty business areis subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns over the entire investment horizon across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on available for sale securities impact AOCI.
In managing our investment portfolio, we analyze net investments and net portfolio income, which are non-GAAP measures. Our presentation of net investments equals total investments plus cash and cash equivalents minus asset based financing related to certain investments. Our presentation of net portfolio income equals net investment income plus realized and unrealized gains and losses, excluding unrealized gains and losses on securities which are taken to AOCI, and minus interest expense associated with asset based financing of investments. Net investments and net portfolio income are used to calculate average annualized yield, which is one of the measures management uses to analyze the profitability of our investment portfolio. Management believes this information on a cumulative basis is useful since it allows investors to evaluate the performance of our investment portfolio based on the capital at risk and on a non-consolidated basis. Our calculation of net investments and net
portfolio income may differ from similarly titled non-GAAP financial measures used by other companies. Net investments and net portfolio income are not measures of financial performance or liquidity under GAAP and should not be considered a substitute for total investments or net investment income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP total investments and investment income.
Specialty Insurance Investment Portfolio - Non-GAAP
| | | ($ in thousands) | | | As of September 30, | |
| ($ in millions) | | As of March 31, |
| | | | | 2017 |
| 2016 | 2019 | | 2018 |
Cash and cash equivalents (1) | | | |
| $ | 60,199 |
|
| $ | 4,402 |
| $ | 61.1 |
| | $ | 29.1 |
|
| Available for sale securities, at fair value | | | |
| 164,093 |
|
| 137,195 |
| 283.9 |
| | 212.8 |
|
| Equity securities, trading, at fair value | | | |
| 28,106 |
|
| 44,670 |
| |
| Equity securities | | 27.0 |
| | 34.3 |
|
Loans, at fair value (2) | | | |
| 84,493 |
|
| 101,383 |
| 71.6 |
| | 90.0 |
|
| Real estate, net | | | |
| 23,106 |
|
| 10,233 |
| 9.9 |
| | 16.8 |
|
| Other investments | | | |
| 3,956 |
|
| 4,012 |
| 8.9 |
| | 16.7 |
|
| Net investments | | | |
| $ | 363,953 |
|
| $ | 301,895 |
| $ | 462.4 |
| | $ | 399.7 |
|
| | | | | | | | | | | |
(1) Cash and cash equivalents, plus restricted cash, net of due from/due to brokers on consolidated loan funds, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials. | (2) Loans, at fair value, net of asset based debt, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials.
| (2) Loans, at fair value, net of asset based debt, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials.
| (2) Loans, at fair value, net of asset based debt, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials. |
| Specialty Insurance Net Investment Portfolio Income - Non-GAAP |
|
|
|
|
|
|
|
| | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| ($ in millions) | | Three Months Ended
March 31, |
| | 2017 |
| 2016 | | 2017 |
| 2016 | 2019 | | 2018 |
| Net investment income | $ | 3,840 |
|
| $ | 3,307 |
|
| $ | 12,032 |
| | $ | 8,409 |
| $ | 4.3 |
| | $ | 4.2 |
|
| Realized gains (losses) | 1,462 |
|
| 1,056 |
|
| 6,425 |
|
| 4,187 |
| 0.2 |
| | 5.1 |
|
| Unrealized gains (losses) | (10,016 | ) |
| 2,689 |
|
| (20,042 | ) |
| 8,580 |
| 1.9 |
| | (8.5 | ) |
| Interest expense | (1,678 | ) |
| (697 | ) |
| (5,143 | ) |
| (1,708 | ) | (0.6 | ) | | (1.2 | ) |
| Net portfolio income | $ | (6,392 | ) |
| $ | 6,355 |
|
| $ | (6,728 | ) |
| $ | 19,468 |
| |
| Net portfolio income (loss) | | $ | 5.8 |
| | $ | (0.4 | ) |
Average Annualized Yield % (1) | (7.2 | )% |
| 8.3 | % |
| (3.7 | )% |
| 8.5 | % | 5.0 | % | | (0.4 | )% |
(1) Average Annualized Yield % represents the ratio of annualized net investment income, realized and unrealized gains (losses) less investment portfolio interest expense to the average of the prior two quarters total investments less investment portfolio debt plus cash, but does not reflect the cumulative return on the portfolio.
Net investments of $364.0$462.4 million have grown 20.6%15.7% from September 30, 2016March 31, 2018 through a combination of internalorganic growth in written premiums and increased retention of premiums written, and assets contributed by the Company to further capitalize Fortegra.retention.
Our net investment income includes interest dividends and rental income,dividends, net of investment expenses, on our invested assets. Our loans, at fair value, are generally floating rate and therefore earn LIBOR plus a spread. Generally, our interest income on those loans will increase in a rising interest rate environment, or decrease in a declining rate environment, subject to any LIBOR floors. Our held to maturity investments generally carry fixed coupons, which can impact our returns on investment. We report net realized gains and losses on our investments separately from our net investment income. Net realized gains occur when we sell our investment securities for more than their costs or amortized costs, as applicable. Net realized losses occur when we sell our investment securities for less than their costs or amortized costs, as applicable, or we write down the investment securities as a result of other-than-temporary impairment. We report net unrealized gains (losses)and losses on securities classified as available-for-sale separately within accumulated other comprehensive income on our balance sheet. For loans, at fair value, and equity securities, classified as trading securities, we report unrealized gains (losses)and losses within net realized gains (losses)and losses on investment on the condensed consolidated statement of income. The treatment of loans at fair value, primarily related to our credit asset investments and non-performing loans, and equity securities, is currently different from most other insurance companies.
For the three months ended September 30, 2017,March 31, 2019, the net investment portfolio lossincome was $6.4$5.8 million compared to $6.4a loss of $0.4 million of income in the comparable 20162018 period. The declineNet investment income was $4.3 million, up $0.1 million, or 2.4% from 2018, driven by $10.0 million of unrealized losses in the 2017 period compared to $2.7 million of unrealized gains in the 2016 period of which $11.1 million of unrealized losses were attributable to fair market valuations on publicly traded equity positions. This decline was partially offsetprimarily by increases in net investment income of $0.5 million asinvestments. For the loans,three months ended March 31, 2019, fair market value changes on equities resulted in unrealized and real estate continue to yield positive interest, dividend and rental income, along with increases in realized gains of $0.4 million primarily from gains on sales of our non-performing residential loans.
For the nine months ended September 30, 2017, the net investment portfolio loss was $6.7$1.8 million compared to $19.5losses of $5.5 million of income in the comparable 20162018 period. The average annualized yield for the nine months declinedyear improved from 8.5% in 2016 to (3.7)(0.4)% in 2017 as a result of year2018 to date unrealized losses of $20.0 million compared to unrealized gains of $8.6 million5.0% in 2016. For the nine month period, fair market valuation on equities resulted in $21.2 million of unrealized losses. In addition, interest expense increased by $3.4 million as2019. The improvement was a result of increased borrowings on credit asset investments and non-performing loans. Those factors were partially offset by increases in net investment income, of $3.6 million, aslower asset-based interest and dividend payments improved year-over-year,expense, and realized
and unrealized gains improved by $2.2 million, from gains on sales of our non-performing residential loans.compared to losses in the prior year.
Asset ManagementTiptree Capital
Tiptree Capital consists of our non-insurance operating businesses and investments. As of March 31, 2019, Tiptree Capital includes our asset management, mortgage and shipping operations, and other investments (including our Invesque shares). We manage Tiptree Capital on a total return basis, balancing current cash flow and long-term value appreciation.
The Company’s asset management segmentfollowing table summarizes total revenues, pre-tax income from continuing and discontinued operations from Tiptree Capital.
Operating Results
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Total revenues | $ | 29.3 |
| | $ | 18.1 |
|
| Pre-tax income (loss) from continuing operations | $ | 5.9 |
| | $ | (1.7 | ) |
| Pre-tax income (loss) from discontinued operations | $ | — |
| | $ | 46.8 |
|
Drivers of pre-tax income from continuing and discontinued operations
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Asset management fees and credit investments | $ | 0.5 |
| | $ | 0.9 |
|
| Shipping | 0.5 |
| | (0.8 | ) |
| Specialty finance and other | 0.3 |
| | (0.1 | ) |
| Senior Living: | | | |
Invesque(1) | 4.6 |
| | (1.6 | ) |
Care - discontinued operations(2) | — |
| | 46.8 |
|
(1) Includes $2.5 million of dividends and $2.1 million of unrealized gains within Tiptree Capital for the three months ended March 31, 2019.
(2) Discontinued operations related to Care for the three months ended March 31, 2018 includes $46.2 million pre-tax gain on sale of Care.
Results from Continuing Operations
Tiptree Capital earns revenues from net interest income; mortgage gains and fees; management fees from CLOs under management, including management fees,management; distributions, and realized and unrealized gains on the Company’s investment holdings (primarily Invesque).
Revenues for the three months ended March 31, 2019 were $29.3 million, an increase of CLO subordinated notes. Also included$11.2 million from the prior year period. The increase was primarily driven by unrealized gains in the segment are2019 period compared to unrealized losses in the 2018 period. Pre-tax income from continuing operations for the three months ended March 31, 2019 was $5.9 million compared to a loss of $1.7 million in the 2018 period. For the three months ended March 31, 2019, we received $2.5 million of dividends from Invesque and $2.1 million of unrealized gains compared to $1.7 million of dividends and $3.2 million of unrealized losses in the 2018 period. Additionally, pre-tax income from our shipping operations improved by $1.3 million period-over-period primarily driven by increased revenues and non-repeat start-up expenses impacting the 2018 period.
Results from Discontinued Operations
Discontinued Operations includes the results from Care, previously reported in the Senior Living segment. In the three months ended March 31, 2018, pre-tax income was $46.8 million which included a $46.2 million gain on sale of Care.
Tiptree Capital - Invested Capital and Operating EBITDA - Non-GAAP(1) |
| | | | | | | | | | | | | | | |
| ($ in millions) | Invested Capital(1) | | Operating EBITDA(1) |
| | 2019 | | 2018 | | 2019 | | 2018 |
Asset management fees and credit investments(2) | $ | 2.4 |
| | $ | 4.2 |
| | $ | 0.6 |
| | $ | 0.9 |
|
Senior living (Invesque) (3) | 97.5 |
| | 105.9 |
| | 2.5 |
| | 2.3 |
|
| Shipping | 48.7 |
| | — |
| | 1.1 |
| | — |
|
| Specialty finance and other | 27.3 |
| | 41.3 |
| | 0.5 |
| | 0.1 |
|
| Tiptree Capital | $ | 175.9 |
| | $ | 151.4 |
| | $ | 4.7 |
| | $ | 3.3 |
|
(1) For information relating to Invested Capital and Operating EBITDA, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
(2) Includes management and incentive fees investment earnings and costs associated with our legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. Asnet of September 30, 2017, total fee earning AUM was $1.6 billion, which was downoperating expenses including compensation.
(3) Includes discontinued operations related to Care in 2018. For more information, see “Note—(3) Dispositions, Assets Held for Sale & Discontinued Operations.”
Invested Capital
Invested Capital increased from $1.9 billion as of September 30, 2016 as the run-off in our older CLOs have not been replaced with new AUM. Total investment in CLO subordinated notes and management fee participation rights, at fair market value, as of September 30, 2017 was $20.2 million, down from $52.4$151.4 million as of September 30, 2016. In January 2017,March 31, 2018 to $175.9 million as of March 31, 2019. On February 1, 2018, we completed the Company sold its investment in Telos 5 forsale of Care to Invesque. We received consideration of $15.916.6 million shares of which resulted13.7 million shares are held as equity securities in deconsolidation for the 2017 period. In August 2017, the Company liquidated Telos 7 for $21.9Tiptree Capital, and 2.9 million which resulted in deconsolidation of the assets and liabilities. Many of the Telos 7 assets were sold to a refinanced Telos 3. For risk retention purposes, we purchased a vertical tranche of Telos 3shares are held in the insurance investment portfolio. In 2018,
we invested approximately $50 million into three unlevered vessels which are reported in other investments. As a result of the investments in Tiptree Capital and capital returned to shareholders in 2018 and early 2019, cash held at Tiptree corporate decreased from $48.4 million as of March 31, 2018 to $22.7 million as of March 31, 2019.
Operating Results
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | |
| Net realized and unrealized gains (losses) | $ | (349 | ) | | $ | 695 |
| | $ | 839 |
| | $ | 226 |
|
| Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
| Other income | 256 |
| | 212 |
| | 822 |
| | 3,031 |
|
| Total revenue | $ | 1,448 |
| | $ | 4,746 |
| | $ | 8,239 |
| | $ | 10,754 |
|
| | | | | | | |
| Expenses: | | | | | | | |
| Employee compensation and benefits | 889 |
| | 2,267 |
| | 3,953 |
| | 4,861 |
|
| Interest expense | 5 |
| | — |
| | 7 |
| | 746 |
|
| Other expenses | 164 |
| | 36 |
| | 589 |
| | 524 |
|
| Total expenses | $ | 1,058 |
| | $ | 2,303 |
| | $ | 4,549 |
| | $ | 6,131 |
|
| Net income attributable to consolidated CLOs | 2,583 |
| | 4,032 |
| | 9,393 |
| | 10,049 |
|
| Pre-tax income (loss) | $ | 2,973 |
| | $ | 6,475 |
| | $ | 13,083 |
| | $ | 14,672 |
|
ResultsEBITDA
For the three months ended September 30, 2017, pre-tax income was $3.0 million, downMarch 31, 2019, Operating EBITDA increased from $6.5$3.3 million in the prior year period. This decline was driven by reduced income from consolidated CLOs, primarily related2018 period to reductions in distributions on the subordinated notes as a result of sales and liquidation, and reduced management and incentive fees from our older vintage CLOs. This was partially offset by favorable realized gains on the liquidation of Telos 7 (which is embedded$4.7 million in the net2019 period. The key drivers of Operating EBITDA were the same factors which impacted pre-tax income attributablein addition to consolidated CLOs) and reduced incentive compensation expense.
Pre-tax income was $13.1 million for the nine months ended September 30, 2017 compared to $14.7 million for the 2016 period, a decrease of $1.6 million primarily driven by declining management fees on older vintage CLOs and reduced subordinated note distributions as our investments declined. Expenses for the 2017 period were $4.5 million compared to $6.1 million for the 2016 period, primarily driven by decreases in interest expense associated with the Telos 7 warehouse and decreases in employee incentive compensation as management and incentive fees decreased period-over-period. Net income attributable to consolidated CLOs was down $0.7 million primarily due to reductions in subordinated note distributions, partially offset by favorable fair value marksincreased depreciation on our CLO subordinated notes in the 2017 period as compared to the 2016 period.
Operating Results - Non-GAAP
As Adjusted Revenues
Asset management as adjusted revenues include revenues from CLOs, legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. The Company earns revenues from CLOs under management, whether consolidated or deconsolidated, which include fees earned for managing the CLOs, distributions received from the Company’s holdings of subordinated notes issued by the CLOs and realized and unrealized gains and losses from the Company’s holdings of subordinated notes. The revenue associated with the management fees and distributions earned and gains and losses on the subordinated notes attributable to the consolidated CLOs are reported as “net income (loss) attributable to the consolidated CLOs” in the Company’s financial statements.
The table below shows the Company’s share of the results attributable to the CLOs which were consolidated, on a deconsolidated basis. This presentation is a non-GAAP measure. Management believes this information is helpful for period-over-period comparative purposes as certain of our CLOs were consolidated for only some of the periods presented below. In addition, the Non-GAAP presentation allows investors the ability to calculate management fees as a percent of AUM, a common measure used by investors to evaluate asset managers, and which is one of the performance measures upon which management is compensated. While consolidation versus deconsolidation impacts the presentation of revenues, it does not impact expenses or pre-tax income.shipping investments. See “—“— Non-GAAP Reconciliations” for a reconciliation to GAAP revenues.net income.
As Adjusted Revenues (1)
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| As Adjusted Revenues: | | | | | | | |
| Management fees | $ | 1,852 |
|
| $ | 4,582 |
| | $ | 7,616 |
| | $ | 9,666 |
|
| Distributions | 2,168 |
|
| 4,368 |
| | 6,560 |
| | 11,058 |
|
| Realized and unrealized gains (losses) | 11 |
|
| (339 | ) | | 3,443 |
| | (2,824 | ) |
| Other income | — |
|
| 167 |
| | 13 |
| | 2,903 |
|
| Total as adjusted revenues | $ | 4,031 |
|
| $ | 8,778 |
| | $ | 17,632 |
| | $ | 20,803 |
|
| |
(1)
| For further information relating to the Asset Management as adjusted revenues, including a reconciliation to GAAP revenues, see “Non-GAAP Reconciliations”. |
Fee earning AUM has declined as older CLO vintages run-off, which has resulted in reduced base management fees. Incentive fees have decreased as performance fees within the Telos 1 and 2 CLOs run-off. Our investments in subordinated notes of the CLOs have also declined, which resulted in lower distributions period-over-period. Realized and unrealized gains were favorable as a result of the gain on sale of Telos 5 and Telos 7, and unrealized mark to market gains on our remaining CLO subordinated notes and other investments for year to date 2017 as compared to an unrealized loss in the 2016 period. Other income includes legacy tax-exempt securities, CLO warehouse facilities and our credit hedging strategies which declined year-over-year as those products were in place in the 2016 period and not in the 2017 period.
For the three months ended September 30, 2017, as adjusted revenues were $4.0 million compared to $8.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.7 million, and lower distributions of $2.2 million and other income of $0.2 million, partially offset by improved realized and unrealized gains on CLO subordinated notes and other investments of $0.4 million.
For the nine months ended September 30, 2017, as adjusted revenues were $17.6 million compared to $20.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.1 million, and lower distributions of $4.5 million and other income of $2.9 million, partially offset by favorable realized and unrealized gains on CLO subordinated notes and other investments of $6.3 million.
Adjusted EBITDA
Adjusted EBITDA was $3.0 millionand$13.1 million for the three and nine months ended September 30, 2017, respectively, compared to $6.5 million and $14.7 million for the comparable prior year periods. The decrease for both the quarter and for the year to date was driven by the same factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Senior Living
We operate our senior living segment through Care which is focused on investing in seniors housing properties including senior apartments, independent living, assisted living, memory care and to a lesser extent, skilled nursing facilities. As of September 30, 2017, Care’s portfolio consists of 40 properties across 10 states primarily in the Mid-Atlantic and Southern United States comprised of 22 Triple Net Lease (“NNN”) Properties and 18 Managed Properties. Additionally, Care manages one property within our specialty insurance investment portfolio on behalf of Fortegra.
In Triple Net Lease Properties, we own between 90-100% of the real estate and enter into a long term lease with an operator who is typically responsible for bearing operating costs, including maintenance, utilities, taxes, insurance, repairs and capital improvements. The operations of the Triple Net Lease Properties are not consolidated since we do not manage or own the underlying operations. For Triple Net Lease Properties’ operations, we recognize primarily rental income from the lease since substantially all expenses are passed through to the tenant. In Managed Properties, we generally own between 65-90% of both the real estate and the operations with affiliates of the management company owning the remainder. We therefore consolidate all of the assets, liabilities,
income and expense of the Managed Properties operations in segment reporting. For the three and nine months ended September 30, 2017 and 2016, operating results include amounts attributable to non-controlling interests related to our Managed Properties.
Operating Results
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | |
| Net realized and unrealized gains (losses) | $ | — |
| | $ | 51 |
| | $ | — |
| | $ | — |
|
| Rental and related revenue | 19,170 |
| | 15,371 |
| | 54,819 |
| | 43,389 |
|
| Other income | 413 |
| | 273 |
| | 1,108 |
| | 815 |
|
| Total revenue | $ | 19,583 |
| | $ | 15,695 |
| | $ | 55,927 |
| | $ | 44,204 |
|
| | | | | | | | |
| Expenses: | | | | | | | |
| Employee compensation and benefits | 7,723 |
| | 6,270 |
| | 22,499 |
| | 17,661 |
|
| Interest expense | 3,609 |
| | 2,271 |
| | 9,309 |
| | 6,220 |
|
| Depreciation and amortization expenses | 4,369 |
| | 3,094 |
| | 13,350 |
| | 10,634 |
|
| Other expenses | 5,417 |
| | 4,533 |
| | 16,128 |
| | 15,176 |
|
| Total expenses | $ | 21,118 |
| | $ | 16,168 |
| | $ | 61,286 |
| | $ | 49,691 |
|
| Pre-tax income (loss) | $ | (1,535 | ) | | $ | (473 | ) | | $ | (5,359 | ) | | $ | (5,487 | ) |
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Employee compensation and benefits | $ | 1.8 |
| | $ | 1.4 |
|
| Employee incentive compensation expense | 2.0 |
| | 2.3 |
|
| Interest expense | 1.6 |
| | 0.6 |
|
| Depreciation and amortization expenses | 0.1 |
| | 0.1 |
|
| Other expenses | 3.4 |
| | 2.3 |
|
| Total expenses | $ | 8.9 |
| | $ | 6.7 |
|
Results
In 2017, twelve properties were acquired (two Managed Properties and ten Triple Net Lease Properties) for an aggregate purchase price of $80.7 million, bringing our total purchase priceCorporate expenses include expenses of the 40 properties to $407.6 million, excluding transaction costs. Ten of those properties were acquired in the second quarter of 2017. For the three months ended September 30, 2017, our senior living segment incurred a pre-tax loss of $1.5 million compared with a pre-tax loss of $0.5 millionholding company for the same period in 2016. For the nine months ended September 30, 2017, we incurred a pre-tax loss of $5.4 million compared with a pre-tax loss of $5.5 million for the same period in 2016. The properties acquired in the last twelve months have generated higher rental and related revenue year-over-year, however the higher revenues have been offset by additional expenses as a consequence of the acquisition of these properties. For the three months ended September 30, 2017, the additional operating costs, interest, expense, and depreciation and amortization outpaced the incremental revenues from the acquired properties. For the nine months ended September 30, 2017, the primary driver of the lower loss compared to 2016 was an unrealized expense of $1.4 million related to interest rate swaps in the first quarter of 2016.
Revenues
Revenues were $19.6 million for the three months ended September 30, 2017, compared with $15.7 million for the 2016 period, an increase of $3.9 million, or 24.8%. The increase in rental and related revenue was primarily due to the fourteen properties acquired over the last twelve months (three Managed Properties, eleven Triple Net Leases). For the nine months ended September 30, 2017, revenues were $55.9 million compared with $44.2 million for the 2016 period, an increase of $11.7 million, or 26.5%. The increase in rental and related revenue was primarily due to the facilities acquired since the first quarter of 2016, including twelve properties acquired in 2017 and four properties acquired in 2016. The three and nine month revenues increases as a result of acquisitions were partially offset by declining rental and related income resulting from reduced occupancy levels in 2016 at properties undergoing renovations and capital upgrades. These upgrades were completed in the first quarter of 2017, but occupancy and rental income has not yet recovered to stabilized levels.
Expenses
Expenses are comprised of interest expenses on borrowings, payroll expenses (including employees of the managers at each of Care’s Managed Properties), professional fees, depreciation and amortization of properties and leases acquired and other expenses.
Expenses for the three months ended September 30, 2017 were $21.1 million, compared with $16.2 million for 2016, an increase of $5.0 million, or 30.6%. The primary increases period-over-period primarily related to acquired properties and include property operating expenses of $2.1 million (including employee compensation and benefits, and other expenses at the managed properties), interest expense of $1.3 million, depreciation and amortization expenses of $1.3 million, and payroll and other costs of $0.2 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the three Managed Properties acquired in the last twelve months.
Expenses for the nine months ended September 30, 2017 were $61.3 million, compared with $49.7 million for 2016, an increase of $11.6 million, or 23.3%. The primary increases period-over-period include property operating expenses of $7.0 million (including employee compensation and benefits and other expenses at the managed properties), interest expense of $3.1 million and depreciation and amortization expenses of $2.7 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the two Managed Properties acquired in the first quarter of 2016 and the three Managed Properties acquired in the last fifteen months.
The Company is party to interest rate swaps in order to hedge interest rate exposure associated with its real estate holdings. These instruments swap fixed to floating rate cash streams in order to maintain the economics on the mortgage debt. As a result of movements in interest rates in the three months ended March 31, 2016, an unrealized loss was recorded in other expenses for $1.4 million for swaps that had not been previously designated as hedging relationships, which is an offsetting factor in the year-over-year increase in other expenses.
Operating Results - Non-GAAP
Segment NOI
In addition to Adjusted EBITDA, we also evaluate performance of our senior living segment based on net operating income (“NOI”), which is a non-GAAP measure. NOI is a common non-GAAP measure in the real estate industry used to evaluate property level operations. We consider NOI an important supplemental measure to evaluate the operating performance of our senior living segment because it allows investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results between periods and to the operating results of other senior living companies on a consistent basis. Agreements with our operators are structured such that they are incentivized to grow NOI, and it is a significant component in determining the compensation paid to Care’s management team. We define NOI as rental and related revenue less property operating expense. Property operating expenses and resident fees and services are not relevant to Triple Net Lease Properties since we do not manage the underlying operations and substantially all expenses are passed through to the tenant. Our calculation of NOI may differ from similarly titled non-GAAP financial measures used by other companies. NOI is not a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax income.
Product NOI - Non-GAAP (1)
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Triple Net Leases | $ | 3,371 |
| | $ | 1,844 |
| | $ | 8,218 |
| | $ | 5,533 |
|
| Managed Properties | 4,071 |
| | 3,927 |
| | 12,024 |
| | 10,256 |
|
| Segment NOI | $ | 7,442 |
| | $ | 5,771 |
| | $ | 20,242 |
| | $ | 15,789 |
|
| | | | | | | | |
Managed Property NOI Margin % (2) | 25.8 | % | | 29.0 | % | | 25.8 | % | | 27.1 | % |
| |
(1)
| For further information relating to the Senior Living NOI, including a reconciliation to GAAP pre-tax income, see “—Non-GAAP Reconciliations.” |
| |
(2) | NOI Margin % is the relationship between Managed Property segment NOI and Rental and related revenue. |
NOI was $7.4 million for the three months ended September 30, 2017, compared with $5.8 million in the prior year period, an increase of $1.7 million, or 29.0%. For the nine months ended September 30, 2017, NOI was $20.2 million, compared with $15.8 million in the prior year period, an increase of $4.5 million, or 28.2%. The primary drivers of improvement in NOI in both periods was an increase in rental revenue from newly acquired properties partially offset by the associated increase in property operating expenses. Several of our recent acquisitions included properties that the Company and its operating partners are enhancing through renovation projects and other capital upgrades in an effort to grow revenue and to allow them to operate more efficiently. As indicated in the table above, NOI margins on Managed Properties declined from 29.0% to 25.8% for the three months year-over-year and 27.1% to 25.8% for the nine months year-over-year. This decline was a result of dampened revenues as occupancy declined during these periods of renovation and capital upgrades, with the resulting ramp up of leasing revenues post-upgrade not yet completed. As the more recently acquired facilities ramp up and stabilize, we expect our results to reflect additional NOI margin improvements.
Adjusted EBITDA
Adjusted EBITDA was $2.9 million and $8.3 million for the three and nine months ended September 30, 2017, respectively, compared to $2.9 million and $7.2 million in the three and nine months ended September 30, 2016, driven primarily by increases in NOI partially offset by increased interest expense on new acquisitions. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Specialty Finance
The specialty finance segment is comprised of our mortgage origination business, including, Reliance, which is 100% owned by us and Reliance management, and Luxury, which is 67.5% owned by us, and the lending operations of Siena, a commercial asset-based finance company, which is 62% owned by us.
Operating Results
|
| | | | | | | | | | | | | | | | |
| ($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | | |
| Net realized and unrealized gains (losses) | | $ | 16,700 |
| | $ | 21,682 |
| | $ | 48,029 |
| | $ | 49,499 |
|
| Other income | | 8,276 |
| | 7,331 |
| | 22,296 |
| | 18,291 |
|
| Total revenue | | $ | 24,976 |
| | $ | 29,013 |
| | $ | 70,325 |
| | $ | 67,790 |
|
| | | | | | | | |
| Expenses: | | | | | | | | |
| Employee compensation and benefits | | 14,631 |
| | 16,865 |
| | 42,434 |
| | 41,801 |
|
| Interest expense | | 1,949 |
| | 1,932 |
| | 4,743 |
| | 4,352 |
|
| Depreciation and amortization expenses | | 209 |
| | 248 |
| | 620 |
| | 665 |
|
| Other expenses | | 5,592 |
| | 5,787 |
| | 19,899 |
| | 15,462 |
|
| Total expenses | | $ | 22,381 |
| | $ | 24,832 |
| | $ | 67,696 |
| | $ | 62,280 |
|
| Pre-tax income (loss) | | $ | 2,595 |
| | $ | 4,181 |
| | $ | 2,629 |
| | $ | 5,510 |
|
Results
For the three months ended September 30, 2017, the specialty finance segment contributed pre-tax income of $2.6 million compared with pre-tax income of $4.2 million for the comparable 2016 period. For the nine months ended September 30, 2017, pre-tax income was $2.6 million compared with $5.5 million for the comparable 2016 period. Expenses decreased by $2.5 million for the three months ended September 30, 2017 as result of lower mortgage production volumes which impacted employee compensation and benefits. In the nine months ended September 30, 2017, expenses increased by $5.4 million driven primarily by the $3.0 million increase in fair value of the contingent earn-out liability in connection with our acquisition of Reliance, which in turn was driven by their improved performance. In addition, since the contingent earn-out is payable in Tiptree stock, its fair value increases as Tiptree’s stock price improves. This was partially offset by improved underlying performance driven by increased net revenue margins on mortgage originations volume and higher earning assets in the commercial lending businesses.
Revenues
Revenues are comprised of gain on sale of mortgages originated and sold to investors, gains and losses on the mortgage pipeline of interest rate lock commitments and mortgage loans held for sale and their associated hedges, and net interest income and fees associated with our commercial asset-based lending products and the mortgage origination business.
Revenues decreased from $29.0 million in three months ended September 30, 2016 to $25.0 million in the comparable 2017 period. Mortgage origination volume declined 23.8% from $565.8 million for the three months ended September 30, 2016 to $431.2 million for three months ended September 30, 2017, which was partially offset by 31.2 basis points improvement in net revenue margins year-over-year. Commercial lending grew with average earning assets of $138.7 million in the three months ended September 30, 2017, compared with $90.6 million in the three months ended September 30, 2016, an increase of 53.1%.
Revenues increased from $67.8 million in nine months ended September 30, 2016 to $70.3 million in the 2017 period, primarily driven by higher margins on relatively stable mortgage volume and increased commercial lending originations volume. Mortgage origination volume declined 10.9% from $1.3 billion for the nine months ended September 30, 2016 to $1.2 billion for nine months ended September 30, 2017 which was more than offset by 53.1 basis points improvement in net revenue margins year-over-year. This was primarily a result of the change in product mix towards higher margin government and agency products. In addition, commercial asset-based lending grew with average earning assets of $117.1 million in the nine months ended September 30, 2017, compared with $72.8 million in the prior year period, an increase of 60.9%. The improvement in commercial asset-based lending was driven by increased loan originations and higher utilization rates of facilities by borrowers which increased interest income and loan fees, reported in other income.
Expenses
Lower revenues were offset by lower expenses, which decreased from $24.8 million for the three months ended September 30, 2016 to $22.4 million for three months ended September 30, 2017. Higher revenues in the nine months ended September 30, 2017 were offset by higher expenses which increased from $62.3 million for the nine months ended September 30, 2016 to $67.7 million in the comparable period in 2017. Expenses are composed of payroll and employee commissions, interest expense, professional fees, fair value changes to the contingent earn-out liability in connection with our acquisition of Reliance and other expenses. In addition to the Reliance earn-out increase, expenses were higher in the nine month 2017 period from higher payroll and employee commissions as underlying business performance improved.
Operating Results - Non GAAP
Adjusted EBITDA
Adjusted EBITDA was $2.4 millionand$6.3 million for the three and nine months ended September 30, 2017, respectively, compared to $4.5 million and $6.3 million for the comparable prior year periods. The decrease in the three month period was driven by the same factors discussed above under “Results”, combined with the add-back of the change in fair value for earn-out liability at Reliance in each respective period. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Corporate and Other
Corporate and other incorporates revenues from non-core legacy principal investments and expenses including interest expense on the holding company credit facility and employee compensation and benefits, and other expenses.
Operating Results
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | |
| Net realized and unrealized gains (losses) | $ | (271 | ) | | $ | 42 |
| | $ | (67 | ) | | $ | 3,462 |
|
| Other income | 69 |
| | 34 |
| | 142 |
| | 106 |
|
| Total revenue | $ | (202 | ) | | $ | 76 |
| | $ | 75 |
| | $ | 3,568 |
|
| | | | |
| |
|
| Expenses: | | | | |
| |
|
| Employee compensation and benefits | 3,280 |
| | 4,185 |
| | 9,751 |
| | 9,787 |
|
| Interest expense | 1,299 |
| | 1,314 |
| | 3,851 |
| | 3,434 |
|
| Depreciation and amortization expenses | 63 |
| | 63 |
| | 186 |
| | 186 |
|
| Other expenses | 2,274 |
| | 3,806 |
| | 8,485 |
| | 12,912 |
|
| Total expenses | $ | 6,916 |
| | $ | 9,368 |
| | $ | 22,273 |
| | $ | 26,319 |
|
| Pre-tax income (loss) | $ | (7,118 | ) | | $ | (9,292 | ) | | $ | (22,198 | ) | | $ | (22,751 | ) |
Results
For the three months ended September 30, 2017, the Company recorded a loss of $7.1 million compared with a loss of $9.3 million for the 2016 period, an increase in pre-tax income of $2.2 million. For the nine months ended September 30, 2017, the Company recorded a loss of $22.2 million compared with a loss of $22.8 million for the 2016 period, a lower pre-tax loss of $0.6 million. The key drivers of year-over-year improvement in the nine month period were decreases in total corporate expenses of $4.0 million primarily related to reduced professional fees, partially offset by $3.5 million of reduced revenues in the 2016 period from realized gains on the sale of certain legacy principal investments which did not repeat in 2017.
Expenses include holding company interest expense, employee compensation and benefits, and other expenses.costs. Corporate employee compensation and benefits expense includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses.
Employee compensation and benefits, were $3.3including incentive compensation expense, increased $0.1 million infor the three months ended September 30, 2017,March 31, 2019 compared to $4.2 million for the 2016 period. For the nine months ended September 30, 2017,2018 period driven by employee compensation and benefits were $9.8 million compared to $9.8 million in the nine months ended September 30, 2016, as corporate staff increased from our efforts to improve our reporting and controls infrastructure, which was offset by lower accrued incentive compensation.
benefit expenses. Interest expense was $1.3 million infor the three months ended September 30, 2017,March 31, 2019 was $1.6 million, an increase of $1.0 million driven by increased average borrowings and higher LIBOR. As of March 31, 2019, the outstanding borrowings were $71.1 million compared to $1.3$28.0 million in the 2016 period. Interest expense was $3.9 million in the nine months ended September 30, 2017, compared to $3.4 million in the nine months ended September 30, 2016. The increase in interest expense for the nine months was related to increased borrowings on the Fortress credit facility year-over-year.
at March 31, 2018. Other expenses were $3.4 million for the 2019 period as compared to $2.3 million in the three months ended September 30, 2017 as compared to $3.8 million in the 2016 period. For the nine months ended September 30, 2017, other expenses were $8.5 million as compared to $12.9 million in 2016.2018. The year-over-year decrease of $4.4 million in the nine monthsperiod-over-period increase was driven by reduced audit fee accrualsincreased rent expense and external consulting spend as a result of our improved reporting and controls infrastructure. Included within the year-to-date 2017 results were approximately $1.0$0.7 million of expenses primarilytransaction related to the delayed filing of the first quarter Form 10-Q.
Operating Results - Non-GAAP
Adjusted EBITDA
Adjusted EBITDA was a loss of $5.8 million and $19.9 million for the three and nine months ended September 30, 2017, respectively, compared to a loss of $7.9 million and $20.9 million in the comparable prior year periods. The improvement in Adjusted EBITDA for the three and nine month periods were driven by the same factors that impacted pre-tax income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.expenses.
Provision for income taxes
Provision for income taxes - Total Operations
The total income tax benefit of $2.8 million and expense of $5.3$0.9 million for the ninethree months ended September 30, 2017March 31, 2019 and 2016, respectively,total income tax expense of $10.8 million for the three months ended March 31, 2018 is reflected as a component of net income. Below is a table that breaks downincome (loss). For the components ofthree months ended March 31, 2019, the Company’s effective tax rate (“ETR”).
|
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Impact of state tax and permanent items | 3.8 |
| | (2.2 | ) | | 4.0 |
| | (0.9 | ) |
| Impact of non-controlling interests | (0.7 | ) | | (1.2 | ) | | 2.9 |
| | (0.6 | ) |
| Impact of restructuring | — |
| | — |
| | — |
| | (14.7 | ) |
| Impact of Reliance contingent liability valuation | 4.5 |
| | — |
| | (10.5 | ) | | — |
|
| Impact of other discrete | (4.8 | ) | | 0.7 |
| | (4.1 | ) | | 0.4 |
|
| ETR | 37.8 | % | | 32.3 | % | | 27.3 | % | | 19.2 | % |
For the three months ended September 30, 2017, the Company’s ETR was equal to 37.8%16.6%, which does not bear a customary relationship to the U.S. federal statutory income tax rate. The effective rate for the three months ended March 31, 2019 is lower than the U.S. federal statutory income tax rate of 21%, primarily from the impact of the dividends received deduction and other discrete items, partially offset by state taxes and the impact of foreign operations. For the three months ended September 30, 2016,March 31, 2018, the Company’s ETReffective tax rate was equal to 32.3%27.1%, which does not bear a customary relationship to the U.S. federal statutory income tax rate.
For The effective rate for the ninethree months ended September 30, 2017,March 31, 2018 is higher than the Company’s ETR was equal to 27.3% which is lower than theU.S. federal statutory income tax rate of 21%, primarily duefrom state taxes on the gain on sale of Care.
Provision for income taxes - Continuing Operations
The Company had a change in fair valuetax expense from continuing operations of a contingent consideration liability, an increase in a valuation allowance on net operating losses, and various other discrete items. The ETR$0.9 million for the ninethree months ended September 30, 2017 excludingMarch 31, 2019 as compared to a tax benefit from continuing operations of $1.6 million for the effect of discrete itemsthree months ended March 31, 2018. The effective tax rate on income from continuing operations for the three months ended March 31, 2019 was 28.1%, which is lower thanapproximately 16.6% compared to 22.3% for the three months ended March 31, 2018. Differences from the U.S. federal statutory income tax rate primarily due to a state tax benefit andfor the effect of non-controlling interests at certain subsidiaries. For the ninethree months ended September 30, 2016,March 31, 2019 and 2018 are primarily the Company’s ETR was equal to approximately 19.2%, which is lower thanresult of the federal statutory income tax rate primarily due to the impact of tax restructuring to create the consolidated group.dividends received deduction offset by other discrete items.
Balance Sheet Information - as of September 30, 2017March 31, 2019 compared to the year ended December 31, 20162018
Tiptree’s total assets were $2.4$1.8 billion as of September 30, 2017,March 31, 2019, compared to $2.9$1.9 billion as of December 31, 2016.2018. The $441.2$50.0 million decrease in assets is primarily attributable to decreases in assetsthe liquidation of consolidated CLOs, due to the deconsolidation of two CLOs during the nine months ended September 30, 2017 as a result of selling the subordinated notes. Additionally, loans at fair value and equity securities decreased, partially offset by increases in real estate from acquisitions inloan investments within our senior living segment, notes and accounts receivable and reinsurance receivable in our specialty insurance segment. In addition, the combination of unearned premiums and deferred revenues increased as a result of growth in written premiums and extending contract durations in the insurance business.investment portfolio.
Total stockholders’ equity of Tiptree was $292.0$394.6 million as of September 30, 2017March 31, 2019 compared to $293.4$399.3 million as of December 31, 2016,2018, primarily driven by the losses in the period, partiallynet income, which was more than offset by the net increase in equity outstanding as a result of the Tricadia
Option, net of the share re-purchase.stock repurchases and dividends. As of September 30, 2017March 31, 2019 there were 29,793,48134,505,781 shares of Tiptree Class A common stockCommon Stock outstanding net of Treasury shares held at a subsidiary, as compared to 28,387,61635,870,348 as of December 31, 2016, presented on the same basis.2018.
The following table is a summary of certain balance sheet information:
|
| | | | | | | | | | | | | | | |
| | As of March 31, 2019 |
| | Specialty Insurance | | Tiptree Capital | | Corporate | | Total |
| Total assets | $ | 1,450.8 |
| | $ | 320.3 |
| | $ | 43.8 |
| | $ | 1,814.9 |
|
| | | | | | | | |
| Corporate debt | $ | 167.6 |
| | $ | — |
| | $ | 71.1 |
| | $ | 238.7 |
|
| Asset based debt | 6.8 |
| | 45.7 |
| | — |
| | 52.5 |
|
| | | | | | | | |
| Tiptree Inc. stockholders’ equity | $ | 248.8 |
| | $ | 175.9 |
| | $ | (41.1 | ) | | $ | 383.6 |
|
| Non-controlling interests - Other | 8.8 |
| | 2.2 |
| | — |
| | 11.0 |
|
| Total stockholders’ equity | $ | 257.6 |
| | $ | 178.1 |
| | $ | (41.1 | ) | | $ | 394.6 |
|
NON-GAAP RECONCILIATIONS
Adjusted EBITDA and AdjustedOperating EBITDA - Non-GAAP
The Company defines Adjusted EBITDA as GAAP net income of the Company adjusted to add consolidated(i) corporate interest expense, consolidated income taxes and consolidated depreciation and amortization expense, as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costsnon-cash fair value adjustments, and (v)(iv) any significant one-timenon-recurring expenses. Operating EBITDA represents Adjusted EBITDA plus stock based compensation expense, less realized and unrealized gains and losses and less third party non-controlling interests. Operating EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income.
|
| | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| 2017 |
| 2016 |
| Net income (loss) available to Class A common stockholders | $ | (3,114 | ) |
| $ | 5,905 |
|
| $ | (6,457 | ) |
| $ | 17,593 |
|
| Add: net (loss) income attributable to noncontrolling interests | (264 | ) |
| 1,933 |
|
| (903 | ) |
| 4,680 |
|
| Income (loss) | $ | (3,378 | ) |
| $ | 7,838 |
|
| $ | (7,360 | ) |
| $ | 22,273 |
|
| Consolidated interest expense | 10,361 |
|
| 7,839 |
|
| 28,444 |
|
| 20,770 |
|
| Consolidated income taxes | (2,052 | ) |
| 3,712 |
|
| (2,761 | ) |
| 5,298 |
|
| Consolidated depreciation and amortization expense | 7,775 |
|
| 6,437 |
|
| 23,781 |
|
| 21,899 |
|
| EBITDA | $ | 12,706 |
|
| $ | 25,826 |
|
| $ | 42,104 |
|
| $ | 70,240 |
|
Consolidated non-corporate and non-acquisition related interest expense(1) | (7,340 | ) |
| (4,989 | ) |
| (19,510 | ) |
| (13,223 | ) |
Effects of Purchase Accounting (2) | (306 | ) |
| (957 | ) |
| (1,205 | ) |
| (4,446 | ) |
Non-cash fair value adjustments (3) | (309 | ) |
| — |
|
| 3,378 |
|
| 1,416 |
|
Significant acquisition expenses (4) | 25 |
|
| 248 |
|
| 302 |
|
| 631 |
|
Separation expense adjustments (5) | — |
|
| — |
|
| (1,736 | ) |
| (1,736 | ) |
| Adjusted EBITDA of the Company | $ | 4,776 |
|
| $ | 20,128 |
|
| $ | 23,333 |
|
| $ | 52,882 |
|
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| 2019 | | 2018 |
| Net income (loss) attributable to Common Stockholders | $ | 3.9 |
| | $ | 23.6 |
|
| Add: net (loss) income attributable to noncontrolling interests | 0.4 |
| | 5.4 |
|
| Less: net income from discontinued operations | — |
| | 34.5 |
|
| Income (loss) from continuing operations | $ | 4.3 |
| | $ | (5.5 | ) |
Corporate Debt related interest expense(1) | 5.0 |
| | 3.8 |
|
| Consolidated income tax expense (benefit) | 0.9 |
| | (1.6 | ) |
Depreciation and amortization expense(2) | 3.0 |
| | 2.8 |
|
Non-cash fair value adjustments(3) | (0.6 | ) | | 0.1 |
|
Non-recurring expenses(4) | 2.0 |
| | (0.3 | ) |
| Adjusted EBITDA from continuing operations | $ | 14.6 |
| | $ | (0.7 | ) |
| Add: Stock-based compensation expense | 1.4 |
| | 1.2 |
|
| Add: Vessel depreciation, net of capital expenditures | 0.6 |
| | — |
|
Less: Realized and unrealized gain (loss)(5) | 4.0 |
| | (7.7 | ) |
Less: Third party non-controlling interests(6) | — |
| | (0.1 | ) |
| Operating EBITDA from continuing operations | $ | 12.6 |
| | $ | 8.3 |
|
|
| |
|
| Income (loss) from discontinued operations | $ | — |
| | $ | 34.5 |
|
| Consolidated income tax expense (benefit) | — |
| | 12.3 |
|
Non-cash fair value adjustments (3) | — |
| | (40.7 | ) |
| Adjusted EBITDA from discontinued operations | $ | — |
| | $ | 6.1 |
|
Less: Realized and unrealized gain (loss) (5) | — |
| | 5.5 |
|
| Operating EBITDA from discontinued operations | $ | — |
| | $ | 0.6 |
|
|
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| 2019 | | 2018 |
| Total Adjusted EBITDA | $ | 14.6 |
| | $ | 5.4 |
|
| Total Operating EBITDA | $ | 12.6 |
| | $ | 8.9 |
|
|
| |
| (1) | The consolidated non-corporate and non-acquisition relatedCorporate Debt interest expense is subtracted from EBITDA to arrive at Adjusted EBITDA. This includes interestSecured corporate credit agreements, junior subordinated notes and preferred trust securities. Interest expense associated with asset-specific debt at subsidiaries in the specialty insurance and asset management, senior livingmortgage and specialty finance segments.other operations is not added-back for Adjusted EBITDA and Operating EBITDA. |
| (2) | Represents total depreciation and amortization expense less purchase accounting amortization related adjustments at the Insurance Company. Following the purchase accounting adjustments, current period expenses associated with deferred costs were more favorably stated and current period income associated with deferred revenues were less favorably stated. Thus, the purchase accounting effect related to Fortegraour Insurance company increased EBITDA above what the historical basis of accounting would have generated. The impact of this purchase accounting adjustments have been reversed to reflect an adjusted EBITDA without such purchase accounting effect. The impact for the three months ended September 30, 2017 and 2016 was an effective increase to pre-tax earnings of $307 thousand and $408 thousand, respectively. |
| (3) | For our senior living segment, Adjusted EBITDA excludes the impact of the change of fair value of interest rate swaps hedging the debt at the property level. For Reliance, within our specialty finance segment, Adjusted EBITDA excludes the impact of changes in contingent earn-outs. For our specialty insurance segment,operations, depreciation and amortization on senior living real estate that is within net investment income is added back to Adjusted EBITDA. For Care (Discontinued Operations), the reduction in EBITDA is related to accumulated depreciation and amortization, and certain operating expenses, which were previously included in Adjusted EBITDA in prior periods. |
| (4) | Acquisition, start-up and disposition costs includeincluding debt extinguishment, legal, taxes, banker fees and other costs associated with senior living acquisitions in 2017 and 2016. |
(5) | Consists ofcosts. In 2018, includes payments pursuant to a separation agreement, dated as of November 10, 2015. |
| (5) | Adjustment excludes Mortgage realized and unrealized gains and losses - Performing and NPLs as those are recurring in nature and align with those business models. |
| (6) | Removes the Operating EBITDA associated with third party non-controlling interests. Does not remove the non-controlling interests related to employee based shares. |
SegmentAdjusted EBITDA and AdjustedOperating EBITDA - Non-GAAP
The tables below present Adjusted EBITDA and AdjustedOperating EBITDA by our four reporting segments specialty insurance, asset management, senior living and specialty finance. Corporate and other contains corporate expenses no allocated to the operating business.business component. |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| ($ in millions) | Specialty Insurance | | Tiptree Capital (1) | | Corporate Expenses | | Total |
| Pre-tax income/(loss) from continuing ops | $ | 8.1 |
| | $ | 5.9 |
| | $ | (8.9 | ) | | $ | 5.1 |
|
| Adjustments: |
| |
| |
| |
|
Corporate Debt related interest expense(2) | 3.4 |
| | — |
| | 1.6 |
| | 5.0 |
|
Depreciation and amortization expenses(3) | 2.2 |
| | 0.8 |
| | 0.1 |
| | 3.1 |
|
Non-cash fair value adjustments(4) | — |
| | (0.6 | ) | | — |
| | (0.6 | ) |
Non-recurring expenses(5) | 1.3 |
| | — |
| | 0.7 |
| | 2.0 |
|
| Adjusted EBITDA | $ | 15.0 |
| | $ | 6.1 |
| | $ | (6.5 | ) | | $ | 14.6 |
|
| Add: Stock-based compensation expense | 0.6 |
| | 0.1 |
| | 0.7 |
| | 1.4 |
|
| Add: Vessel depreciation, net of capital expenditures | — |
| | 0.6 |
| | — |
| | 0.6 |
|
Less: Realized and unrealized gain (loss)(6) | 1.9 |
| | 2.1 |
| | — |
| | 4.0 |
|
| Operating EBITDA | $ | 13.7 |
| | $ | 4.7 |
| | $ | (5.8 | ) | | $ | 12.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| ($ in thousands) | Specialty insurance | Asset management | Senior living | Specialty finance | Corporate and other | Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| Pre-tax income/(loss) | $ | (2,345 | ) | $ | 10,659 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | (1,535 | ) | $ | (473 | ) |
| $ | 2,595 |
| $ | 4,181 |
|
| $ | (7,118 | ) | $ | (9,292 | ) |
| $ | (5,430 | ) | $ | 11,550 |
|
| Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense | 3,499 |
| 2,322 |
|
| 5 |
| — |
|
| 3,609 |
| 2,271 |
|
| 1,949 |
| 1,932 |
|
| 1,299 |
| 1,314 |
|
| 10,361 |
| 7,839 |
|
| Depreciation and amortization expenses | 3,134 |
| 3,032 |
|
| — |
| — |
|
| 4,369 |
| 3,094 |
|
| 209 |
| 248 |
|
| 63 |
| 63 |
|
| 7,775 |
| 6,437 |
|
| Segment EBITDA | $ | 4,288 |
| $ | 16,013 |
|
| $ | 2,978 |
| $ | 6,475 |
|
| $ | 6,443 |
| $ | 4,892 |
|
| $ | 4,753 |
| $ | 6,361 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 12,706 |
| $ | 25,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset-specific debt interest | (1,777 | ) | (836 | ) |
| (5 | ) | — |
|
| (3,609 | ) | (2,271 | ) |
| (1,949 | ) | (1,882 | ) |
| — |
| — |
|
| (7,340 | ) | (4,989 | ) |
| Effects of purchase accounting | (306 | ) | (957 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (306 | ) | (957 | ) |
| Non-cash fair value adjustments | 113 |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (422 | ) | — |
|
| — |
| — |
|
| (309 | ) | — |
|
| Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
| — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
| Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| Segment Adjusted EBITDA | $ | 2,318 |
| $ | 14,220 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | 2,859 |
| $ | 2,869 |
|
| $ | 2,382 |
| $ | 4,479 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 4,776 |
| $ | 20,128 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| ($ in millions) | Specialty Insurance | | Tiptree Capital (1) | | Corporate Expenses | | Total |
| Pre-tax income/(loss) from continuing ops | $ | 1.3 |
| | $ | (1.7 | ) | | $ | (6.7 | ) | | $ | (7.1 | ) |
| Pre-tax income/(loss) from discontinued ops | — |
| | 46.8 |
| | — |
| | 46.8 |
|
| Adjustments: |
| |
| |
| |
|
Corporate Debt related interest expense(2) | 3.2 |
| | — |
| | 0.6 |
| | 3.8 |
|
Depreciation and amortization expenses(3) | 2.5 |
| | 0.2 |
| | 0.1 |
| | 2.8 |
|
Non-cash fair value adjustments(4) | 0.1 |
| | (40.7 | ) | | — |
| | (40.6 | ) |
Non-recurring expenses(5) | 1.1 |
| | 0.9 |
| | (2.3 | ) | | (0.3 | ) |
| Adjusted EBITDA | $ | 8.2 |
| | $ | 5.5 |
| | $ | (8.3 | ) | | $ | 5.4 |
|
| Add: Stock-based compensation expense | 0.6 |
| | $ | — |
| | 0.6 |
| | 1.2 |
|
Less: Realized and unrealized gain (loss)(6) | (4.5 | ) | | 2.3 |
| | — |
| | (2.2 | ) |
Less: Third party non-controlling interests(7) | — |
| | (0.1 | ) | | — |
| | (0.1 | ) |
| Operating EBITDA | $ | 13.3 |
| | $ | 3.3 |
| | $ | (7.7 | ) | | $ | 8.9 |
|
The footnotes below correspond to the tables above, under “—Adjusted EBITDA and Operating EBITDA - Non-GAAP”
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| ($ in thousands) | Specialty insurance |
| Asset management |
| Senior living |
| Specialty finance |
| Corporate and other |
| Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| Pre-tax income/(loss) | $ | 1,724 |
| $ | 35,627 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | (5,359 | ) | $ | (5,487 | ) |
| $ | 2,629 |
| $ | 5,510 |
|
| $ | (22,198 | ) | $ | (22,751 | ) |
| $ | (10,121 | ) | $ | 27,571 |
|
| Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense | 10,534 |
| 6,018 |
|
| 7 |
| 746 |
|
| 9,309 |
| 6,220 |
|
| 4,743 |
| 4,352 |
|
| 3,851 |
| 3,434 |
|
| 28,444 |
| 20,770 |
|
| Depreciation and amortization expenses | 9,625 |
| 10,414 |
|
| — |
| — |
|
| 13,350 |
| 10,634 |
|
| 620 |
| 665 |
|
| 186 |
| 186 |
|
| 23,781 |
| 21,899 |
|
| Segment EBITDA | $ | 21,883 |
| $ | 52,059 |
| | $ | 13,090 |
| $ | 15,418 |
| | $ | 17,300 |
| $ | 11,367 |
| | $ | 7,992 |
| $ | 10,527 |
| | $ | (18,161 | ) | $ | (19,131 | ) | | $ | 42,104 |
| $ | 70,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset-specific debt interest | (5,451 | ) | (2,057 | ) |
| (7 | ) | (746 | ) |
| (9,309 | ) | (6,220 | ) |
| (4,743 | ) | (4,200 | ) |
| — |
| — |
|
| (19,510 | ) | (13,223 | ) |
| Effects of purchase accounting | (1,205 | ) | (4,446 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,205 | ) | (4,446 | ) |
| Non-cash fair value adjustments | 339 |
| — |
|
| — |
| — |
|
| — |
| 1,416 |
|
| 3,039 |
| — |
|
| — |
| — |
|
| 3,378 |
| 1,416 |
|
| Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
| — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
| Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,736 | ) | (1,736 | ) |
| (1,736 | ) | (1,736 | ) |
| Segment Adjusted EBITDA | $ | 15,566 |
| $ | 45,556 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | 8,293 |
| $ | 7,194 |
|
| $ | 6,288 |
| $ | 6,327 |
|
| $ | (19,897 | ) | $ | (20,867 | ) |
| $ | 23,333 |
| $ | 52,882 |
|
|
| |
| (1) | Includes discontinued operations related to Care. For more information, see “Note—(3) Dispositions, Assets Held for Sale & Discontinued Operations.” |
| (2) | Corporate Debt interest expense includes Secured corporate credit agreements, junior subordinated notes and preferred trust securities. Interest expense associated with asset-specific debt in specialty insurance and asset management, mortgage and other operations is not added-back for Adjusted EBITDA and Operating EBITDA. |
| (3) | Represents total depreciation and amortization expense less purchase accounting amortization related adjustments at the Insurance Company. Following the purchase accounting adjustments, current period expenses associated with deferred costs were more favorably stated and current period income associated with deferred revenues were less favorably stated. Thus, the purchase accounting effect related to our Insurance company increased EBITDA above what the historical basis of accounting would have generated. |
| (4) | For our specialty insurance operations, depreciation and amortization on senior living real estate that is within net investment income is added back to Adjusted EBITDA. For Care (Discontinued Operations), the reduction in EBITDA is related to accumulated depreciation and amortization, and certain operating expenses, which were previously included in Adjusted EBITDA in prior periods. |
| (5) | Acquisition, start-up and disposition costs including debt extinguishment, legal, taxes, banker fees and other costs. In 2018, includes payments pursuant to a separation agreement, dated November 10, 2015. |
| (6) | Adjustment excludes Mortgage realized and unrealized gains and losses - Performing and NPLs as those are recurring in nature and align with those business models. |
| (7) | Removes the Operating EBITDA associated with third party non-controlling interests. Does not remove the non-controlling interests related to employee based shares. |
Book Value per share as exchanged - Non-GAAP
Book value per share, as exchanged assumes full exchange of the limited partners units of TFP for Tiptree Class A common stock. Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares, as of September 30, 2017 and September 30, 2016.shares.
| | ($ in thousands, except per share information) | Nine Months Ended September 30, | |
($ in millions, except per share information) | | As of March 31, |
| 2017 | | 2016 | 2019 |
| 2018 |
| Total stockholders’ equity | $ | 391,138 |
| | $ | 381,341 |
| $ | 394.6 |
| | $ | 407.7 |
|
| Less non-controlling interest - other | 25,081 |
| | 19,939 |
| 11.0 |
| | 5.4 |
|
| Total stockholders’ equity, net of non-controlling interests - other | $ | 366,057 |
| | $ | 361,402 |
| $ | 383.6 |
| | $ | 402.3 |
|
Total Class A shares outstanding (1) | 29,793 |
| | 28,351 |
| |
| Total Common shares outstanding | | 34.5 |
| | 29.9 |
|
| Total Class B shares outstanding | 8,049 |
| | 8,049 |
| — |
| | 8.0 |
|
| Total shares outstanding | 37,842 |
| | 36,400 |
| 34.5 |
| | 37.9 |
|
| Book value per share, as exchanged | $ | 9.67 |
| | $ | 9.93 |
| |
Book value per share(1) | | $ | 11.12 |
| | $ | 10.59 |
|
(1) As of September 30, 2017, excludes 5,209,523 shares of Class A common stock held by a consolidated subsidiaryFor periods prior to April 10, 2018, book value per share assumes full exchange of the Company. See Note 23—Earnings per Share,limited partners units of TFP for further discussionCommon Stock.
Invested & Total Capital - Non-GAAP
Invested Capital represents its total cash investment, including any re-investment of
potential dilution from warrantsearnings, and acquisition costs, net of tax. Total Capital represents Invested Capital plus Corporate Debt. |
| | | | | | | |
| ($ in millions) | As of March 31, |
| | 2019 |
| 2018 |
| Total stockholders’ equity | $ | 394.6 |
| | $ | 407.7 |
|
| Less non-controlling interest - other | 11.0 |
| | 5.4 |
|
| Total stockholders’ equity, net of non-controlling interests - other | $ | 383.6 |
| | $ | 402.3 |
|
| Plus Specialty Insurance accumulated depreciation and amortization, net of tax | 44.8 |
| | 37.6 |
|
| Plus acquisition costs | 4.2 |
| | 4.2 |
|
| Invested Capital | $ | 432.6 |
| | $ | 444.1 |
|
| Plus corporate debt | 238.7 |
| | 188.0 |
|
| Total Capital | $ | 671.3 |
| | $ | 632.1 |
|
Specialty Insurance - As Adjusted Underwriting Margin - Non-GAAP
Underwriting margin is a measure of the underwriting profitability of our specialty insurance segment.operations. It represents net earned premiums, service and administrative fees, ceding commissions and other income less policy and contract benefits and commission expense. We use the combined ratio as an insurance operating metric to evaluate our underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net earned premiums, service and administrative fees, and other income. The following table provides a reconciliation between as adjusted underwriting margin and pre-tax income for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| ($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
| Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Net earned premiums | $ | 96,073 |
|
| $ | 47,609 |
|
| $ | — |
|
| $ | — |
|
| $ | 96,073 |
|
| $ | 47,609 |
|
| Service and administrative fees | 24,018 |
|
| 25,842 |
|
| 236 |
|
| 1,134 |
|
| 24,254 |
|
| 26,976 |
|
| Ceding commissions | 2,513 |
|
| 1,397 |
|
| 10 |
|
| 69 |
|
| 2,523 |
|
| 1,466 |
|
| Other income | 824 |
|
| 730 |
|
| — |
|
| — |
|
| 824 |
|
| 730 |
|
| Less underwriting expenses: |
|
|
|
|
|
|
|
|
|
|
|
| Policy and contract benefits | 31,570 |
|
| 25,881 |
|
| — |
|
| — |
|
| 31,570 |
|
| 25,881 |
|
| Commission expense | 63,066 |
|
| 24,032 |
|
| 538 |
|
| 2,120 |
|
| 63,604 |
|
| 26,152 |
|
| Underwriting Margin - Non-GAAP | $ | 28,792 |
|
| $ | 25,665 |
|
| $ | (292 | ) |
| $ | (917 | ) |
| $ | 28,500 |
|
| $ | 24,748 |
|
| Less operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| Employee compensation and benefits | 10,073 |
|
| 9,180 |
|
| — |
|
| — |
|
| 10,073 |
|
| 9,180 |
|
| Other expenses | 9,717 |
|
| 7,524 |
|
| 31 |
|
| 40 |
|
| 9,748 |
|
| 7,564 |
|
| Combined Ratio | 92.6 | % |
| 87.9 | % |
| — | % |
| — | % |
| 92.8 | % |
| 89.4 | % |
| Plus investment revenues: |
|
|
|
|
|
|
|
|
|
|
|
| Net investment income | 3,840 |
|
| 3,307 |
|
| — |
|
| — |
|
| 3,840 |
|
| 3,307 |
|
| Net realized and unrealized gains | (8,554 | ) |
| 3,745 |
|
| — |
|
| — |
|
| (8,554 | ) |
| 3,745 |
|
| Less other expenses: |
|
|
|
|
|
|
|
|
|
|
|
| Interest expense | 3,499 |
|
| 2,322 |
|
| — |
|
| — |
|
| 3,499 |
|
| 2,322 |
|
| Depreciation and amortization expenses | 3,134 |
|
| 3,032 |
|
| (16 | ) |
| (549 | ) |
| 3,118 |
|
| 2,483 |
|
| Pre-tax income (loss) | $ | (2,345 | ) |
| $ | 10,659 |
|
| $ | (307 | ) |
| $ | (408 | ) |
| $ | (2,652 | ) |
| $ | 10,251 |
|
| |
| Nine Months Ended September 30, | |
| ($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted | |
| ($ in millions) | | Three Months Ended
March 31, |
| Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2019 | | 2018 |
| Net earned premiums | $ | 272,781 |
| | $ | 138,516 |
|
| $ | — |
|
| $ | — |
|
| $ | 272,781 |
|
| $ | 138,516 |
| $ | 119.0 |
| | $ | 101.6 |
|
| Service and administrative fees | 70,861 |
| | 84,421 |
|
| 742 |
|
| 4,976 |
|
| 71,603 |
|
| 89,397 |
| 25.9 |
| | 24.6 |
|
| Ceding commissions | 6,801 |
| | 22,645 |
|
| 46 |
|
| 376 |
|
| 6,847 |
|
| 23,021 |
| 2.5 |
| | 2.3 |
|
| Other income | 2,874 |
| | 1,985 |
|
| — |
|
| — |
|
| 2,874 |
|
| 1,985 |
| 0.8 |
| | 0.7 |
|
| Underwriting Revenues - Non-GAAP | | $ | 148.2 |
| | $ | 129.2 |
|
| Less underwriting expenses: | | |
|
|
|
|
|
|
|
|
|
| |
|
| Policy and contract benefits | 94,364 |
| | 72,436 |
|
| — |
|
| — |
|
| 94,364 |
|
| 72,436 |
| 40.8 |
| | 36.6 |
|
| Commission expense | 176,405 |
| | 91,906 |
|
| 1,892 |
|
| 9,494 |
|
| 178,297 |
|
| 101,400 |
| 74.9 |
| | 62.6 |
|
| Underwriting Margin - Non-GAAP | $ | 82,548 |
| | $ | 83,225 |
|
| $ | (1,104 | ) |
| $ | (4,142 | ) |
| $ | 81,444 |
|
| $ | 79,083 |
| $ | 32.5 |
| | $ | 30.0 |
|
| Less operating expenses: |
| |
|
|
|
|
|
|
|
|
|
| |
|
| Employee compensation and benefits | 30,800 |
| | 28,065 |
|
| — |
|
| — |
|
| 30,800 |
|
| 28,065 |
| 12.0 |
| | 10.9 |
|
| Other expenses | 28,279 |
| | 24,277 |
|
| 120 |
|
| 304 |
|
| 28,399 |
|
| 24,581 |
| |
| Other expenses (excluding debt extinguishment expenses) | | 11.1 |
| | 10.8 |
|
| Combined Ratio | 93.2 | % | | 86.3 | % |
| — |
|
| — |
|
| 93.6 | % |
| 88.5 | % | 93.5 | % | | 93.8 | % |
| Plus investment revenues: |
| |
|
|
|
|
|
|
|
|
|
| |
|
| Net investment income | 12,032 |
| | 8,409 |
|
| — |
|
| — |
|
| 12,032 |
|
| 8,409 |
| 4.3 |
| | 4.2 |
|
| Net realized and unrealized gains | (13,618 | ) | | 12,767 |
|
| — |
|
| — |
|
| (13,618 | ) |
| 12,767 |
| 2.1 |
| | (3.4 | ) |
| Less other expenses: |
| |
|
|
|
|
|
|
|
|
|
| |
|
| Interest expense | 10,534 |
| | 6,018 |
|
| — |
|
| — |
|
| 10,534 |
|
| 6,018 |
| 4.1 |
| | 4.5 |
|
| Debt extinguishment expenses | | 1.2 |
| | 0.4 |
|
| Depreciation and amortization expenses | 9,625 |
| | 10,414 |
|
| (182 | ) |
| (2,977 | ) |
| 9,443 |
|
| 7,437 |
| 2.3 |
| | 2.7 |
|
| Pre-tax income (loss) | $ | 1,724 |
| | $ | 35,627 |
|
| $ | (1,042 | ) |
| $ | (1,469 | ) |
| $ | 682 |
|
| $ | 34,158 |
| $ | 8.1 |
| | $ | 1.3 |
|
Specialty Insurance Investment Portfolio - Non-GAAP
The following table provides a reconciliation between segment total investments and net investments for the following periods:
| | | ($ in thousands) | As of September 30, | |
| ($ in millions) | | As of March 31, |
| | 2017 |
| 2016 | 2019 |
| 2018 |
| Total Investments | $ | 426,753 |
|
| $ | 398,505 |
| $ | 401.3 |
| | $ | 467.2 |
|
Investment portfolio debt (1) | (122,999 | ) |
| (101,012 | ) | — |
| | (96.6 | ) |
| Cash and cash equivalents | 62,790 |
|
| 16,555 |
| 58.7 |
| | 27.2 |
|
Restricted cash (2) | 3,637 |
|
| 6,683 |
| 1.0 |
| | 3.1 |
|
Receivable due from brokers (3) | 1,505 |
|
| — |
| 1.4 |
| | 2.9 |
|
Liability due to brokers (3) | (7,733 | ) |
| (18,836 | ) | — |
| | (4.2 | ) |
| Net investments - Non-GAAP | $ | 363,953 |
|
| $ | 301,895 |
| $ | 462.4 |
| | $ | 399.6 |
|
(1) Consists of asset-based financing on loans at fair value including certain credit investments, and NPLs, net of deferred financing costs, see Note 11 -Note—(10) Debt, net for further details.
(2) Restricted cash available to invest within certain credit investment funds which are consolidated under GAAP.
(3) Receivable due from and Liability due to brokers for unsettled trades within certain credit investment funds which are consolidated under GAAP.
Senior Living Product NOI - Non-GAAP
The following table provides a reconciliation between segment NOI and pre-tax income (loss) for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total |
| Rental and related revenue | $ | 3,371 |
|
| $ | 15,799 |
|
| $ | 19,170 |
| | $ | 1,844 |
|
| $ | 13,526 |
|
| $ | 15,370 |
| | $ | 8,218 |
| | $ | 46,600 |
| | $ | 54,818 |
| | $ | 5,533 |
| | $ | 37,856 |
| | $ | 43,389 |
|
| Less: Property operating expenses | — |
|
| 11,728 |
|
| 11,728 |
| | — |
|
| 9,599 |
|
| 9,599 |
| | — |
| | 34,576 |
| | 34,576 |
| | — |
| | 27,600 |
| | 27,600 |
|
| Segment NOI | $ | 3,371 |
|
| $ | 4,071 |
|
| $ | 7,442 |
| | $ | 1,844 |
|
| $ | 3,927 |
|
| $ | 5,771 |
| | $ | 8,218 |
| | $ | 12,024 |
| | $ | 20,242 |
| | $ | 5,533 |
| | $ | 10,256 |
| | $ | 15,789 |
|
Segment NOI Margin % (1) | | | 25.8 | % | | | | | | 29.0 | % | | | | | | 25.8 | % | | | | | | 27.1 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Other income | | | | | $ | 414 |
| | | | | | $ | 324 |
| | | | | | $ | 1,109 |
| | | | | | $ | 815 |
|
| Less: Expenses | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | 3,609 |
| | | | | | 2,271 |
| | | | | | 9,309 |
| | | | | | 6,220 |
|
| Payroll and employee commissions | | | | | 790 |
| | | | | | 617 |
| | | | | | 2,323 |
| | | | | | 1,900 |
|
| Depreciation and amortization | | | | | 4,369 |
| | | | | | 3,095 |
| | | | | | 13,350 |
| | | | | | 10,635 |
|
| Other expenses | | | | | 623 |
| | | | | | 583 |
| | | | | | 1,728 |
| | | | | | 3,335 |
|
| Pre-tax income (loss) | | | | | $ | (1,535 | ) | | | | | | $ | (471 | ) | | | | | | $ | (5,359 | ) | | | | | | $ | (5,486 | ) |
(1) NOI Margin % is the relationship between segment NOI and rental and related revenue.
Asset Management As Adjusted Revenues
The following table provides a reconciliation between asset management segment revenues and non-GAAP, as adjusted revenues for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| ($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
| Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
| Management fee income | $ | 1,541 |
|
| $ | 3,839 |
|
| $ | 311 |
|
| $ | 743 |
|
| $ | 1,852 |
|
| $ | 4,582 |
|
| Distributions | — |
|
| — |
|
| 2,168 |
|
| 4,368 |
|
| 2,168 |
|
| 4,368 |
|
| Net realized and unrealized gains (losses) | (349 | ) |
| 695 |
|
| 360 |
|
| (1,034 | ) |
| 11 |
|
| (339 | ) |
| Other income | 256 |
|
| 212 |
|
| (256 | ) |
| (45 | ) |
| — |
|
| 167 |
|
| Total revenues | $ | 1,448 |
|
| $ | 4,746 |
|
| $ | 2,583 |
|
| $ | 4,032 |
|
| $ | 4,031 |
|
| $ | 8,778 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| ($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
| Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
| Management fee income | $ | 6,578 |
|
| $ | 7,497 |
|
| $ | 1,038 |
|
| $ | 2,169 |
|
| $ | 7,616 |
|
| $ | 9,666 |
|
| Distributions | — |
|
| — |
|
| 6,560 |
|
| 11,058 |
|
| 6,560 |
|
| 11,058 |
|
| Net realized and unrealized gains (losses) | 839 |
|
| 226 |
|
| 2,604 |
|
| (3,050 | ) |
| 3,443 |
|
| (2,824 | ) |
| Other income | 822 |
|
| 3,031 |
|
| (809 | ) |
| (128 | ) |
| 13 |
|
| 2,903 |
|
| Total revenues | $ | 8,239 |
|
| $ | 10,754 |
|
| $ | 9,393 |
|
| $ | 10,049 |
|
| $ | 17,632 |
|
| $ | 20,803 |
|
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our holdings of unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries, including subordinated notes of CLOs, income from our investment portfolio and sales of assets and investments. We intend to use our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs.
Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect our cash and cash equivalents and distributions from operating subsidiaries and our subsidiaries’ access to financing to be adequate to fund our operations for at least the next 12 months.
As of September 30, 2017, we hadMarch 31, 2019, cash and cash equivalents, excluding restricted cash, of $111.8were $88.1 million, compared to $63.0$86.0 million at
December 31, 2016,2018, an increase of $48.7$2.1 million.
Our approach to debt is generally to use non-recourse (other than customary carveouts, including fraud and environmental liability), asset specific debt where possible that is amortized by cash flows from the underlying business or assets financed. Our mortgage businesses relybusiness relies on short term uncommitted sources of financing as a part of their normal course of operations. To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note—(11)(10) Debt, net for additional information regarding our mortgage warehouse borrowings.
For purposes of determining enterprise value and Adjusted EBITDA, we consider secured corporate credit agreements and preferred trust securities, which we refer to as corporate debt, as corporate financing and associated interest expense is added back. The below table outlines this amount by debt outstanding and interest expense by segment.at the insurance company and corporate level.
Corporate Debt
| | | ($ in thousands) | | Debt outstanding as of September 30, | | Interest expense for the three months ended September 30, | | Interest expense for the nine months ended September 30, | |
| ($ in millions) | | | Corporate Debt outstanding as of March 31, | | Interest expense for the three months ended March 31, |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
| Specialty insurance | | $ | 145,000 |
| | $ | 145,850 |
| | $ | 1,721 |
| | $ | 1,516 |
| | $ | 5,082 |
| | $ | 3,961 |
| | $ | 167.6 |
| | $ | 160.0 |
| | $ | 3.4 |
| | $ | 3.2 |
|
| Corporate and other | | 57,000 |
| | 59,000 |
| | 1,258 |
| | 1,209 |
| | 3,810 |
| | 3,329 |
| |
| Corporate | | | 71.1 |
| | 28.0 |
| | 1.6 |
| | 0.6 |
|
| Total | | $ | 202,000 |
| | $ | 204,850 |
| | $ | 2,979 |
| | $ | 2,725 |
| | $ | 8,892 |
| | $ | 7,290 |
| | $ | 238.7 |
| | $ | 188.0 |
| | $ | 5.0 |
| | $ | 3.8 |
|
Our intermediate holding company has a credit facility with Fortress to provide working capital. Loans under the Fortress credit agreement bear interest atcarries a rate of LIBOR (with a minimum LIBOR rate of 1.25%), plus a margin of 6.50%5.50% per annum. We are required to make quarterly principal payments of $0.5approximately $1.0 million, subject to adjustment based on the Net Leverage Ratio (as defined in the Fortress credit agreement) at the end of each fiscal quarter. The outstanding debt under the Fortress credit agreement was $57.0$71.1 million as of September 30, 2017March 31, 2019 compared to $58.5$28.0 million as of DecemberMarch 31, 2016. All remaining principal, and any unpaid interest, under2018. On May 4, 2018, we amended the Fortress credit agreement is payable onto increase the amount outstanding, while extending the maturity atdate to September 18, 2018. We intend2020 and lowering the interest rate margin from 6.50% to extend or refinance the Fortress credit agreement but we may not be able to do so on terms satisfactory to us. If we are unable to extend or refinance, we expect to use available cash, asset sales and/or distributions from our operating subsidiaries to make the required payments.5.50%.
On October 16, 2017, Fortegra completed an offering of $125 million Junior Subordinated Notes due 2057. The Junior Subordinated Notes contain customary financial covenants that require, among other items, maximum leverage and limitations on restricted payments under certain circumstances. As a result, in certain adverse circumstances, such limitations could restrict our ability to grow, or limit the dividends to the holding company to pay our obligations. Substantially all of the net proceeds from the Junior Subordinated Notes were used to repay Fortegra’s existing credit facility, which was terminated.indebtedness. We believe these funds will reposition Fortegra’s balance sheet, strengthen the Company’s positioning with industry rating agencies, and generate a source of long term capital. See Note—(11)Note (10) Debt, net for additional information of our debt and that of our subsidiaries.
Consolidated Comparison of Cash Flows
Summary Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2017 and September 30, 2016
|
| | | | | | | |
| ($ in thousands) | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Net cash (used in) provided by: | | | |
| Operating activities | | | |
| Operating activities - (excluding VIEs) | $ | 27,214 |
|
| $ | (27,156 | ) |
| Operating activities - VIEs | (2,684 | ) | | (3,505 | ) |
| Total cash provided by (used in) operating activities | 24,530 |
| | (30,661 | ) |
| | | | |
| Investing activities | | | |
| Investing activities - (excluding VIEs) | (38,266 | ) |
| (157,745 | ) |
| Investing activities - VIEs | 224,107 |
| | (96,834 | ) |
| Total cash provided by (used in) investing activities | 185,841 |
| | (254,579 | ) |
| | | | |
| Financing activities | | | |
| Financing activities - (excluding VIEs) | 61,763 |
|
| 61,108 |
|
| Financing activities - VIEs | (223,393 | ) | | 220,727 |
|
| Total cash provided by (used in) financing activities | (161,630 | ) | | 281,835 |
|
| | | | |
| Net increase (decrease) in cash | $ | 48,741 |
| | $ | (3,405 | ) |
Nine Months Ended September 30, 2017
Operating Activities |
| | | | | | | |
| ($ in millions) | Three Months Ended
March 31, |
| Total cash provided by (used in): | 2019 | | 2018 |
| Operating activities | (8.2 | ) | | 3.5 |
|
| Investing activities | 94.7 |
| | (21.0 | ) |
| Financing activities | (82.0 | ) | | (32.8 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 4.5 |
| | $ | (50.3 | ) |
Cash used in operating activities was $8.2 million for the three months ended March 31, 2019 compared to $3.5 million of cash provided by operating activities (excluding VIEs) was $27.2 million forin the nine months ended September 30, 2017. Theprior year period. In 2019, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), which was more than offset by increases in notes and accounts receivable and decreases in unearned premiums, deferred revenues and policy liabilities in our insurance operations. In the 2018 period, the primary sources of cash included mortgage sales outpacing originations in our specialty finance segmentloan origination business and increases in unearned premiums, reinsurance payable and policy liabilities in our specialty insurance segment. Theoperations.
Cash provided by investing activities was $94.7 million for the three months ended March 31, 2019 compared to $21.0 million of cash used in investing activities for the prior year period. During 2019, we reduced our investments in loans and used a substantial portion of the proceeds to repay asset-based debt. We also received proceeds associated with a contingent earn-out from our sale of Care. In the 2018 period, the primary uses of cash from operating activities including increases in reinsurance receivables, notes and account receivable and decreases in accrued expenses in our specialty insurance segment.
Cash used in operating activities - VIEs was $2.7 million for the nine months ended September 30, 2017.
Investing Activities
Cash used in investing activities (excluding VIEs) was $38.3 million for the nine months ended September 30, 2017. The primary useswere purchases of cash from investing activities were investments in senior living real estate properties in our senior living business. The primary sources of cash from investing activities wereexceeding proceeds from sales and maturities of investments exceeding purchases of investments, specifically the sale of NPLs and corporate loans.
Cash provided by investing activities - VIEs was $224.1 million for the nine months ended September 30, 2017. The primary drivers of the cash from investing activities - VIEs were sales of investments and loan prepayments in Telos 7.
Financing Activities
Cash provided by financing activities (excluding VIEs) was $61.8 million for the nine months ended September 30, 2017. The primary sources of cash from financing activities were new borrowings in our senior living segment to fund our investments in real estate, new borrowings exceeding principal paydowns on debt facilities in our specialty finance segments, and origination of new borrowings in our specialty insurance segment.investment portfolio.
Cash used in financing activities - VIEs was $223.4$82.0 million for the ninethree months ended September 30, 2017 driven primarily by principal payments on debtMarch 31, 2019 compared to $32.8 million in Telos 7.
Nine Months Ended September 30, 2016
Operating Activities
Cash usedthe prior year period. In 2019, we fully repaid outstanding asset-based borrowings in operating activities (excluding VIEs) was $27.2our credit loan fund held within our insurance investment portfolio and we repurchased $9.1 million forof the nine months ended September 30, 2016. TheCompany’s common stock. In the 2018 period, the primary uses of cash from operatingfinancing activities included increases in notes and accounts receivable and decreases in deferred revenue and reinsurance payableswere principal paydowns on asset-based financing in our specialty insurance business. The primary sources of cash from operating activities included mortgage sales outpacing originationsinvestment portfolio and increases in unearned premiums and policy liabilitiesprincipal paydowns exceeding new borrowings on debt facilities in our specialty insurancemortgage business.
Cash used in operating activities - VIEs was $3.5 million for the nine months ended September 30, 2016. The primary uses of cash from operating activities - VIEs were due to the increases in accrued interest receivable on loans.
Investing Activities
Cash used in investing activities (excluding VIEs) was $157.7 million for the nine months ended September 30, 2016. The primary uses of cash from investing activities included investments in NPLs and other investments, investments in real estate properties in our senior living business and increase in loans in our specialty finance business.
Cash used in investing activities - VIEs was $96.8 million for the nine months ended September 30, 2016. The primary driver of the cash used in investing activities - VIEs was the purchase of loans in Telos 7 during the ramp up period as it converted from a warehouse to a CLO during the second quarter of 2016.
Financing Activities
Cash used in financing activities (excluding VIEs) was $61.1 million for the nine months ended September 30, 2016. The primary drivers of the cash used included paydown of the Telos 7 warehouse debt and repurchases of common stock. The sources of cash were from borrowings in our senior living business to fund its investments in real estate, borrowings in our specialty finance business to fund loan growth, increase in debt in our specialty insurance business for working capital, and an increase in borrowings in our specialty insurance business to grow our corporate loan portfolio and fund additional investments in NPLs.
Cash provided by financing activities - VIEs was $220.7 million for the nine months ended September 30, 2016 driven primarily by the senior notes issued upon the conversion of Telos 7 from a warehouse to a CLO.
Contractual Obligations
The table below summarizes Tiptree’s consolidated contractual obligations by period for payments that are due as of September 30, 2017:March 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Notes payable CLOs (1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 334,900 |
| | $ | 334,900 |
|
| Credit agreement/Revolving line of credit | 101,173 |
| | 178,164 |
| | 247,247 |
| | — |
| | 526,584 |
|
Mortgage notes payable and related interest (2) | 18,073 |
| | 125,181 |
| | 118,774 |
| | 97,513 |
| | 359,541 |
|
| Trust Preferred Securities | — |
| | — |
| | — |
| | 35,000 |
| | 35,000 |
|
Operating lease obligations (3) | 4,946 |
| | 14,070 |
| | 7,981 |
| | 11,972 |
| | 38,969 |
|
| Total | $ | 124,192 |
| | $ | 317,415 |
| | $ | 374,002 |
| | $ | 479,385 |
| | $ | 1,294,994 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
| Corporate Debt | $ | 7.6 |
| | $ | 71.1 |
| | $ | — |
| | $ | 160.0 |
| | $ | 238.7 |
|
| Asset Based Debt | 52.5 |
| | — |
| | — |
| | — |
| | 52.5 |
|
| Total Debt | $ | 60.1 |
| | $ | 71.1 |
| | $ | — |
| | $ | 160.0 |
| | $ | 291.2 |
|
Operating lease obligations (2) | 6.1 |
| | 12.7 |
| | 9.0 |
| | 14.8 |
| | 42.6 |
|
| Total | $ | 66.2 |
| | $ | 83.8 |
| | $ | 9.0 |
| | $ | 174.8 |
| | $ | 333.8 |
|
| |
| (1) | Non-recourse CLO notes payable principal is payable at stated maturity, 2027 for Telos 6. |
| |
(2) | See Note —(11)(10) Debt, net, in the accompanying consolidated financial statements for additional information. |
| |
(3)(2) | Minimum rental obligation for Tiptree, Care, MFCA, Siena, Reliance, Luxury and Fortegra office leases. The total rent expense for the Company for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 was $5.2$2.3 million and $4.8$1.5 million, respectively. |
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. There have been no material changes to the critical accounting policies and estimates as discussed in our 20162018 Annual Report on Form 10-K.
Recently Adopted and Issued Accounting Standards
For a discussion of recently adopted and issued accounting standards see the section “Recent Accounting Standards” in Note—Note (2) Summary of Significant Accounting Policies of the notes to the accompanying condensed consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we enter into various off-balance sheet arrangements including entering into derivative financial instruments and hedging transactions, operating leases and sponsoring and owning interests in consolidated and non-consolidated variable interest entities.
Further disclosure on our off-balance sheet arrangements as of September 30, 2017March 31, 2019 is presented in the “Notes to Condensed Consolidated Financial Statements” in “Part I.II. Item 1.8. Financial Statements (Unaudited)”and Supplementary Data” of this filing as follows:
Note —(9)(9) Derivative Financial Instruments and Hedging
Note —(10) Assets and Liabilities of Consolidated CLOs
Note —(22)(20) Commitments and Contingencies
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our 20162018 Annual Report on Form 10-K described our Quantitative and Qualitative Disclosures About Market Risk. There were no material changes to the assumptions or risks during the ninethree months ended September 30, 2017.March 31, 2019.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Tiptree’s Fortegra subsidiary is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006, in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015, the trial court issued an Order denying Fortegra’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied Fortegra’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on suchpolicies. In January 2018, in response to a Plaintiffs’ motion, with respectthe court vacated its November 2017 order granting Fortegra’s Motion for Summary Judgment as to the life insurance policiescertificates at issue. In June 2017, a new Special Master was appointed.issue with leave to refile. No trial or additional hearings are currently scheduled.
In management’s opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of Tiptree. It should be noted that large punitive damage awards,
bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot reasonably estimate a range of loss.
Tiptree and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position or results of operations.
Item 1A. Risk Factors
For information regarding factors that could affect our Company, results of operations and financial condition, see the risk factors discussed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. There have been no material change in those risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity for the three months ended March 31, 2019 was as follows:
|
| | | | | | | | | | | |
| Period | Purchaser | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2) |
| January 1, 2019 to January 31, 2019: Open Market and Block Purchases | Tiptree Inc. | 1,462,730 |
| $ | 6.17 |
| 1,462,730 |
| $ | 19,342,560 |
|
| February 1, 2019 to February 28, 2019: Open Market Purchases | Tiptree Inc. | 10,000 |
| $ | 6.06 |
| 10,000 |
| $ | 19,281,960 |
|
| March 1, 2019 to March 31, 2019 | Tiptree Inc. | — |
| $ | — |
| — |
| $ | 19,281,960 |
|
| | Total | 1,472,730 |
| $ | — |
| 1,472,730 |
| $ | — |
|
| |
| (1) | On December 7, 2018, Tiptree engaged a broker in connection with a share repurchase program for the repurchase of up to $10 million of its outstanding Common Stock. On February 5, 2019, the Company terminated such share repurchase program as it had purchased substantial blocks of shares through privately negotiated transactions. |
| |
| (2) | On December 7, 2018, the Board of Directors of Tiptree (“Board”) separately authorized Tiptree to make block repurchases of up to $10 million in the |
aggregate from time to time in the open market or through privately negotiated transactions, or otherwise, subject to Tiptree’s Executive Committee’s discretion. In January 2019, Tiptree made several block repurchases totaling approximately $8.7 million. On August 10, 2017, Tiptree issued 756,046 shares of Class A common stock as additional earn-out consideration pursuantJanuary 24, 2019, the Board replenished the Executive Committee’s authorization to make block purchases back up to $10 million in the Securities Purchase Agreement, dated as of November 24, 2014, among Tiptree and certain of its subsidiaries andaggregate from time to time in the former equity holders of Reliance First Capital, LLC.open market or through privately negotiated transactions, or otherwise.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules |
| |
| The following documents are filed as a part of this Form 10-Q: | |
| | |
| Financial Statements (Unaudited): | |
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2019 and December 31, 20162018 | |
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 | |
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 | |
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the periodperiods ended September 30, 2017March 31, 2019 and 20162018 | |
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 | |
| |
| | |
| Exhibits: | |
| The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page, is incorporated herein by reference and is filed as part of this Form 10-Q. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
|
| | | | |
| | | | Tiptree Inc. |
| | | | |
| Date: | NovemberMay 6, 20172019 | | By:/s/ Michael Barnes |
| | | | Michael Barnes |
| | | | Executive Chairman |
| | | | |
| Date: | NovemberMay 6, 20172019 | | By:/s/ Jonathan Ilany |
| | | | Jonathan Ilany |
| | | | Chief Executive Officer |
| | | | |
| Date: | NovemberMay 6, 20172019 | | By:/s/ Sandra Bell |
| | | | Sandra Bell |
| | | | Chief Financial Officer |
EXHIBIT INDEX
|
| |
| Exhibit No. | Description |
| 10.1 | Strategic Combination Agreement, by and among Tiptree Inc., Tiptree Asset Management Company, LLC, Tricadia Holdings, L.P., Tricadia Holdings GP, LLC, Tricadia GP Holdings LLC and Michael Barnes, dated as of February 15, 2019 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 22, 2019 and herein incorporated by reference). |
| 10.2 | |
| 31.1 | |
| 31.2 | |
| 31.3 | |
| 32.1 | |
| 32.2 | |
| 32.3 | |
| | |
| 101.INS | XBRL Instance Document* |
| 101.SCH | XBRL Taxonomy Extension Schema Document* |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
| |
| * | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets for September 30, 2017March 31, 2019 and December 31, 2016,2018, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the period ended September 30, 2017,March 31, 2019 and 2018, (v) the Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 and (vi) the Notes to the Condensed Consolidated Financial Statements. |