Company Quick10K Filing
Quick10K
MMA Capital Management
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$30.90 6 $179
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-29 Delisting, Officers
8-K 2019-05-21 Shareholder Vote
8-K 2019-05-10 Earnings, Exhibits
8-K 2019-03-14 Earnings, Exhibits
8-K 2019-01-01 Other Events, Exhibits
8-K 2018-12-20 M&A, Regulation FD, Exhibits
8-K 2018-11-20 Shareholder Vote, Other Events
8-K 2018-06-26 Officers, Other Events, Exhibits
8-K 2018-06-01 Enter Agreement, Exhibits
8-K 2018-05-22 Shareholder Vote
8-K 2018-03-09 Other Events
8-K 2018-01-08 Enter Agreement, M&A, Sale of Shares, Officers, Regulation FD, Other Events, Exhibits
CHU China Unicom 34,670
SBRA Sabra Health Care REIT 3,460
IMGN Immunogen 478
IDXG Interpace Diagnostics Group 28
HEBT Hebron Technology 14
XGTI XG Technology 0
INFOR Infor 0
MOJO Mojo Organics 0
ACMC American Church Mortgage 0
REAL4 Real Estate Associates IV 0
MMAC 2019-06-30
Part I – Financial Information
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Financial Statements
Note 1— Summary of Significant Accounting Policies
Note 2—Investments in Debt Securities
Note 3—Investments in Partnerships
Note 4—Loans Held for Investment (“Hfi”) and Loans Held for Sale (“Hfs”)
Note 5—Other Assets
Note 6—Debt
Note 7—Derivative Instruments
Note 8—Fair Value
Note 9—Collateral
Note 10—Commitments and Contingencies
Note 11—Equity
Note 12—Stock-Based Compensation
Note 13—Related Party Transactions and Transactions with Affiliates
Note 14—Income Taxes
Note 16—Segment Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II – Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 mmac-20190630ex3118eaf70.htm
EX-31.2 mmac-20190630ex3128848ea.htm
EX-32.1 mmac-20190630ex32168cdf5.htm
EX-32.2 mmac-20190630ex322ecc187.htm

MMA Capital Management Earnings 2019-06-30

MMAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 mmac-20190630x10q.htm 10-Q mmac_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

 

For the quarterly period ended June  30, 2019

 

OR

 

 

 

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

For the transition period from __________________ to __________________

Commission File Number 001‑11981

MMA CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of incorporation or organization)

52‑1449733
(I.R.S. Employer Identification No.)

3600 O’Donnell Street, Suite 600

Baltimore, Maryland 21224 
(Address of principal executive offices,

including zip code)

 

(443) 263‑2900
(Registrant’s telephone number, including area code)

 

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

 

 

 

 

 

 

 

 

 

Title of each class
Common Shares, no par value

Common Stock Purchase Rights

Trading Symbol(s)

MMAC

MMAC

Name of each exchange on which registered
Nasdaq Capital Market

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 ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files) Yes ☑   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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth 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 ☑

There were 5,886,724 shares of common shares outstanding at August 1, 2019.

 

 

 

 

MMA Capital Holdings, Inc.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 

2

 

 

 

 

 

PART I – FINANCIAL INFORMATION 

3

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

20

 

 

 

 

 

 

 

(a)

Consolidated Balance Sheets at June  30, 2019 and December 31, 2018

20

 

 

 

 

 

 

 

(b)

Consolidated Statements of Operations for the three and six months ended June  30, 2019 and June  30, 2018

21

 

 

 

 

 

 

 

(c)

Consolidated Statements of Comprehensive Income for the three and six months ended June  30, 2019 and June  30, 2018

23

 

 

 

 

 

 

 

(d)

Consolidated Statements of Equity for the six months ended June  30, 2019 and June  30, 2018

24

 

 

 

 

 

 

 

(e)

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018

26

 

 

 

 

 

 

 

(f)

Notes to Consolidated Financial Statements

28

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

60

 

 

 

 

 

 

Item 4.

Controls and Procedures

60

 

 

 

 

 

PART II – OTHER INFORMATION 

61

 

 

 

 

 

 

Item 1

Legal Proceedings

61

 

 

 

 

 

 

Item 1A.

Risk Factors

61

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

61

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

61

 

 

 

 

 

 

Item 5.

Other Information

61

 

 

 

 

 

 

Item 6.

Exhibits

62

 

 

 

 

 

SIGNATURES 

S-1

 

 

 

1

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10‑Q for the period ended June 30, 2019 (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”), filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”), to which reference is hereby made. This Report contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  Risks that could cause our actual results to differ materially include, but are not limited to, changes in market rates of return, additional competitors entering the marketplace (which would reduce nominal rates of return from competition for new borrowers), limits on access to investible capital that would limit new investments that could be made by the Company, changes in the law and the Company’s dependence on a small, specialized team of the External Manager for underwriting activities, as well as the risks and uncertainties described in Part I, Item 1A. “Risk Factors” of our 2018 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we may make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. “Risk Factors” of our 2018 Annual Report in evaluating these forward-looking statements.  We do not undertake to update any forward-looking statements contained herein, except as required by law.

2

PART I – FINANCIAL INFORMATION

MMA Capital Holdings,  Inc.

Consolidated Financial Highlights

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

(in thousands, except per common share data)

    

June 30, 2019

    

March 31, 2019

    

December 31, 2018

Selected income statement data

 

 

 

 

 

 

 

 

 

Net interest income

 

$

2,630

 

$

1,679

 

$

2,260

Non-interest income

 

 

24,460

 

 

6,111

 

 

19,662

Other expenses

 

 

3,820

 

 

4,888

 

 

4,084

Net income before income taxes

 

 

23,270

 

 

2,902

 

 

17,838

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(50)

 

 

(13)

 

 

54

Net (loss) income from discontinued operations, net of tax

 

 

(1)

 

 

(7)

 

 

13,384

Net income

 

$

23,219

 

$

2,882

 

$

31,276

 

 

 

 

 

 

 

 

 

 

Earnings per share data

 

 

 

 

 

 

 

 

 

Net income:  Basic

 

$

3.95

 

$

0.49

 

$

5.34

       Diluted

 

 

3.95

 

 

0.49

 

 

5.25

 

 

 

 

 

 

 

 

 

 

Average shares:   Basic

 

 

5,884

 

 

5,882

 

 

5,859

 Diluted

 

 

5,884

 

 

5,882

 

 

5,954

 

 

 

 

 

 

 

 

 

 

Market and per common share data

 

 

 

 

 

 

 

 

 

Market capitalization

 

$

193,400

 

$

175,009

 

$

145,586

Common shares at period-end

 

 

5,887

 

 

5,884

 

 

5,882

Share price during period:

 

 

 

 

 

 

 

 

 

High

 

 

35.50

 

 

33.88

 

 

27.45

Low

 

 

30.00

 

 

20.02

 

 

25.00

Closing price at period-end

 

 

33.47

 

 

30.29

 

 

25.20

Book value per common share:  Basic and Diluted

 

 

36.46

 

 

36.11

 

 

36.20

 

 

 

 

 

 

 

 

 

 

Selected balance sheet data (period end)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,590

 

$

28,773

 

$

28,243

Investments in debt securities

 

 

35,236

 

 

81,102

 

 

97,190

Investment in partnerships

 

 

185,679

 

 

159,145

 

 

155,079

Loans held for investment

 

 

80,878

 

 

67,299

 

 

67,299

All other assets

 

 

13,378

 

 

20,022

 

 

16,575

Total assets

 

$

325,761

 

$

356,341

 

$

364,386

 

 

 

 

 

 

 

 

 

 

Debt

 

$

107,868

 

$

140,239

 

$

149,187

All other liabilities

 

 

3,267

 

 

3,635

 

 

2,289

Total liabilities

 

 

111,135

 

 

143,874

 

 

151,476

Common shareholders' equity

 

$

214,626

 

$

212,467

 

$

212,910

 

 

 

 

 

 

 

 

 

 

Rollforward of common shareholders' equity

 

 

 

 

 

 

 

 

 

Common shareholders' equity - at beginning of period

 

$

212,467

 

$

212,910

 

$

193,547

Net income

 

 

23,219

 

 

2,882

 

 

31,276

Other comprehensive loss

 

 

(21,143)

 

 

(3,140)

 

 

(13,288)

Common share repurchases

 

 

 —

 

 

 —

 

 

(1,810)

Common shares issued and options exercised

 

 

 —

 

 

 —

 

 

5,462

Cumulative change due to change in accounting principle

 

 

 —

 

 

(267)

 

 

 —

Other changes in common shareholders' equity

 

 

83

 

 

82

 

 

(2,277)

Common shareholders' equity - at end of period

 

$

214,626

 

$

212,467

 

$

212,910

 

3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

INTRODUCTION


Overview

MMA Capital Holdings, Inc. invests in debt associated with renewable energy infrastructure and real estate. Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Holdings,  Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996 and converted to a Delaware corporation on January 1, 2019. 

We focus on investments with attractive risk-adjusted returns that generate positive environmental or social impacts, with an emphasis on renewable energy debt investments. Our assets and liabilities are organized into two portfolios:

·

Energy Capital – This portfolio consists primarily of investments that we have made through joint ventures with an institutional capital partner in loans that finance renewable energy projects; and

·

Other Assets and Liabilities (“OA&L”) – This portfolio includes our investments in bonds, certain loan receivables, cash, real estate-related investments, subordinated debt and the balance of the Company’s assets and liabilities (investments in bonds and related financings, which were previously identified as their own portfolio in each Quarterly Report on Form 10-Q that was filed in 2018, were reallocated to the OA&L portfolio as of December 31, 2018).

In emphasizing renewable energy debt investments, our objective is to grow the Company’s return on equity by recycling equity out of existing investments in the OA&L portfolio that are generating lower returns, into the Energy Capital portfolio, which we believe will generate higher returns. In this regard, we actively seek out ways to support additional growth in the Energy Capital portfolio by optimizing how the Company is capitalized, including, where appropriate, the efficient deployment of leverage.

We  are externally managed by Hunt Investment Management, LLC (our “External Manager”), an affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are hereinafter referred to as “Hunt”). Refer to Notes to Consolidated Financial Statements – Note 13, “Related Party Transactions and Transactions with Affiliates,” for additional information.

We operate as a single reporting segment.

Energy Capital Portfolio

Overview

In our Energy Capital portfolio, we invest in loans that finance renewable energy projects to enable developers, design and build contractors and system owners to develop, build and operate renewable energy systems throughout North America.  These loans include late-stage development, construction and permanent loans.  We typically invest in these loans directly through Renewable Energy Lending, LLC (“REL”), a wholly owned subsidiary of the Company, or with an institutional capital partner in multiple ventures that include: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”) and Solar Development Lending, LLC (“SDL”) (REL, SCL, SPL and SDL are collectively referred to hereinafter as the “Solar Ventures”).  The investment period with our institutional capital partner extends to July 15, 2023, for SDL, SCL and SPL, subject to certain buyout provisions. Carrying value and income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below. 

4

Lending Activities of the Solar Ventures

Our External Manager provides loan origination, servicing, asset management and other management services to the Solar Ventures, which typically  target loans that generate origination fees that range from 1.0% to 3.0% on committed capital and have fixed-rate coupons that range from 7.0% to 18.0%. Such loans also generally range in size from $2 million to over $50 million, have durations between three months and five years, and are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses.  Through June  30, 2019, the Solar Ventures made over 130 project-based loans that total $1.7 billion of debt commitments for the development of over 630 renewable energy project sites, which will generate over 4.8 gigawatts of renewable energy.

The Solar Ventures closed $246.3 million of loan commitments during the second quarter of 2019 and, at June 30, 2019, loans funded through the Solar Ventures had an aggregate unpaid principal balance (“UPB”) of $273.8 million, a weighted-average remaining maturity of 10 months and a weighted-average coupon of 11.5%. The Solar Ventures had $296.0 million of unfunded loan commitments to borrowers at June 30, 2019.

Through June 30, 2019, 98 loans totaling $1.1 billion of commitments had been repaid, resulting in a weighted-average IRR (“WAIRR”) of 15.9% that was on average higher than originally underwritten. WAIRR is measured as the total return in dollars of all repaid loans divided by the total commitment amount associated with such loans, where (i) the total return for each repaid loan was calculated as the product of each loan’s IRR and its commitment amount and (ii) IRR for each repaid loan was established by solving for a discount rate that made the net present value of all loan cash flows equal zero. WAIRR is higher than the net return on the Company's investments in the Solar Ventures because it is a measure of gross returns earned by the Solar Ventures on repaid loans and does not include the effects of: (i) operating expenses of the Solar Ventures; (ii) the preferred return earned by the Company’s former investment partner in REL through the second quarter of 2018; (iii) the amortization of the purchase premium paid by the Company to buyout our former investment partner and (iv) the opportunity cost of idle capital. 

Investments Related to the Solar Ventures

At June 30, 2019, the Company held equity ownership interests in SCL, SPL and SDL, of 50%, 50% and 44.6%, respectively, and 100% of the equity interests in REL. During July 2019, the Company and its capital partner in SDL entered into an agreement whereby our capital partner contributed 98% of a $30.0 million capital call and the Company contributed the balance. As a consequence of these capital contributions, our ownership interest in SDL decreased in percentage terms. Further, under such agreement, the Company ceded all loan workout decision making control to its capital partner in SDL until such time that the Company and our capital partner return to equal ownership interests in SDL.

In addition to equity investments in the Solar Ventures, the Company paid $11.3 million to Hunt on April 1, 2019, in connection with the Company’s acquisition of Hunt’s 5.4%  ownership interest in SDL. However, because such transfer did not qualify as a purchase for reporting purposes, cash consideration paid by the Company was recognized as a loan receivable that is secured by the interest in SDL that Hunt conveyed to the Company. At June 30, 2019, this loan receivable had an effective interest rate of 17.3%. Refer to Notes to Consolidated Financial Statements — Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information about this transaction.

5

Table 1 provides financial information about the carrying value of MMA’s investments related to the Solar Ventures at June  30, 2019 and December 31, 2018.

Table 1:  Carrying Values of the Company’s Investments Related to the Solar Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

June 30,

 

December 31,

(in thousands)

2019

 

2018

Equity investments in the Solar Ventures

$

156,950

 

$

126,339

Loan receivable

 

13,579

 

 

 ─

Total carrying value

$

170,529

 

$

126,339

 

The carrying value of the Company’s equity investments in the Solar Ventures increased $30.6 million during the six months ended June 30, 2019, as a result of $91.7 million of capital contributions and $8.2 million of equity in income earned, partially offset by $69.3 million of distributions received during the six months ended June  30, 2019. See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.

Investment Income

The Company applies the equity method of accounting to its equity investments in the Solar Ventures. Accordingly, the Company recognizes its allocable share of the Solar Venture’s net income. Separately, the Company recognizes interest income associated with its loan receivable from Hunt using the interest method.

Table 2 summarizes income recognized by the Company in connection with investments related to the Solar Ventures for the periods presented.

Table 2:  Income Recognized from Investments Related to the Solar Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

June 30,

 

June 30,

(in thousands)

  

2019

  

2018

  

2019

  

2018

Equity in income from the Solar Ventures

 

$

4,529

 

$

1,556

 

$

8,249

 

$

1,972

Interest income from the Hunt loan receivable

 

 

426

 

 

 ─

 

 

426

 

 

 ─

Total investment income

 

$

4,955

 

$

1,556

 

$

8,675

 

$

1,972

 

Refer to the comparative discussion of our Consolidated Results of Operations for more information about income that was recognized in connection with the Company’s investments related to the Solar Ventures.

OA&L Portfolio

In our OA&L portfolio, we manage the Company’s cash, investments in bonds, loan receivables, real estate-related investments, subordinated debt and other assets and liabilities of the Company.  An overview of the primary assets and liabilities within this portfolio follows.

Investments in Bonds 

Our investments in bonds are tax-exempt, fixed rate, unrated and finance affordable housing and infrastructure in the U.S. Our affordable housing bonds are collateralized by affordable multifamily rental properties. Substantially all of the rental units in these multifamily properties, some of which may be subsidized by the government, have tenant income and rent restrictions. At June 30, 2019, we held four multifamily bond investments with a UPB and fair value of $8.0 million and $10.5 million, respectively. On July 23, 2019, our two remaining non-performing multifamily bond investments were fully

6

redeemed. These bond investments had a UPB and fair value of $1.8 million and $2.1 million at June 30, 2019, respectively.

The Company also has one municipal bond that finances the development of infrastructure for a mixed-use town center development and is secured by incremental tax revenues generated from the development (this investment is hereinafter referred to as our “Infrastructure Bond”). At June 30, 2019, this bond investment has a stated fixed interest rate of 6.30% and had a UPB and fair value of $27.2 million and $24.8 million, respectively. 

Hunt Note

The Company has a secured loan receivable from Hunt (the “Hunt Note”) that had a carrying value of $67.0 million and bore interest at a rate of 5.0% per annum at June  30, 2019. The Hunt Note is prepayable at any time and will amortize in 20 equal quarterly payments of $3.35 million beginning on March 31, 2020.  

Refer to Notes to Consolidated Financial Statements — Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information. 

Real Estate-Related Investments

At June  30, 2019, we were an equity partner in four real estate-related investments consisting of (i) an 80.00% ownership interest in a joint venture that owns a mixed-use town center development and undeveloped land parcels, whose incremental tax revenues secure our Infrastructure Bond and (ii) three limited partner interests in partnerships that own affordable housing and in which our ownership interest ranged from 74.25% to 74.92%. The carrying value of these four investments was $20.3 million at June  30, 2019.

At June  30, 2019, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”).  SAWHF is a multi-investor fund that will mature in April 2020 and is currently in the process of exiting its investments.  The carrying value of the Company’s investment in SAWHF was $8.4 million at June  30, 2019.

At June  30, 2019, we owned one direct investment in real estate consisting of a parcel of land that is currently in the process of infrastructure development.  This real estate is located just outside the city of Winchester in Frederick County, Virginia. During the first quarter of 2019, the Company invested $4.4 million for land improvements and the carrying value of this investment was $8.4 million at June  30, 2019.

Deferred Tax Assets

Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes.  Deferred tax assets (“DTAs”) are recognized if we assess that it is more likely than not that tax benefits, including net operating losses (“NOLs”) and other tax attributes will be realized prior to their expiration.  

At December 31, 2018, the carrying value of our DTAs was $124.5 million although such assets were fully reserved at such reporting date because of management’s assessment that it was not more likely than not that the Company would realize its DTAs. We evaluate our DTAs for recoverability using a consistent approach that considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income. The Company’s DTAs remain fully reserved at June  30, 2019.

Debt Obligations

The carrying value and weighted-average yield of the Company’s debt obligations was $107.9 million and 4.6%, respectively, at June 30, 2019. Refer to Table 8, “Asset Related Debt and Other Debt,” for more information.

During the second quarter of 2019, the Company terminated three total return swap agreements that financed the Company’s bond investments and derecognized $31.6 million of asset-related debt upon the settlement of such transactions.  At June 30, 2019, the Company had no asset-related debt outstanding that financed bond investments.

7

Sources of Comprehensive Income from the OA&L Portfolio

 

The primary sources of comprehensive income associated with our OA&L portfolio include: interest income on loan receivables; interest expense associated with debt obligations; non-interest income from real estate-related investments, debt obligations and derivative instruments used for risk management purposes; and other expenses. Refer to “Consolidated Results of Operations,” for a comparative discussion of income and expenses recognized in connection with assets and liabilities of the OA&L portfolio.

8

SUMMARY OF FINANCIAL PERFORMANCE

 

Net Worth

Common shareholders’ equity increased $2.2 million in the second quarter of 2019 to $214.6 million at June  30, 2019.  This change was driven by $2.1 million of comprehensive income and $0.1 million of other increases in common shareholders’ equity.

Diluted common shareholders’ equity (“Book Value”) per share increased $0.35 in the second quarter of 2019 to $36.46 at June  30, 2019.

Comprehensive Income

We recognized comprehensive income of $2.1 million in the second quarter of 2019, which consisted of $23.2 million of net income and $21.1 million of other comprehensive loss.  In comparison, we recognized $6.8 million of comprehensive income in the second quarter of 2018, which consisted of $2.8 million of net income and $4.0 million of other comprehensive income.

Net income that we recognized in the second quarter of 2019 was primarily driven by net gains on bonds, equity in income from unconsolidated funds and ventures and net interest income.  Refer to “Consolidated Results of Operations,” for more information about changes in common shareholders’ equity attributable to net income.

Other comprehensive loss that we reported in the second quarter of 2019 was primarily attributable to the reclassification of fair value gains out of accumulated other comprehensive income (“AOCI”) and into our Consolidated Statements of Operations due to the sale of certain bond investments during such reporting period.

9

CONSOLIDATED BALANCE SHEET ANALYSIS

 

This section provides an overview of changes in our assets, liabilities and equity and should be read together with our consolidated financial statements, including the accompanying notes to the financial statements.

Table 3 provides Consolidated Balance Sheets for the periods presented.  

Table 3:  Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

 

 

 

June 30,

 

December 31,

 

 

(in thousands, except per share data)

    

2019

    

2018

    

Change  

Assets  

  

 

 

  

 

 

  

 

 

Cash and cash equivalents

 

$

10,590

 

$

28,243

 

$

(17,653)

Restricted cash

 

 

2,503

 

 

5,635

 

 

(3,132)

Investments in debt securities

 

 

35,236

 

 

97,190

 

 

(61,954)

Investments in partnerships

 

 

185,679

 

 

155,079

 

 

30,600

Loans held for investment

 

 

80,878

 

 

67,299

 

 

13,579

Other assets

 

 

10,875

 

 

10,940

 

 

(65)

Total assets

 

$

325,761

 

$

364,386

 

$

(38,625)

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

107,868

 

$

149,187

 

$

(41,319)

Accounts payable and accrued expenses

 

 

3,267

 

 

2,289

 

 

978

Other liabilities

 

 

 —

 

 

 —

 

 

 ─

Total liabilities

 

$

111,135

 

$

151,476

 

$

(40,341)

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Common Shareholders' Equity

 

$

214,626

 

$

212,910

 

$

1,716

 

 

 

 

 

 

 

 

 

 

Basic and diluted common shares outstanding

 

 

5,887

 

 

5,882

 

 

 5

Basic and diluted common shareholders' equity per common share

 

$

36.46

 

$

36.20

 

$

0.26

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents decreased primarily due to net cash used in connection with investments related to the Solar Ventures.  

Investments in debt securities decreased primarily as a result of transactions executed by the Company to sell certain bond investments and terminate all of the Company’s outstanding total return swap (“TRS”) agreements.

Investments in partnerships increased primarily as a result of net capital contributions of $22.4 million from the Company to the Solar Ventures and recognized $8.2 million of equity in income in such investees.

Loans held for investment increased primarily as a result of the Company’s acquisition of Hunt’s interest in SDL in the second quarter of 2019. The Company paid $11.3 million to Hunt in connection with this transaction, which was accounted for as a secured lending arrangement.

Debt decreased primarily as a result of the aforementioned termination of TRS agreements, which caused the derecognition of asset related debt that financed certain bond investments of the Company. 

10

CONSOLIDATED RESULTS OF OPERATIONS

 

This section provides a comparative discussion of our Consolidated Results of Operations for the three and six months ended June  30, 2019, and June  30, 2018, and should be read in conjunction with our consolidated financial statements, including the accompanying notes.  See “Critical Accounting Policies and Estimates,” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.

Income (loss) that was attributable to businesses or assets that were conveyed by the Company in the Disposition were reclassified for all reporting periods and reported separately as “Net (loss) income from discontinued operations, net of tax.”

Net Income

Table 4 summarizes net income for the periods presented.

Table 4:  Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the six months ended

 

 

 

 

 

June 30,

 

 

 

 

June 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

Net interest income

 

$

2,630

 

$

2,959

 

$

(329)

 

$

4,309

 

$

5,625

 

$

(1,316)

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in income from unconsolidated funds and ventures

 

 

5,643

 

 

1,555

 

 

4,088

 

 

9,619

 

 

2,382

 

 

7,237

Net gains on bonds, derivatives and extinguishment of liabilities

 

 

18,802

 

 

2,053

 

 

16,749

 

 

20,920

 

 

4,362

 

 

16,558

Other income

 

 

15

 

 

117

 

 

(102)

 

 

32

 

 

161

 

 

(129)

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other interest expense

 

 

(1,197)

 

 

(1,151)

 

 

(46)

 

 

(2,406)

 

 

(2,187)

 

 

(219)

Other expenses

 

 

(2,623)

 

 

(2,898)

 

 

275

 

 

(6,302)

 

 

(10,973)

 

 

4,671

Net income (loss) from continuing operations before income taxes

 

 

23,270

 

 

2,635

 

 

20,635

 

 

26,172

 

 

(630)

 

 

26,802

Income tax (expense) benefit

 

 

(50)

 

 

(820)

 

 

770

 

 

(63)

 

 

36

 

 

(99)

Net (loss) income from discontinued operations, net of tax

 

 

(1)

 

 

947

 

 

(948)

 

 

(8)

 

 

21,696

 

 

(21,704)

Net income

 

$

23,219

 

$

2,762

 

$

20,457

 

$

26,101

 

$

21,102

 

$

4,999

 

Net Interest Income

Net interest income represents interest income earned on our investments in bonds, loans and other interest-earning assets less our cost of funding associated with short-term borrowings and long-term debt that we use to finance such assets.

Net interest income for the three and six months ended June 30, 2019, decreased compared to that reported for the three and six months ended June 30, 2018, primarily due to a decrease of $1.1 million and $2.6 million for the three and six months of 2019, respectively, related to the disposition of bond investments and termination of TRS agreements during the fourth quarter of 2018 and first six months of 2019. However, this reported decrease in interest related to our bond investments was partially offset by: (i) a decrease in bond related interest expense as the amount of the Company’s bond related debt outstanding declined upon the settlement of the aforementioned disposition and termination transactions;  (ii) the recognition of $0.4 million of interest income during the second quarter of 2019 associated with a loan receivable that was recognized in connection with the Company’s acquisition of Hunt’s ownership interest in SDL; and (iii) the recognition of additional interest income associated with the Hunt Note, the UPB of which increased $10.0 million during the fourth quarter of 2018.

11

Equity in Income from Unconsolidated Funds and Ventures

Equity in income from unconsolidated funds and ventures includes our portion of the income associated with certain funds and ventures in which we have an equity interest.

Table 5 summarizes equity in income from unconsolidated funds and ventures for the periods presented.

Table 5:  Equity in Income from Unconsolidated Funds and Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the six months ended

 

 

 

 

 

June 30,

 

 

 

 

June 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

Solar Ventures

 

$

4,529

 

$

1,556

 

$

2,973

 

$

8,249

 

$

1,972

 

$

6,277

U.S. real estate partnerships

 

 

1,005

 

 

107

 

 

898

 

 

1,017

 

 

226

 

 

791

SAWHF

 

 

109

 

 

(108)

 

 

217

 

 

353

 

 

184

 

 

169

Equity in income from unconsolidated funds and ventures

 

$

5,643

 

$

1,555

 

$

4,088

 

$

9,619

 

$

2,382

 

$

7,237

 

Equity in income from the Solar Ventures increased during the three and six months ended June 30, 2019, as compared to that reported for the three and six months ended June 30, 2018, primarily as a result of (i) an increase in loan origination activity at SDL resulting in a year-over-year increase in the Company’s allocable share of SDL’s net income and (ii) the elimination of the preferred return previously earned by a former investment partner prior to the Company’s buyout of such partner’s interest on June 1, 2018. The favorable impact of these factors was partially offset by the effect of amortization into earnings of the purchase premium paid by the Company to buy out our former investment partner, which was reported by the Company as a reduction to equity in income from the Solar Ventures.

Equity in income from U.S. real estate partnerships increased during the three and six months ended June 30, 2019, as compared to that reported for the three and six months ended June 30, 2018, primarily as a result of gains associated with the sale of investment properties by real estate partnerships in which we maintained an ownership interest. 

Equity in income from the Company’s equity investment in SAWHF increased during the three and six months ended June 30, 2019, as compared to that reported for the three and six months ended June 30, 2018, primarily as a result of an increase in the fair value of real estate-related investments held by SAWHF.

Net Gains Relating to Bonds, Derivatives and Extinguishment of Liabilities

Net gains may include net realized and unrealized gains or losses relating to bonds, derivatives, real estate and other investments and loans as well as gains or losses realized by the Company in connection with the extinguishment of its recognized debt obligations (collectively referred to as “Net Gains”).

Net Gains for the three and six months ended June 30, 2019, increased compared to those reported for the three and six months ended June  30, 2018, primarily due to holding gains of $20.7 million and $24.3 million that were realized in connection with the sale of bond investments during the three and six months ended June 30, 2019, respectively.  The impact of such gains was partially offset by net fair value losses of $1.9 million and $3.3 million for the three and six months ended June 30, 2019, respectively, associated with interest rate derivative instruments that are used by the Company to hedge interest rate risk associated with various debt obligations, compared to $2.1 million and $4.4 million of net fair value gains recognized for the three and six months ended June 30, 2018, respectively.

Other Expenses

Other expenses include salaries and benefits, management fees and reimbursable expenses payable to our External Manager, general and administrative expense, professional fees and other miscellaneous expenses.

12

Table 6 summarizes other expenses for the periods presented.

Table 6:  Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the six months ended

 

 

 

 

 

June 30,

 

 

 

 

June 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

Salaries and benefits

 

$

 ─

 

$

209

 

$

(209)

 

$

 —

 

$

(1,095)

 

$

1,095

External management fees and reimbursable expenses

 

 

(2,128)

 

 

(2,184)

 

 

56

 

 

(4,396)

 

 

(4,703)

 

 

307

General and administrative

 

 

(304)

 

 

(356)

 

 

52

 

 

(618)

 

 

(704)

 

 

86

Professional fees

 

 

(251)

 

 

(587)

 

 

336

 

 

(1,218)

 

 

(3,801)

 

 

2,583

Other expenses

 

 

60

 

 

20

 

 

40

 

 

(70)

 

 

(670)

 

 

600

Total other expenses

 

$

(2,623)

 

$

(2,898)

 

$

275

 

$

(6,302)

 

$

(10,973)

 

$

4,671

 

Other expenses for the three months ended June 30, 2019, declined compared to that reported for the three months ended June  30, 2018, primarily due to (i) a reduction in nonrecurring professional fees that were incurred in the second quarter of 2018 in connection with the disposition of the Company’s interest in Morrison Grove Management (“MGM”) in the fourth quarter of 2018 and (ii) a decrease in salaries and benefits expense that was primarily driven by the exercise of all outstanding stock options by December 31, 2018, which resulted in no stock compensation-related expense being recognized by the Company in 2019.   

Other expenses for the six months ended June 30, 2019, declined compared to that reported for the six months ended June 30, 2018, primarily due to a reduction in: (i) nonrecurring professional fees that were incurred in the first quarter of 2018 in connection with the Disposition and our investment in SAWHF; (ii) stock compensation-related expense that resulted from the exercise of all stock options as of December 31, 2018; and (iii) nonrecurring impairment loss of $0.4 million on certain equity investments in the first quarter of 2018. 

Net (Loss) Income from Discontinued Operations

Net (loss) income from discontinued operations primarily includes income and expenses associated with businesses and assets that were sold by the Company in connection with the Disposition.

Net income from discontinued operations decreased by $0.9 million for the three months ended June  30, 2019, compared to that reported for the three months ended June  30, 2018, primarily due to income from discontinued operations recognized in the second quarter of 2018 in connection with the Disposition.  

Furthermore, net income from discontinued operations decreased $21.7 million for the six months ended June 30, 2019, compared to that reported for the six months ended June 30, 2018, primarily due to $20.4 million of nonrecurring net gains recognized in the first quarter of 2018 in connection with the Disposition. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for more information.

13

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

Our principal sources of liquidity include: (i) cash and cash equivalents; (ii) cash flows from operating activities; and (iii) cash flows from investing activities.

We believe that cash generated from operating and investing activities, along with available cash and cash equivalents has been, and will continue to be, sufficient to fund our normal operating needs and meet our obligations as they become due.

Summary of Cash Flows

Table 7 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented, though 2018 changes in such balances that were attributable to consolidated funds and ventures (“CFVs”) are separately identified in such tabular disclosure.  However, changes in net cash flows that are discussed in the narrative that follows Table 7 are exclusive of changes in cash of the CFVs. The Disposition resulted in the deconsolidation from the Company’s Consolidated Balance Sheets in the first quarter of 2018 of all guaranteed Low-Income Housing Tax Credit (“LIHTC”) funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. 

At  June  30, 2019 and June 30, 2018, $2.5 million and $15.9 million, respectively, of amounts presented below in Table 7 represented restricted cash.

Table 7:  Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

For the six months ended

(in thousands)

    

June 30, 2019

Cash, cash equivalents and restricted cash at beginning of period

  

$

33,878

Net cash provided by (used in):

 

 

 

Operating activities

 

 

4,605

Investing activities

 

 

(21,666)

Financing activities

 

 

(3,724)

Net decrease in cash, cash equivalents and restricted cash

 

 

(20,785)

Cash, cash equivalents and restricted cash at end of period

 

$

13,093

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended

 

 

June 30, 2018

(in thousands)

 

MMA

 

CFVs

 

Total

Cash, cash equivalents and restricted cash at beginning of period

  

$

75,632

  

$

24,554

  

$

100,186

Net cash used in:

 

 

 

 

 

 

 

 

 

Operating activities

 

 

(9,162)

 

 

 —

 

 

(9,162)

Investing activities

 

 

(23,173)

 

 

(24,554)

 

 

(47,727)

Financing activities

 

 

(336)

 

 

 —

 

 

(336)

Net decrease in cash, cash equivalents and restricted cash

 

 

(32,671)

 

 

(24,554)

 

 

(57,225)

Cash, cash equivalents and restricted cash at end of period

 

$

42,961

 

$

 —

 

$

42,961

 

Operating Activities

Cash flows from operating activities include, but are not limited to, interest income on our investments, income distributions from our investments in unconsolidated funds and ventures and advances on loans held for sale.

 

14

Net cash flows associated with operating activities increased by $13.8 million during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. This net increase was primarily driven by: (i) the nonrecurring purchase of a $9.0 million senior loan during the first quarter of 2018 from a MGM affiliate that we designated as held for sale; (ii) a $3.8 million increase in distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; and (iii) nonrecurring professional fees incurred in the first quarter of 2018 in connection with the Disposition. The effects of these items were partially offset by: (i) a decline in interest income on bonds that was due to disposition transactions and the termination of TRS agreements during the fourth quarter of 2018 and first six months of 2019; (ii) a decrease in asset management fees received as a result of the Disposition; and (iii) an increase in net cash flows used to pay external management fees and reimbursable expenses due to a provision in the management agreement with the External Manager that specifies that, effective July 1, 2018, the basis for calculating the base management fee converts from a fixed fee to a stated fixed percentage of the Company’s diluted common shareholders’ equity.

Investing Activities

Net cash flows associated with investing activities include, but are not limited to: principal payments, capital contributions and distributions, advance of loans held for investment, and sales proceeds from the sale of bonds, loans and real estate and other investments.

Net cash flows used in investing activities during the six months ended June 30, 2019, decreased by $1.5 million as compared to amounts used in investing activities during the six months ended June 30, 2018. This net decrease was primarily driven by: (i) a $43.5 million increase in capital distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; (ii) a $17.3 million increase in principal payments and sales proceeds received on our bond-related investments; and (iii) the derecognition of $21.9 million of cash and restricted cash upon settlement of the Disposition during the first quarter of 2018. The effects of these items were partially offset by a $69.9 million increase in capital contributions to the Company’s investments in partnerships during the first six months of 2019 that primarily related to the Solar Ventures and an $11.3 million origination fee of a  loan held for investment.

Financing Activities

Net cash flows used in financing activities during the six months ended June 30, 2019, increased by $3.4 million as compared to amounts used during the six months ended June 30, 2018. This increase was primarily attributable to no borrowing activity or common share issuances during the first six months of 2019, the impact of which was partially offset by a significant decrease during the first six months of 2019 in the amount of net cash flows used to repay borrowings and repurchase common shares.

Capital Resources

Our debt obligations primarily include liabilities that we recognized in connection with our subordinated debt and other notes payable.  At December 31, 2018, our debt obligations also included liabilities in connection with the execution of TRS agreements that were used to finance a portion of our investments in bonds.    The major types of debt obligations of the Company are further discussed below.

Table 8 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at June  30, 2019 and December 31, 2018.  See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information about these contractual commitments.

15

Table 8:  Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

June 30, 2019

 

December 31, 2018

 

  

 

 

 

Wtd. Avg.

 

 

 

 

Wtd. Avg.

 

 

 

 

 

Effective 

 

 

 

 

Effective 

 

 

Carrying

 

Interest

 

Carrying

 

Interest

(dollars in thousands)

    

Value

    

Rate

 

Value

    

Rate

Subordinated debt

 

$

96,604

 

3.8

%

 

$

97,722

 

3.7

%

Notes payable and other debt

 

 

6,764

 

14.8

 

 

 

7,210

 

14.7

 

Asset related debt (1)

 

 

4,500

 

5.0

 

 

 

44,255

 

3.9

 

Total debt

 

$

107,868

 

4.6

%

 

$

149,187

 

4.3

%


(1)

At June 30, 2019 and December 31, 2018, the carrying value of bond related debt was zero and $39.3 million, respectively. At June 30, 2019 and December 31, 2018, the carrying value of non-bond related debt was $4.5 million and $5.0 million, respectively.

Subordinated Debt

At June 30, 2019 and December 31, 2018, the Company had subordinated debt obligations that had a total UPB of $88.9 million and $89.8 million, respectively. Such debt included four tranches that amortize over their contractual lives, are due to mature between March 2035 and July 2035 and require the Company to pay interest based upon 3-month London Interbank Offered Rate (“LIBOR”) plus a fixed spread of 2.0%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Notes Payable and Other Debt

At June 30, 2019 and December 31, 2018, the Company had notes payable and other debt with a UPB of $6.9 million and $7.4 million, respectively. This debt, which is denominated in South African rand, was used to finance the Company’s 11.85% ownership interest in SAWHF. Such debt amortizes over its contractual life, is due to mature on September 8, 2020, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Asset Related Debt

Bond Related Debt

At December 31, 2018, the Company had bond related debt obligations that had a total UPB of $38.8 million and a weighted-average effective interest rate of 3.7%. These debt obligations financed a portion of the Company’s investments in bonds. During the second quarter of 2019, all bond related debt obligations were fully redeemed. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Non-bond Related Debt

At June 30, 2019 and December 31, 2018, the Company had a debt obligation to MGM principals with a UPB of $4.5 million and $5.0 million, respectively. This debt bears interest at 5.0%, amortizes over its contractual life and is due to mature on January 1, 2026. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Covenant Compliance

At June  30, 2019 and December 31, 2018, the Company was in compliance with all covenants under its debt arrangements.

16

Off-Balance Sheet Arrangements

At June  30, 2019 and December 31, 2018, the Company had no off-balance sheet arrangements. 

Other Contractual Commitments

The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures.  Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for more information.

The Company had no unfunded loan commitments at June  30, 2019 and December 31, 2018.  Refer to Notes to Consolidated Financial Statements - Note 4, “Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”),” for more information.

The Company uses derivative instruments for various purposes.  These instruments contingently obligate the Company in most cases to make payments to its counterparties.  Refer to Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about these instruments.

Other Capital Resources

Dividend Policy

The Board makes determinations regarding dividends based on our Manager’s recommendation, which is based on an evaluation of a number of factors, including our common shareholders’ equity, business prospects and available cash.  The Board does not believe paying a dividend is appropriate at the current time.

Tax Benefits Rights Agreement

Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (“Rights Plan”) designed to help preserve the Company’s NOLs.  In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015.  The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan.  Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.  The Rights Plan runs for five years, or until the Board determines the plan is no longer required, whichever comes first.

On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation with respect to Hunt, increasing such limitation to 9.9% of the Company’s issued and outstanding shares in any rolling 12-month period without causing a triggering event.

At June  30, 2019, the Company had three shareholders, including one of its executive officers, Michael L. Falcone, who held greater than  a 4.9% interest in the Company.  In order to facilitate satisfaction of share purchase obligations related to his 2017 bonus award and permitting his stock option awards to be exercised, the Board of Directors named Mr. Falcone an exempt person in accordance with the Rights Plan but only to the extent of settling such share purchase obligations and options. Mr. Falcone satisfied his share purchase obligations and exercised all of his share purchase option awards as of December 31, 2018, and, due to the aforementioned action of the Board of Directors, there was no triggering event for purposes of the Rights Plan.

17

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The preparation of our consolidated financial statements is based on the application of generally accepted accounting principles in the U.S. (“GAAP”), which requires us to make certain estimates and assumptions that affect the reported amounts and classification of the amounts in our consolidated financial statements.  These estimates and assumptions require us to make difficult, complex and subjective judgments involving matters that are inherently uncertain.  We base our accounting estimates and assumptions on historical experience and on judgments that we believe to be reasonable under the circumstances known to us at the time.  Actual results could differ materially from these estimates.  We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented and have discussed those policies with our Audit Committee.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions.  Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors.  See Part I, Item 1A. “Risk Factors” in our 2018 Annual Report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.  We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition.  These policies govern:

·

fair value measurement of financial instruments;

·

consolidation; and

·

income taxes.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our 2018 Annual Report for a discussion of these critical accounting policies and estimates.

18

ACCOUNTING AND REPORTING DEVELOPMENTS

 

We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance in Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies.”

 

 

19

Item 1.  Financial Statements

 

MMA Capital Holdings, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

June 30,

 

December 31,

 

    

2019

    

2018

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,590

 

$

28,243

Restricted cash

 

 

2,503

 

 

5,635

Investments in debt securities (includes $85,347 pledged as collateral at December 31, 2018)

 

 

35,236

 

 

97,190

Investments in partnerships

 

 

185,679

 

 

155,079

Loans held for investment (includes $80,579 and $67,000 of related party loans at June 30, 2019 and December 31, 2018, respectively)

 

 

80,878

 

 

67,299

Other assets

 

 

10,875

 

 

10,940

Total assets

 

$

325,761

 

$

364,386

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Debt

 

$

107,868

 

$

149,187

Accounts payable and accrued expenses

 

 

3,267

 

 

2,289

Total liabilities

 

 

111,135

 

 

151,476

 

 

 

 

 

 

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Preferred shares, no par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2019

 

 

 ─

 

 

 ─

Common shares, no par value, 50,000,000 shares are authorized (5,778,294 and 5,777,216 shares issued and outstanding and 108,430 and 104,464 non-employee directors' deferred shares issued at June 30, 2019 and December 31, 2018)

 

 

201,212

 

 

175,213

Accumulated other comprehensive income ("AOCI") 

 

 

13,414

 

 

37,697

Total shareholders’ equity

 

 

214,626

 

 

212,910

Total liabilities and equity

 

$

325,761

 

$

364,386

 

 

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

20

MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

June 30,

 

June 30,

 

    

2019

    

 

2018

    

2019

    

2018

Interest income

  

 

 

  

 

 

  

 

 

  

 

 

Interest on bonds

 

$

1,582

 

$

2,709

 

$

2,625

 

$

5,247

Interest on loans and short-term investments

 

 

1,295

 

 

923

 

 

2,230

 

 

1,662

Total interest income

 

 

2,877

 

 

3,632

 

 

4,855

 

 

6,909

Asset related interest expense