Company Quick10K Filing
Quick10K
MMA Capital Management
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$30.90 6 $179
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 2019-05-21 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
WY Weyerhaeuser 19,110
ABMD Abiomed 11,820
ICL Israel Chemicals 7,030
MYOK Myokardia 2,210
EVA Enviva Partners 1,070
ITRN Ituran Location & Control 761
EIGR Eiger Biopharmaceuticals 210
AREC American Resources 82
FLUX Flux Power Holdings 0
KLDK Global House Holdings 0
MMAC 2019-03-31
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—Guarantees and 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. Exhibit Index
EX-31.1 mmac-20190331ex3111057c3.htm
EX-31.2 mmac-20190331ex3129cfaa7.htm
EX-32.1 mmac-20190331ex321c33d51.htm
EX-32.2 mmac-20190331ex3226cf149.htm

MMA Capital Management Earnings 2019-03-31

MMAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 mmac-20190331x10q.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 March 31, 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)

 

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, or a smaller reporting 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 ☑

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

 

There were 5,884,300 shares of common shares outstanding at May 2, 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)

25

 

 

 

 

 

 

 

(a)

Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

25

 

 

 

 

 

 

 

(b)

Consolidated Statements of Operations for the three months ended March 31, 2019 and March 31, 2018

26

 

 

 

 

 

 

 

(c)

Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2019 and March 31, 2018

28

 

 

 

 

 

 

 

(d)

Consolidated Statements of Equity for the three months ended March 31, 2019 and March 31, 2018

29

 

 

 

 

 

 

 

(e)

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and March 31, 2018

30

 

 

 

 

 

 

 

(f)

Notes to Consolidated Financial Statements

32

 

 

 

 

 

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 March 31, 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.  For a discussion of certain of those risks and uncertainties and the factors that could cause our actual results to differ materially because of those risks and uncertainties, see 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)

    

March 31, 2019

    

December 31, 2018

Selected income statement data

 

 

 

 

 

 

Net interest income

 

$

1,679

 

$

2,260

Non-interest income

 

 

6,111

 

 

19,662

Other expenses

 

 

4,888

 

 

4,084

Net income before income taxes

 

 

2,902

 

 

17,838

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(13)

 

 

54

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

 

 

(7)

 

 

13,384

Net income

 

$

2,882

 

$

31,276

 

 

 

 

 

 

 

Earnings per share data

 

 

 

 

 

 

Net income:  Basic

 

$

0.49

 

$

5.34

       Diluted

 

 

0.49

 

 

5.25

 

 

 

 

 

 

 

Average shares:   Basic

 

 

5,882

 

 

5,859

 Diluted

 

 

5,882

 

 

5,954

 

 

 

 

 

 

 

Market and per common share data

 

 

 

 

 

 

Market capitalization

 

$

175,009

 

$

145,586

Common shares at period-end

 

 

5,884

 

 

5,882

Share price during period:

 

 

 

 

 

 

High

 

 

33.88

 

 

27.45

Low

 

 

20.02

 

 

25.00

Closing price at period-end

 

 

30.29

 

 

25.20

Book value per common share:  Basic and Diluted

 

 

36.11

 

 

36.20

 

 

 

 

 

 

 

Selected balance sheet data (period end)

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,773

 

$

28,243

Investments in debt securities

 

 

81,102

 

 

97,190

Investment in partnerships

 

 

159,145

 

 

155,079

Loans held for investment

 

 

67,299

 

 

67,299

All other assets

 

 

20,022

 

 

16,575

Total assets

 

$

356,341

 

$

364,386

 

 

 

 

 

 

 

Debt

 

$

140,239

 

$

149,187

All other liabilities

 

 

3,635

 

 

2,289

Total liabilities

 

 

143,874

 

 

151,476

Common shareholders' equity

 

$

212,467

 

$

212,910

 

 

 

 

 

 

 

Rollforward of common shareholders' equity

 

 

 

 

 

 

Common shareholders' equity - at beginning of period

 

$

212,910

 

$

193,547

Net income

 

 

2,882

 

 

31,276

Other comprehensive loss

 

 

(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

 

 

82

 

 

(2,277)

Common shareholders' equity - at end of period

 

$

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 and related financing, 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 non-energy investments, such as bond-related investments with premiums that will otherwise decrease with the passage of time and other assets that are generating lower returns, into the Energy Capital portfolio, which we believe will generate higher returns.

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. 

Our External Manager provides loan origination, servicing, asset management and other management services to the Solar Ventures. Loans typically  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 March 31, 2019, the Solar Ventures have made over 115 project-based loans that total $1.5 billion of debt commitments for the development of over 550 renewable energy project sites, which will generate over 4.2 gigawatts of renewable energy.

4


 

Investment Carrying Value

The carrying value of MMA’s equity investments in the Solar Ventures was $130.4 million and $126.3 million at March 31, 2019 and December 31, 2018, respectively. The $4.1 million increase in the carrying value of such investments was comprised of the following: (i) $52.0 million of capital contributions; (ii) $51.6 million of distributions received and (iii) $3.7 million of equity in income earned during the three months ended March 31, 2019. See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.

Investment Income

The Company earned $3.7 million and $0.4 million of equity in income from the Solar Ventures for the three months ended March 31, 2019 and March 31, 2018, respectively. The reported increase in the amount of equity in income from the Solar Ventures was primarily driven by (i) an increase in loan origination activity at SDL during the first quarter of 2019 and 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 the Company’s former investment partner prior to the Company’s buyout of such 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 buyout our former investment partner, which is reported as a reduction to equity in income earned by the Company. Refer to Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information on the Company’s equity investments.

Lending Activities of the Solar Ventures

At March 31, 2019, the loans that were funded through the Solar Ventures had an aggregate unpaid principal balance (“UPB”) of $232.1 million, a weighted-average remaining maturity of nine months and a weighted-average coupon of 10.7%.  These loans generated origination fees that ranged from 1.0% to 3.0% on committed capital and had fixed-rate coupons that ranged from 7.0% to 18.0%. The Solar Ventures had $156.1 million of unfunded loan commitments to borrowers at March 31, 2019.

As of March 31, 2019, over 90 of the Solar Ventures’ loans, totaling $1.1 billion of commitments, had been repaid, resulting in a weighted-average IRR (“WAIRR”) of 16.1% 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; (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. 

OA&L Portfolio

In our OA&L portfolio, we manage the Company’s cash, investment in bonds and related financing, 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.

Cash

As of March 31, 2019, we had $28.8 million of unrestricted cash and $5.7 million of restricted cash that was primarily pledged as collateral in connection with financial risk management and financing agreements.

Investments in Bonds and Related Financing

Our investments in bonds finance affordable housing and infrastructure in the U.S. and are fixed rate and unrated.  Our bonds are also tax-exempt and primarily 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.

5


 

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”).

The Company has financed a portion of its investments in bonds through total return swap (“TRS”) agreements.  These financing arrangements enable the Company to retain the economic risks and rewards of the fixed rate bonds that are referenced in such agreements and generally require the Company to pay a variable rate of interest that resets on a weekly basis.  The Company also has executed TRS agreements to synthetically acquire the total return of multifamily bonds that it does not own.  The Company has hedged a portion of the interest rate risk associated with its TRS agreements and other sources of variable interest rate exposure using various interest rate risk management agreements.

Table 1 provides key metrics related to all bonds in which we have an economic interest, including bonds in which we acquired an economic interest through TRS agreements (such bonds and TRS agreements are hereinafter referred to collectively as the “Bond-Related Investments”).  See Notes to Consolidated Financial Statements – Note 6, “Debt,” and Note 7, “Derivative Instruments,” for more information about how TRS and interest rate risk management agreements are reported in the Company’s financial statements.

Table 1:  Bond-Related Investments – Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2019

 

Unpaid

 

 

 

 

 

 

 

 

 

Wtd. Avg.

 

Number

 

Number of

 

Principal

 

Fair

 

Wtd. Avg.

 

Wtd. Avg.

 

Debt Service

 

of

 

Multifamily

(dollars in thousands)

Balance

    

Value

    

Coupon

 

Pay Rate (5)

 

Coverage (6)

 

Bonds (7)

    

Properties (7)

Multifamily tax-exempt
bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

29,829

 

$

32,472

 

6.89

%  

 

6.89

%  

 

1.35

x  

 

 4

 

 4

Non-performing (1)

 

11,676

 

 

15,187

 

6.51

%  

 

4.18

%  

 

0.95

x  

 

 3

 

 2

Subordinated cash flow (2)

 

9,620

 

 

10,361

 

6.78

%  

 

1.98

%  

 

N/A

 

 

 3

 

 —

Total multifamily
   tax-exempt bonds

$

51,125

 

$

58,020

 

6.78

%

(4)

6.13

%

(4)

1.23

x  

 

10

 

 6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Infrastructure Bond

$

27,170

 

$

25,572

 

6.30

%  

 

6.30

%  

 

1.15

x  

 

 1

 

N/A

Total Bond-Related
Investments
 (3)

$

78,295

 

$

83,592

 

6.59

%

(4)

6.20

%

(4)

1.20

x  

 

11

 

 6


(1)

Includes bond investments that are 30 days or more past due in either principal or interest payments. On April 25, 2019, the Company received $13.1 million of net proceeds from the sale of an affordable housing property that secured one of the Company’s non-performing bond investments that had a fair value of $13.1 million at March 31, 2019.

(2)

Coupon interest on these investments is payable only to the extent sufficient cash flows are available for the debtor to make such payments. Therefore, because a payment default cannot occur in connection with these bond investments, debt service coverage is not calculated or disclosed for these instruments.

(3)

Includes one bond with a UPB and fair value of $1.6 million and $2.5 million, respectively, that was financed with TRS agreements that had a notional amount of $1.7 million and that was accounted for as a  derivative at March 31, 2019.  Our Bond-Related Investments also includes three bonds that are accounted for as a secured borrowing with a combined UPB and fair value of $28.2 million and $30.0 million, respectively, which were financed with TRS agreements that had a combined notional amount of $31.7 million.    

(4)

Excludes the effects of subordinated cash flow bonds. If the Company had included the effects of subordinated cash flow bonds in the determination of these amounts, the weighted-average coupon for total multifamily tax-exempt bonds and for all Bond-Related Investments would have been 6.78% and 6.61%, respectively, at March 31, 2019, and the weighted-average pay rate for total multifamily tax-exempt bonds and for all Bond-Related Investments would have been 5.35% and 5.68%, respectively, at March 31, 2019.

(5)

Reflects cash interest payments collected as a percentage of the average UPB of corresponding bond investments for the preceding 12 months at March 31, 2019.

(6)

Calculated on a rolling 12‑month basis using property level information as of the prior quarter-end for those bonds with must pay coupons that are collateralized by multifamily properties. The Infrastructure Bond’s debt service coverage represents proforma coverage based upon its restructured terms.

6


 

(7)

For comparative purposes, at December 31, 2018, our Bond-Related Investments  were comprised of 14 bonds, which included 13 multifamily tax-exempt bonds that were collateralized by nine affordable multifamily rental properties.

The fair value of our Bond-Related Investments as a percentage of UPB increased from 106.0% at December 31, 2018, to 106.8% at March 31, 2019, while the weighted-average debt service coverage ratio associated with our Bond-Related Investments remained at 1.20x at March 31, 2019 compared to December 31, 2018. See Notes to Consolidated Financial Statements – Note 8, “Fair Value,” for additional information.

On January 3, 2019, the Company entered into agreements to sell one multifamily tax-exempt bond and one subordinate certificate interest in a multifamily tax-exempt bond for total net cash proceeds of $8.6 million that had an aggregate UPB and fair value of $8.5 million and $8.6 million, respectively. The settlement of these transactions resulted in the realization of a 1.5% premium above the UPB of such bond interests and the reclassification of $3.6 million of fair value gains on bond investments into earnings from accumulated other comprehensive income during the first quarter of 2019. Additionally, on March 27, 2019, the Company terminated a TRS agreement that was accounted for as a derivative with a notional amount of $16.5 million generating net proceeds to the Company of $0.2 million. We undertook these dispositions for the purpose of making more capital available to fund renewable energy lending investments and monetizing premiums on our Bond-Related Investments before they amortized, which would cause projected returns over that period to be lower than prospective investments in the Energy Capital portfolio.

Hunt Note

The Company has a secured loan receivable from Hunt (the “Hunt Note”) that has a carrying value of $67.0 million at March 31, 2019. The Hunt Note has  an initial term of seven years, is prepayable at any time and bears interest at the rate of 5.0% per annum. The UPB of the Hunt Note 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 March 31, 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 $20.0 million at March 31, 2019.

At March 31, 2018, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”).  SAWHF is a multi-investor fund managed by affiliates of International Housing Solutions S.à r.l. (“IHS”) that began operations in April 2008 and is currently in the process of exiting its investments.  The carrying value of the Company’s investment in SAWHF was $8.7 million at March 31, 2019.

At March 31, 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. The carrying value of the Company’s investment was $8.2 million at March 31, 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.  As of December 31, 2018, the carrying value of our DTAs was $124.5 million; however, these assets were fully reserved because management determined that, as of such reporting date, it was not more likely than not that the Company would realize its DTAs. The Company’s DTAs remain fully reserved as of March 31, 2019.

Debt Obligations

The OA&L portfolio includes the Company’s  asset related debt, subordinated debt, notes payable and other debt.  

7


 

The carrying value and weighted-average yield of debt obligations in the OA&L portfolio was $140.2 million and 4.2%, respectively, at March 31, 2019. Refer to Table 19, “Asset Related Debt and Other Debt,” for more information.

Interest Rate Risk Hedge Positions

We use interest rate swaps and caps to hedge interest rate risk associated with debt obligations in this portfolio.  The net fair value of these financial instruments was $2.9 million at March 31, 2019.

Carrying Values of the OA&L Portfolio

Table 2 provides financial information about the carrying values associated with the Company’s OA&L portfolio reported within the Company’s Consolidated Balance Sheets at March 31, 2019 and December 31, 2018. The Company operates as a single reporting segment and as such, certain corporate assets and liabilities of the Company (deferred compensation, accounts payable and accrued expenses, prepaid expenses and state tax receivable) have been excluded from our comparative discussion of our OA&L portfolio because such items have not been allocated to the OA&L portfolio and will only be reported on a consolidated basis. 

Table 2:  Carrying Values of the OA&L Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

March 31,

 

December 31,

(in thousands)

2019

 

2018

Assets  

 

 

 

 

 

Cash

$

28,773

 

$

28,243

Restricted cash (1)

 

5,668

 

 

5,635

Investments in debt securities (2) (includes $70,001 and $85,347 pledged as collateral)

 

81,102

 

 

97,190

Investment in partnerships (3)

 

28,701

 

 

28,740

Loans held for investment (4)

 

67,299

 

 

67,299

Derivative assets (5)

 

3,873

 

 

5,797

Real estate owned

 

8,216

 

 

3,769

Other assets

 

1,897

 

 

862

Total assets of the OA&L portfolio

$

225,529

 

$

237,535

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Debt (6)

$

140,239

 

$

149,187

Interest payable

 

626

 

 

637

Total liabilities of the OA&L portfolio

$

140,865

 

$

149,824

 

 

 

 

 

 

Net assets of the OA&L portfolio (7)

$

84,664

 

$

87,711


(1)

Reflects that portion of the Company’s restricted cash balances that supports the execution of a financial guarantee and derivative instruments of the OA&L portfolio.

(2)

See Notes to Consolidated Financial Statements – Note 2, “Investments in Debt Securities,” for more information about the Company’s investments in debt securities.

(3)

See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for more information about the Company’s investments in partnerships.

(4)

See Notes to Consolidated Financial Statements – Note 4, “Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”),” for more information about the Company’s loans.

(5)

See Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about the Company’s derivative instruments.

(6)

See Table 19 and Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information about the Company’s debt obligations.

8


 

(7)

The reported amount of net assets does not include the effects of other expenses incurred by the Company in connection with the management of such portfolio.           

 

Sources of Comprehensive Income from the OA&L Portfolio

 

Table 3 provides financial information about sources of comprehensive income associated with the Company’s OA&L portfolio for the three months ended March 31, 2019, and March 31, 2018. Consistent with the presentation of Table 2, “Carrying Values of the OA&L Portfolio,” for presentation purposes, discontinued operations and operating expenses (salaries and benefits, external management fees and reimbursable expenses, general and administrative, professional fees and tax related expenses) that were not directly attributable to the OA&L portfolio have been excluded from our comparative discussion of our results of operations. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for more information about the Company’s reported discontinued operations.

 

Table 3:  Sources of Comprehensive Income Associated with the OA&L Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

 

2019

 

2018

 

 

Change

Interest income

 

 

 

 

 

 

 

 

 

Interest on bonds (1)

 

$

1,043

 

$

2,538

 

$

(1,495)

Interest on loans and short-term investments (2)

 

 

935

 

 

739

 

 

196

Total interest income

 

 

1,978

 

 

3,277

 

 

(1,299)

Interest expense

 

 

 

 

 

 

 

 

 

Asset related debt (1)

 

 

299

 

 

611

 

 

(312)

Total interest expense

 

 

299

 

 

611

 

 

(312)

Net interest income

 

 

1,679

 

 

2,666

 

 

(987)

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

Equity in income from unconsolidated funds and ventures (3)

 

 

257

 

 

411

 

 

(154)

Net gains on bonds

 

 

3,571

 

 

 ─

 

 

3,571

Net (losses) gains on derivatives (4)

 

 

(1,442)

 

 

2,309

 

 

(3,751)

Net losses on extinguishment of debt

 

 

(11)

 

 

 ─

 

 

(11)

Other income

 

 

17

 

 

44

 

 

(27)

Total non-interest income

 

 

2,392

 

 

2,764

 

 

(372)

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

 

Other interest expense (1)

 

 

1,209

 

 

1,036

 

 

173

Impairment

 

 

 ─

 

 

388

 

 

(388)

Other expenses

 

 

94

 

 

280

 

 

(186)

Total other expenses

 

 

1,303

 

 

1,704

 

 

(401)

 

 

 

 

 

 

 

 

 

 

Other sources of comprehensive income

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income (5)

 

 

(3,140)

 

 

9,160

 

 

(12,300)

Total other sources of comprehensive (loss) income

 

 

(3,140)

 

 

9,160

 

 

(12,300)

 

 

 

 

 

 

 

 

 

 

Net impact of sources of comprehensive (loss) income from the OA&L portfolio

 

$

(372)

 

$

12,886

 

$

(13,258)


(1)

Excludes accrued interest associated with the investment and financing components of TRS agreements that are accounted for as derivatives; such accrued interest is classified in the Consolidated Statements of Operations as “Net (losses) gains on derivatives.”

(2)

Includes interest income earned in connection with restricted cash that is pledged in support of TRS agreements. Refer to Table 9, “Net Interest Income,” for more information.

(3)

Equity in income is generated from real estate partnerships.

9


 

(4)

Primarily includes fair value adjustments associated with TRS agreements that the Company accounts for as derivative instruments and interest rate derivatives that are used to hedge interest rate risk associated with the Company’s bond investments and subordinated debt. Refer to Table 11, “Net Gains,” for more information.

(5)

Reflects fair value adjustments recognized in connection with investments in debt securities and foreign currency translation adjustments reported in the Company’s Consolidated Balance Sheets for such reporting periods. Refer to Table 6, “Other Comprehensive (Loss) Income,” for more information.

 

10


 

SUMMARY OF FINANCIAL PERFORMANCE

 

Net Worth

Common shareholders’ equity decreased from $212.9 million at December 31, 2018, to $212.5 million at March 31, 2019.  This $0.4 million decrease was driven by a  $0.2 million comprehensive loss and $0.2 million of other decreases in common shareholders’ equity.

Diluted common shareholders’ equity (“Book Value”) per share decreased to $36.11 per share at March 31, 2019, representing a $0.09 per share decrease during the three months ended March 31, 2019.

Refer to “Consolidated Balance Sheet Analysis,” for more information about changes in common shareholders’ equity and other components of our Consolidated Balance Sheets.

Comprehensive (Loss) Income

We recognized comprehensive loss of $0.2 million in the first quarter of 2019, which consisted of $2.9 million of net income and $3.1 million of other comprehensive loss.  In comparison, primarily as a result of the Company’s sale of certain businesses and assets to Hunt in the first quarter of 2018 (the “Disposition”),  we recognized $27.5 million of comprehensive income, which consisted of $18.3 million of net income and $9.2 million of other comprehensive income.

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

Other comprehensive loss that we reported in the first 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.  The impact of this reclassification was partially offset by net fair value gains that we recognized in AOCI during the first quarter of 2019 in connection with our Bond-Related Investments.  Refer to “Consolidated Balance Sheet Analysis,” for more information about other comprehensive income.

11


 

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 4 provides a balance sheet summary for the periods presented.  

Table 4:  Balance Sheet Summary

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

 

 

 

March 31,

 

December 31,

 

 

(in thousands, except per share data)

    

2019

    

2018

    

Change

Assets  

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,773

 

$

28,243

 

$

530

Restricted cash

 

 

5,668

 

 

5,635

 

 

33

Investments in debt securities

 

 

81,102

 

 

97,190

 

 

(16,088)

Investments in partnerships

 

 

159,145

 

 

155,079

 

 

4,066

Loans held for investment

 

 

67,299

 

 

67,299

 

 

 ─

Other assets

 

 

14,354

 

 

10,940

 

 

3,414

Total assets

 

$

356,341

 

$

364,386

 

$

(8,045)

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

140,239

 

$

149,187

 

$

(8,948)

Accounts payable and accrued expenses

 

 

3,629

 

 

2,289

 

 

1,340

Other liabilities

 

 

 6

 

 

 —

 

 

 6

Total liabilities

 

$

143,874

 

$

151,476

 

$

(7,602)

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Common Shareholders' Equity

 

$

212,467

 

$

212,910

 

$

(443)

 

 

 

 

 

 

 

 

 

 

Basic and diluted common shares outstanding

 

 

5,884

 

 

5,882

 

 

 2

Basic and diluted common shareholders' equity per common share

 

$

36.11

 

$

36.20

 

$

(0.09)

 

 

 

 

 

 

 

 

 

 

Common Shareholders’ Equity

Table 5 summarizes the changes in common shareholders’ equity for the periods presented.

Table 5:  Changes in Common Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Net income

 

$

2,882

 

$

18,340

 

$

(15,458)

Other comprehensive (loss) income

 

 

(3,140)

 

 

9,160

 

 

(12,300)

Other changes in common shareholders' equity

 

 

(185)

 

 

13,340

 

 

(13,525)

Net change in common shareholders' equity

 

$

(443)

 

$

40,840

 

$

(41,283)

 

12


 

Other Comprehensive (Loss) Income

Table 6 summarizes other comprehensive (loss) income for the periods presented.

Table 6:  Other Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Bond related activity:

 

 

 

 

 

 

 

 

 

Bond fair value adjustments

 

$

406

 

$

(3,347)

 

$

3,753

Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations

 

 

(3,571)

 

 

 —

 

 

(3,571)

Reclassification of credit-related gains to the Consolidated Statements of Operations related to bond investments assessed as other-than-temporary-impairment

 

 

 —

 

 

(135)

 

 

135

Reinstatement of fair value gains related to bond investments due to deconsolidation of consolidated property partnerships

 

 

 —

 

 

9,415

 

 

(9,415)

Other comprehensive (loss) income related to bond activity

 

 

(3,165)

 

 

5,933

 

 

(9,098)

Income tax loss

 

 

 —

 

 

(256)

 

 

256

Foreign currency translation adjustment

 

 

25

 

 

3,483

 

 

(3,458)

Other comprehensive (loss) income

 

$

(3,140)

 

$

9,160

 

$

(12,300)

 

The Company recognized other comprehensive loss for the three months ended March 31, 2019 as compared to other comprehensive income recognized during the three months ended March 31, 2018, primarily as a result of (i) the recognition in the first quarter of 2018 of unrealized holding gains associated with bond investments that were no longer eliminated for reporting purposes and (ii) the reversal of $3.4 million cumulative translation adjustments due to the Disposition.

Other Changes in Common Shareholders’ Equity

Table 7 summarizes other changes in common shareholders’ equity for the periods presented.

Table 7:  Other Changes in Common Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Common shares issued

 

$

 —

 

$

4,125

 

$

(4,125)

Net change due to change in accounting principle

 

 

(267)

 

 

9,206

 

 

(9,473)

Purchases of shares in a subsidiary (including price adjustments on prior purchases)

 

 

 —

 

 

(73)

 

 

73

Director share awards

 

 

82

 

 

82

 

 

 ─

Other changes in common shareholders' equity

 

$

(185)

 

$

13,340

 

$

(13,525)

 

The amount of other changes in common shareholders’ equity for the three months ended March 31, 2019 decreased compared to that reported for the three months ended March 31, 2018, primarily as a result of (i) a $9.2 million cumulative transition adjustment to retained earnings that we recognized in the first quarter of 2018 in connection with the adoption of new revenue recognition accounting standards on January 1, 2018 (see “Adoption of New Accounting Standards” within Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies”) and (ii) the nonrecurring issuance of 125,000 common shares to Hunt during the first quarter of 2018 in connection with the Disposition.

13


 

CONSOLIDATED RESULTS OF OPERATIONS

 

This section provides a comparative discussion of our Consolidated Results of Operations for the three months ended March 31, 2019 and March 31, 2018 and should be read in conjunction with our 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 8 summarizes net income for the periods presented.

Table 8:  Net Income

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Net interest income

 

$

1,679

 

$

2,666

 

$

(987)

Non-interest income

 

 

 

 

 

 

 

 

 ─

Equity in income from unconsolidated funds and ventures

 

 

3,976

 

 

827

 

 

3,149

Net gains on bonds, derivatives and extinguishment of liabilities

 

 

2,118

 

 

2,309

 

 

(191)

Other income

 

 

17

 

 

44

 

 

(27)

Other expenses

 

 

 

 

 

 

 

 

 

Other interest expense

 

 

(1,209)

 

 

(1,036)

 

 

(173)

Other expenses

 

 

(3,679)

 

 

(8,075)

 

 

4,396

Net income (loss) from continuing operations before income taxes

 

 

2,902

 

 

(3,265)

 

 

6,167

Income tax (expense) benefit

 

 

(13)

 

 

856

 

 

(869)

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

 

 

(7)

 

 

20,749

 

 

(20,756)

Net income

 

$

2,882

 

$

18,340

 

$

(15,458)

 

Net Interest Income

Net interest income represents interest income earned on our investment 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.

Table 9 summarizes net interest income for the periods presented.

Table 9:  Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Interest income:

 

 

 

 

 

 

 

 

 

Interest on bonds

 

$

1,043

 

$

2,538

 

$

(1,495)

Interest on loans and short-term investments

 

 

935

 

 

739

 

 

196

Total interest income

 

 

1,978

 

 

3,277

 

 

(1,299)

Asset related interest expense:

 

 

 

 

 

 

 

 

 

Bond related debt

 

 

(237)

 

 

(611)

 

 

374

Non-bond related debt

 

 

(62)

 

 

 —

 

 

(62)

Total interest expense

 

 

(299)

 

 

(611)

 

 

312

Net interest income

 

$

1,679

 

$

2,666

 

$

(987)

 

14


 

Net interest income for the three months ended March 31, 2019, decreased compared to that reported for the three months ended March 31, 2018, primarily due to a decrease in interest on bonds that was driven by the disposition of bond investments  and the termination of TRS agreements during the fourth quarter of 2018 and the first quarter of 2019. The reported decline in interest on bonds was partially offset by (i) a decrease in bond related interest expense, which stemmed from a reduction in the UPB of bond related debt as a result of the aforementioned disposition and termination transactions and (ii) 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.

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

Table 10:  Equity in Income from Unconsolidated Funds and Ventures

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Solar Ventures

 

$

3,720

 

$

416

 

$

3,304

U.S. real estate partnerships

 

 

12

 

 

119

 

 

(107)

SAWHF

 

 

244

 

 

292

 

 

(48)

Equity in income from unconsolidated funds and ventures

 

$

3,976

 

$

827

 

$

3,149

 

Equity in income from unconsolidated funds and ventures increased for the Company’s various equity investments for the three months ended March 31, 2019, as compared to that reported for the three months ended March 31, 2018, primarily as a result of an increase in equity in income from the Solar Ventures. Such increase was largely attributable to an increase in equity in income from (i) an increase in loan origination activity at SDL during the first quarter of 2019 and 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 the Company’s former investment partner prior to the Company’s buyout of such interest on June 1, 2018. The favorable impact of these factors was partially offset by (i) the reported decline in equity income from SAWHF, which was attributable to a reduction in the amount of net fair value gains recognized by SAWHF in connection with investment holdings, and (ii) a decrease in equity in income from U.S. real estate partnerships, which was primarily attributable to incremental expense recognized by the joint venture that owns a mixed-use town center development and that was associated with the incremental undeveloped land license fees that were assessed as part of the Company’s infrastructure bond restructuring that occurred during the fourth quarter of 2018. See Notes to the Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.

Net Gains Relating to Bonds, Derivatives and Extinguishment of Liabilities

Net gains may include net realized and unrealized gains 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”).

15


 

Table 11 summarizes Net Gains for the periods presented.

Table 11:  Net Gains

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Net gains on bonds

 

$

3,571

 

$

 —

 

$

3,571

Net (losses) gains on derivatives

 

 

(1,442)

 

 

2,309

 

 

(3,751)

Net losses on extinguishment of liabilities

 

 

(11)

 

 

 —

 

 

(11)

Total Net Gains

 

$

2,118

 

$

2,309

 

$

(191)

 

Net Gains for the three months ended March 31, 2019, decreased compared to those reported for the three months ended March 31, 2018, primarily due to net fair value losses that were driven by a decrease in interest rates that determine the amount of net cash settlements associated with such instruments. The impact of such losses was partially offset by $3.6 million of holding gains that were realized in connection with the sale of bond investments in the first quarter of 2019.

 

Other Interest Expense

Other interest expense represents our cost of funding associated with debt obligations that do not finance our interest earning assets.

Table 12 summarizes other interest expense for the periods presented.

Table 12:  Other Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

    

2019

    

2018

    

Change

Subordinated debt

 

$

(946)

 

$

(719)

 

$

(227)

Notes payable and other debt

 

 

(263)

 

 

(317)

 

 

54

Other interest expense

 

$

(1,209)

 

$

(1,036)

 

$

(173)

 

Other interest expense for the three months ended March 31, 2019, increased compared to that reported for the three months ended March 31, 2018, primarily as a result of an increase in the variable interest rate associated with our subordinated debt.

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.

Table 13 summarizes other expenses for the periods