10-Q 1 mmac-20160331x10q.htm FORM 10-Q 20160331 10Q Q1

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, 2016



OR



 

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

For the transition period from __________________ to __________________



Commission File Number 001-11981

MMA CAPITAL MANAGEMENT, LLC
(Exact name of registrant as specified in its charter)



 

Delaware
(State or other jurisdiction of incorporation or organization)

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

3600 O’Donnell Street, Suite 600

Baltimore, Maryland
(Address of principal executive offices)

21224
(Zip Code)

 

(443) 263-2900
(Registrant's telephone number, including area code)



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



 

Title of each class
Common Shares, no par value

Name of each exchange on which registered
Nasdaq Capital Market



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



 

 

 

 

 



Large accelerated filer

 

Accelerated filer



 

 

 

 

 



Non-accelerated filer

 

Smaller reporting company

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 6,222,913 shares of common shares outstanding at May 5, 2016.





 


 





 

 

 

 

MMA Capital Management, LLC

Table of Contents



 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

1



 

 

 

 

PART I – FINANCIAL INFORMATION

2



 

 

 

 



Item 1.   

Financial Statements

17



 

 

 

 



 

(a)

Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

17



 

 

 

 



 

(b)

Consolidated Statement of Operations for the three months ended March 31, 2016 and 2015

18



 

 

 

 



 

(c)

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and 2015

20



 

 

 

 



 

(d)

Consolidated Statements of Equity for the three months ended March 31, 2016

21



 

 

 

 



 

(e)

Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

22



 

 

 

 



 

(f)

Notes to Consolidated Financial Statements

   24



 

 

 

 



Item 2.

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

2



 

 

 

 



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54



 

 

 

 



Item 4.   

Controls and Procedures

54



 

 

 

 

PART II – OTHER INFORMATION  

56



 

 

 

 



Item 1.

Legal Proceedings

56



 

 

 

 



Item 1A.

Risk Factors

56



 

 

 

 



Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

56



 

 

 

 



Item 3.     

Defaults Upon Senior Securities

56



 

 

 

 



Item 4.   

Mine Safety Disclosures

56



 

 

 

 



Item 5.   

Other Information

56



 

 

 

 



Item 6.  

Exhibits

56



 

 

 

 

SIGNATURES

 

 

S-1



 

 

 

 

EXHIBITS

 

 

E-1



 

 

 

 







 

i


 

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q for the period ending March 31, 2016 (this “Report”) contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future operating or financial performance. 

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  They include the factors discussed in Part 1, Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”).

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. Risk Factors” of the 2015 Form 10-K in evaluating these forward-looking statements.  We have not undertaken to update any forward-looking statements.





1


 



PART I – FINANCIAL INFORMATION

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

Organization

The Company partners with institutional capital to create and manage investments in affordable housing and renewable energy.  The Company operates through three reportable segments – United States (“U.S.”) Operations, International Operations and Corporate Operations. 

U.S. Operations

Our U.S. Operations segment consists of three business lines: Leveraged Bonds, Low-Income Housing Tax Credits (“LIHTC”) and Energy Capital and Other Investments (previously referred to as “Other Investments and Obligations” in the Company’s 2015 Quarterly Reports on Form 10-Q).

In our Leveraged Bonds business line, we primarily own and manage bonds that finance affordable housing and infrastructure in the U.S.  Within this business line, we manage most of the Company’s bonds and associated financings.  The bond portfolio is comprised primarily of multifamily tax-exempt bonds, but also includes other real estate related bond investments. 

In our LIHTC business line, we primarily own and manage limited partner (“LP”) and general partner (“GP”) investments in affordable housing communities in the U.S.  We provide asset management and administrative services to a limited liability company formed by the Company and a commercial bank (“TC Fund I”) and have provided a limited guarantee of the tax credits expected to be generated by TC Fund I’s portfolio of investments.  As part of this business line, we have made other guarantees to third parties related to the receipt of tax credits and the performance of the underlying assets and we have loan receivables from, and an option to purchase, a tax credit asset manager.   

In our Energy Capital and Other Investments business line, our wholly owned subsidiary MMA Energy Capital (“MEC”) provides project capital to develop and build renewable energy systems through a joint venture that we have with an alternative asset manager (our “Solar Joint Venture).  These financing solutions include debt investments to be used as late stage development capital to bring projects through the development phase and into construction, as well as capital to construct these projects and place them in operation.  Within this business line, we also manage our solar and non-solar legacy assets.

International Operations

We manage our International Operations segment through our wholly owned subsidiary, International Housing Solutions  S.à r.l. (“IHS”).  IHS’s strategy is to raise, invest in and manage private real estate funds that invest in residential real estate.  IHS currently manages three funds: the South Africa Workforce Housing Fund SA I (“SAWHF”), which is a multi-investor fund and is fully invested; International Housing Solutions Residential Partners Partnership  1 (“IHS Residential Partners I”), which is a single-investor fund targeted at the emerging middle class in South Africa; and IHS Fund II SA Collector, L.P. and IHS Fund II SSA Collector, L.P. (collectively,  “IHS Fund II”), which are multi-investor funds targeting investments in affordable housing, including green housing projects, within South Africa and Sub-Saharan Africa, respectively.  During the second quarter of 2015, the Company and a South African property management company formed a company in South Africa, IHS Property Management Proprietary Limited (“IHS PM”), to provide property management services to the properties of IHS-managed funds.  MMA owns 60% of IHS PM and the third party property manager owns the remaining 40%. 

Corporate Operations

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

Financial Results

Common shareholders’ equity increased from $116.2 million at December 31, 2015 to $121.5 million at March 31, 2016.  In this regard, the Company reported a 6.8% increase in diluted common shareholders’ equity per share, which increased from $17.43 at December 31, 2015 to $18.62 at March 31, 2016.  The majority of the Company’s reported growth per share, or $1.14 per share, was driven in the first quarter of 2016 from “Equity in income from unconsolidated funds and ventures, net gains on assets and derivatives and a net increase in the fair value of our bond portfolio.  The balance of such growth, or $0.05 per share, was attributable to repurchases during the first quarter of 2016 of our common shares at prices below our book value per share.    

2


 

Balance Sheet Summary – Table 1

The table below summarizes the change in our balance sheet at March 31, 2016 from December 31, 2015.  The balance sheet below presents the assets, liabilities and equity attributable to the noncontrolling interest holders of consolidated funds and ventures (“CFVs”) as separate line items because of the Company’s minimal equity ownership interests in such consolidated entities.    

At March 31, 2016 and December 31, 2015, CFVs were comprised of consolidated property partnerships and certain LIHTC funds in which we guaranteed minimum yields on investment to investors and for which we agree to indemnify the purchaser of our GP interest in such funds from investor claims related to those guarantees (“Guaranteed Funds”).  See Notes to Consolidated Financial Statements –  Note 14,  “Consolidated Funds and Ventures,” for more information.





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

At

 

 

At

 

 

 



 

 

March 31,

 

 

December 31,

 

 

Change for



(in thousands, except per share data)

 

2016

 

 

2015 (4)

 

 

2016



Assets  

 

 

 

 

 

 

 

 

1

Cash and cash equivalents

$

36,941 

 

$

21,843 

 

$

15,098 

2

Restricted cash (without CFVs)

 

21,153 

 

 

17,041 

 

 

4,112 

3

Bonds available for sale

 

192,928 

 

 

218,439 

 

 

(25,511)

4

Investments in partnerships (without CFVs)

 

83,533 

 

 

82,655 

 

 

878 

5

Other assets (without CFVs)

 

36,196 

 

 

39,481 

 

 

(3,285)

6

Assets of CFVs (1)

 

208,284 

 

 

219,612 

 

 

(11,328)

7

Total assets

$

579,035 

 

$

599,071 

 

$

(20,036)



 

 

 

 

 

 

 

 

 



Liabilities and Noncontrolling Equity

 

 

 

 

 

 

 

 

9

Debt (without CFVs)

$

218,273 

 

$

232,212 

 

$

(13,939)

10

Accounts payable and accrued expenses

 

3,516 

 

 

5,001 

 

 

(1,485)

11

Other liabilities (without CFVs) (1)

 

21,115 

 

 

19,318 

 

 

1,797 

12

Liabilities of CFVs

 

47,034 

 

 

46,319 

 

 

715 

13

Noncontrolling equity related to CFVs (2)

 

167,519 

 

 

180,020 

 

 

(12,501)

14

Noncontrolling equity related to IHS PM (3)

 

75 

 

 

31 

 

 

44 

15

Total liabilities and noncontrolling equity

$

457,532 

 

$

482,901 

 

$

(25,369)



 

 

 

 

 

 

 

 

 

16

Common Shareholders' Equity

$

121,503 

 

$

116,170 

 

$

5,333 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

17

Common shares outstanding

 

6,480 

 

 

6,589 

 

 

(109)

18

Common shareholders' equity per common share

$

18.75 

 

$

17.63 

 

$

1.12 



 

 

 

 

 

 

 

 

 

19

Diluted common shareholders' equity

$

127,286 

 

$

121,117 

 

$

6,169 

20

Diluted common shares outstanding

 

6,835 

 

 

6,948 

 

 

(113)

21

Diluted common shareholders' equity per common share

$

18.62 

 

$

17.43 

 

$

1.19 



(1)

Assets of CFVs exclude $10.1 million and $10.4 million as of March 31, 2016 and December 31, 2015, respectively, of net assets; and other liabilities of MMA exclude $10.1 million and $10.4 million as of March 31, 2016 and December 31, 2015, respectively, of net liabilities.  These assets and liabilities were eliminated in consolidation and primarily represent prepaid guarantee fees (CFVs) and deferred guarantee fees (MMA).

(2)

Represents the amount of equity attributable to noncontrolling interest holders in the CFVs and reported through Noncontrolling interests in CFVs on the Company’s Consolidated Balance Sheets.

(3)

Represents the amount of equity balance attributable to the noncontrolling interest holder in IHS PM reported through Noncontrolling interests in CFVs and IHS PM on the Company’s Consolidated Balance Sheets.

(4)

Certain amounts have been revised.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for more information.





3


 

Common Shareholders’ Equity – Table 2

The table below summarizes the changes in common shareholders’ equity for the periods presented:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015 (1)

 

Change

1

Net income allocable to common shareholders (see Table 3)

 

$

16,605 

 

$

162 

 

$

16,443 

2

Other comprehensive (loss) income allocable to common
shareholders (see Table 4)

 

 

(9,685)

 

 

1,443 

 

 

(11,128)

3

Other changes in common shareholders' equity (see Table 5)

 

 

(1,587)

 

 

(586)

 

 

(1,001)

4

Net change in common shareholders' equity

 

$

5,333 

 

$

1,019 

 

$

4,314 



 

 

 

 

 

 

 

 

 

 

(1)

Certain amounts have been revised.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for more information.    

Net Income to Common Shareholders – Table 3

The table below summarizes net income allocable to common shareholders for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015 (1)

 

Change

1

Net interest income (see Table 6)

 

$

3,142 

 

$

4,293 

 

$

(1,151)

2

Fee and other income (see Table 7)

 

 

2,539 

 

 

3,441 

 

 

(902)



Operating and other expenses:

 

 

 

 

 

 

 

 

 

3

    Other interest expense (see Table 8)

 

 

(1,042)

 

 

(3,196)

 

 

2,154 

4

    Operating expenses (see Table 9)

 

 

(6,263)

 

 

(5,386)

 

 

(877)

5

Net gains on assets and derivatives (see Table 10)

 

 

3,093 

 

 

1,568 

 

 

1,525 

6

Net gains transferred into net income from AOCI
   due to real estate foreclosure (see Table 4)

 

 

11,442 

 

 

 ─

 

 

11,442 

7

Equity in income from unconsolidated funds and ventures

 

 

4,461 

 

 

73 

 

 

4,388 

8

Net loss allocated to common shareholders related to CFVs
(see Table 11)

 

 

(735)

 

 

(638)

 

 

(97)

9

Net income allocated to IHS PM minority interest holder (see
Table 11)

 

 

(43)

 

 

 ─

 

 

(43)

10

Net income (loss) to common shareholders from continuing
   operations before income taxes

 

 

16,594 

 

 

155 

 

 

16,439 

11

Income tax expense

 

 

(72)

 

 

(71)

 

 

(1)

12

Net income to common shareholders from discontinued
   operations, net of tax

 

 

83 

 

 

78 

 

 

13

Net income allocable to common shareholders

 

$

16,605 

 

$

162 

 

$

16,443 

(1)

Certain amounts have been revised.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for more information.    



4


 

Other Comprehensive Income Allocable to Common Shareholders – Table 4

The table below summarizes other comprehensive (loss) income that is allocable to common shareholders for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015 (1)

 

Change



Bond related activity:

 

 

 

 

 

 

 

 

 

1

Increase in bond values due to market conditions

 

$

2,662 

 

$

1,077 

 

$

1,585 

2

Increase in AOCI due to equity in losses from lower tier
property partnerships ("LTPPs") (see Table 11)

 

 

1,129 

 

 

969 

 

 

160 

3

Reclassification of net unrealized gains on sold bonds
into net income

 

 

(2,055)

 

 

(471)

 

 

(1,584)

4

Reclassification of unrealized bonds gains into net income
   due to foreclosure on mortgaged property (see Table 3)

 

 

(11,442)

 

 

 ─

 

 

(11,442)

5

Other comprehensive (loss) income related to bond activity

 

 

(9,706)

 

 

1,575 

 

 

(11,281)

6

Foreign currency translation adjustment

 

 

21 

 

 

(132)

 

 

153 

7

Other comprehensive (loss) income allocable to common shareholders

 

$

(9,685)

 

$

1,443 

 

$

(11,128)

(1)

Certain amounts have been revised.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for more information.    

Other comprehensive (loss) income allocable to common shareholders for the three months ended March 31, 2016 declined compared to amounts reported for the three months ended March 31, 2015 primarily due to the reclassification in the first quarter of 2016 of $11.4 million of unrealized gains into our Consolidated Statement of Operations that was triggered when the Company foreclosed upon, and subsequently sold, a multifamily property that secured a nonperforming bond investment.

Other Changes in Common Shareholders’ Equity – Table 5

The table below summarizes other changes in common shareholders’ equity for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Common share repurchases

 

$

(1,768)

 

$

(568)

 

$

(1,200)

2

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

 

 

 ─

 

 

(159)

 

 

159 

3

Director and employee share awards

 

 

181 

 

 

141 

 

 

40 

4

Other changes in common shareholders' equity

 

$

(1,587)

 

$

(586)

 

$

(1,001)

Other changes in common shareholders’ equity as reported for the three months ended March 31, 2016 declined compared to that reported for the three months ended March 31, 2015 primarily as a result of the Company repurchasing 120,761 shares at an average price of $14.64 resulting in a reduction to common shareholders’ equity of $1.8 million during the first quarter of 2016.  This caused our equity per diluted common share outstanding to increase by $0.05 during the first quarter of 2016.

Consolidated Results of Operations

The following discussion of our consolidated results of operations 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.



5


 

Net interest income – Table 6

The following table summarizes our net interest income for the periods presented: 





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015 (1)

 

Change



Interest income:

 

 

 

 

 

 

 

 

 

1

    Interest on bonds

 

$

3,254 

 

$

4,026 

 

$

(772)

2

    Interest on loans and short-term investments

 

 

437 

 

 

741 

 

 

(304)

3

         Total interest income

 

 

3,691 

 

 

4,767 

 

 

(1,076)



Asset related interest expense:

 

 

 

 

 

 

 

 

 

4

    Bond related debt

 

 

(295)

 

 

(326)

 

 

31 

5

    Notes payable and other debt, non-bond related

 

 

(254)

 

 

(148)

 

 

(106)

6

         Total interest expense

 

 

(549)

 

 

(474)

 

 

(75)

7

Net interest income

 

$

3,142 

 

$

4,293 

 

$

(1,151)

(1)

Certain amounts have been revised.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for more information.    

Net interest income reported for the three months ended March 31, 2016 declined compared to that reported for the three months ended March 31, 2015 primarily as a result of (i) the sale or redemption of certain bond holdings after the first quarter of 2015, (ii) the full redemption of a bridge loan in the second quarter of 2015 and (iii) a decrease in the amount of unscheduled principal payments received on two bond investments received during the three months ended March 31, 2016 compared to that received for the three months ended March 31, 2015    

Fee and Other Income – Table 7

The following table summarizes our fee and other income for the periods presented:    



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Income on preferred stock investment

 

$

 ─

 

$

1,297 

 

$

(1,297)

2

Asset management fees and reimbursements

 

 

1,892 

 

 

1,421 

 

 

471 

3

Other income

 

 

647 

 

 

723 

 

 

(76)

4

Fee and other income

 

$

2,539 

 

$

3,441 

 

$

(902)

Fee and other income reported for the three months ended March 31, 2016 declined compared to that reported for the three months ended March 31, 2015 primarily as a result of the redemption of the Company’s investment in preferred stock in the fourth quarter of 2015.    This decline was partially offset by a corresponding increase in asset management fees and reimbursements that was driven primarily by $0.3 million in reimbursements that was received in the first quarter of 2016 from our Solar Joint Venture.   

Other interest expense – Table 8

The following table summarizes our other interest expense for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Subordinated debt

 

$

(1,042)

 

$

(2,652)

 

$

1,610 

2

Notes payable and other debt

 

 

 ─

 

 

(544)

 

 

544 

3

Other interest expense

 

$

(1,042)

 

$

(3,196)

 

$

2,154 

Other interest expense represents interest expense associated with debt that does not finance interest-bearing assets.  Amounts reported for the three months ended March 31, 2016 declined compared to that reported for the three months ended March 31, 2015 primarily as a result of a decrease in our cost of funding associated with MMA Financial Holdings, Inc. (“MFH”) subordinated debt, which was restructured during the second quarter of 2015.  The reported decline in other interest expense was also partially attributable to the paydown of certain debt outstanding that was used to fund the Company’s investment in preferred stock, which was redeemed in full in the fourth quarter of 2015.      

6


 

Operating Expenses – Table 9

The following table summarizes our operating expenses for the periods presented:    





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Salaries and benefits

 

$

(4,080)

 

$

(3,272)

 

$

(808)

2

General and administrative

 

 

(700)

 

 

(863)

 

 

163 

3

Professional fees

 

 

(1,435)

 

 

(1,144)

 

 

(291)

4

Other expenses

 

 

(48)

 

 

(107)

 

 

59 

5

Operating expenses

 

$

(6,263)

 

$

(5,386)

 

$

(877)

Operating expenses reported for the three months ended March 31, 2016 increased compared to that reported for the three months ended March 31, 2015 primarily due to (i) a $0.4 million increase in stock-based compensation expense that was driven by an increase in the market price for the Company’s common stock and (ii) a $0.3 million increase in cash-based compensation expense that was driven by an increase in employee headcount.  Such increase was also partially attributable to professional fees, which increased primarily as a result of incremental audit fees that were incurred in the first quarter of 2016 in connection with the Company’s change in reporting status as an accelerated filer that required our independent registered accountant to issue an audit report on the effectiveness on our internal controls over financial reporting at December 31, 2015.    

Net Gains on Assets, Derivatives and Extinguishment of Liabilities – Table 10

The following table summarizes our net gains on assets and derivatives for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Net gains on bonds

 

$

2,295 

 

$

583 

 

$

1,712 

2

Net gains on loans

 

 

 ─

 

 

 ─

 

 

 ─

3

Net gains on derivatives

 

 

667 

 

 

985 

 

 

(318)

4

Net gains on real estate

 

 

116 

 

 

 ─

 

 

116 

5

Net gains on other assets

 

 

15 

 

 

 ─

 

 

15 

6

Net gains on assets and derivatives

 

$

3,093 

 

$

1,568 

 

$

1,525 

Net gains on assets and derivatives that were reported for the three months ended March 31, 2016 increased compared to that reported for the three months ended March 31, 2015 primarily due to net gains associated with the sale or redemption of two investments in bonds during the first quarter of 2016.     

Net Loss from CFVs Allocable to Common Shareholders – Table 11

The table below summarizes the allocable net loss related to funds and ventures that were consolidated for the periods presented:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

1

Revenue from CFVs

 

$

819 

 

$

67 

 

$

752 

2

Expense from CFVs

 

 

(8,368)

 

 

(9,316)

 

 

948 

3

Equity in losses from LTPPs of CFVs

 

 

(5,686)

 

 

(5,693)

 

 

4

Net loss from CFVs

 

 

(13,235)

 

 

(14,942)

 

 

1,707 

5

Net loss from CFVs allocable to noncontrolling
   interest in CFVs (1)

 

 

12,500 

 

 

14,304 

 

 

(1,804)

6

Net loss from CFVs allocable to common shareholders

 

$

(735)

 

$

(638)

 

$

(97)

(1)

Excludes $43 of net gain allocable to the minority interest holder in IHS PM for the three months ended March 31, 2016.  These amounts are excluded from this presentation because IHS PM related activity is not included within lines 1 through 4 above.  There were no losses allocable to the minority interest holder in IHS PM for the three months ended March 31, 2015.    

As reported in the table that follows, the net loss from CFVs that is allocable to common shareholders that was reported in the preceding table for the three months ended March 31, 2016 increased compared to that reported in the preceding table for the three months ended March 31, 2015 primarily as a result of additional equity losses from LTPPs in the first quarter of 2016.  This increase in net losses was partially offset by equity in income from consolidated property partnerships associated with a direct real estate

7


 

investment that the Company acquired on December 31, 2015.





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

For the three months ended

 

 

 



 

 

March 31,

 

 

 



(in thousands)

 

2016

 

2015

 

Change

7

Guarantee fees

 

$

331 

 

$

331 

 

$

 ─

8

Equity in losses from LTPPs

 

 

(1,129)

 

 

(969)

 

 

(160)

9

Equity in income from consolidated property partnerships

 

 

63 

 

 

 ─

 

 

63 

10

Net loss from CFVs allocable to common shareholders

 

$

(735)

 

$

(638)

 

$

(97)



Liquidity and Capital Resources



Our principal sources of liquidity include cash and cash equivalents and cash flows from operating and investing activities.  At March 31, 2016 and December 31, 2015, we had unrestricted cash and cash equivalents of $36.9 million and $21.8 million, respectively, and we believe we have sufficient liquidity to meet our obligations as they become due.



For the periods presented, we consolidated certain funds and ventures for financial reporting purposes and therefore we reflected the cash flow activities for those funds and ventures as part of our Consolidated Statements of Cash Flow.  As reported on our Consolidated Balance Sheets, the cash held by these CFVs was reported in “Restricted cash,”  rather than as cash and cash equivalents because the Company does not have legal title to this cash.  Therefore, the net increase to unrestricted cash and cash equivalents is representative of the change only to MMA’s cash balances excluding cash balances that pertain to CFVs.   However, the individual operating, investing and financing categories present cash flow activity for both MMA and the CFVs on a consolidated basis



The tables below provide the cash activity related to both MMA and the CFVs:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the three months ended March 31, 2016

(in thousands)

 

MMA

 

CFVs

 

Total

Unrestricted cash and cash equivalents at beginning of period

 

$

21,843 

 

$

 ─

 

$

21,843 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

Operating activities

 

 

2,346 

 

 

175 

 

 

2,521 

Investing activities

 

 

23,745 

 

 

(168)

 

 

23,577 

Financing activities

 

 

(10,993)

 

 

(7)

 

 

(11,000)

Net increase (decrease) in cash and cash equivalents

 

 

15,098 

 

 

 ─

 

 

15,098 

Cash and cash equivalents at end of period

 

$

36,941 

 

$

 ─

 

$

36,941 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the three months ended March 31, 2015

(in thousands)

 

MMA

 

CFVs

 

Total

Unrestricted cash and cash equivalents at beginning of period

 

$

29,619 

 

$

 ─

 

$

29,619 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

 

Operating activities

 

 

(2,088)

 

 

443 

 

 

(1,645)

Investing activities

 

 

(1,354)

 

 

(443)

 

 

(1,797)

Financing activities

 

 

4,106 

 

 

 ─

 

 

4,106 

Net increase (decrease) in cash and cash equivalents

 

 

664 

 

 

 ─

 

 

664 

Cash and cash equivalents at end of period

 

$

30,283 

 

$

 ─

 

$

30,283 



8


 

Operating activities

The following table provides information about cash flows associated with operating activities of MMA:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the three months ended

 

 

 



 

March 31,

 

 

 

(in thousands)

 

2016

 

2015

 

Change

Interest income

 

$

5,014 

 

$

5,052 

 

$

(38)

Distributions received from investments in partnerships

 

 

3,678 

 

 

 ─

 

 

3,678 

Preferred stock dividends received

 

 

 ─

 

 

1,326 

 

 

(1,326)

Asset management fees received

 

 

1,025 

 

 

216 

 

 

809 

Other income

 

 

499 

 

 

158 

 

 

341 

Interest paid

 

 

(1,102)

 

 

(1,844)

 

 

742 

Salaries and benefits

 

 

(5,766)

 

 

(4,979)

 

 

(787)

General and administrative

 

 

(573)

 

 

(774)

 

 

201 

Professional fees

 

 

(636)

 

 

(1,062)

 

 

426 

Other expenses

 

 

(168)

 

 

(404)

 

 

236 

Other

 

 

375 

 

 

223 

 

 

152 

Net cash provided by (used in) operating activities

 

$

2,346 

 

$

(2,088)

 

$

4,434 

Cash flows provided by operating activities during the three months ended March 31, 2016 increased by $4.4 million compared to that reported for the three months ended March 31, 2015.

During the first quarter of 2016, we received $3.7 million of distributions from investments in partnerships, including $2.6 million as a result of the sale of real estate that was owned by a partnership in which the Company held a 50% limited partner interest and $1.1 million that the Company received from the Solar Joint Venture.

For the three months ended March 31, 2016, asset management fees received increased $0.8 million, primarily as a result of asset management fees received from the Solar Joint Venture and IHS funds.  Also, net cash used in operating activities attributable to interest paid decreased $0.7 million as a result of the redemption of Company debt obligations during 2015.

Increase of cash flows from operating activities were partially offset by a $1.3 million decrease in preferred stock dividends received as a result of the Company’s interest in the preferred stock being fully redeemed during the fourth quarter of 2015.  The Company also experienced a $0.8 million increase in cash used in operating activities attributable to salaries and benefits.  This increase was primarily a result of higher employee incentive compensation paid by the Company in the first quarter of 2016, as well as due to the hiring of new employees associated with our Energy Capital and Other Investment business line.  

9


 

Investing activities

The following table provides information about cash flows associated with investing activities of MMA:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the three months ended

 

 

 



 

March 31,

 

 

 

(in thousands)

 

2016

 

2015

 

Change

Principal payments and sales proceeds received on bonds and loans

 

$

16,828 

 

$

1,369 

 

$

15,459 

Investments in property partnerships and real estate

 

 

(670)

 

 

(436)

 

 

(234)

Proceeds from the sale of real estate and other investments

 

 

17,804 

 

 

 

 

17,801 

Advances on and originations of loans held for investment

 

 

(6,294)

 

 

 ─

 

 

(6,294)

Decrease in restricted cash

 

 

(4,065)

 

 

(2,303)

 

 

(1,762)

Capital distributions received from investments in partnerships

 

 

142 

 

 

13 

 

 

129 

Net cash provided by (used in) investing activities

 

$

23,745 

 

$

(1,354)

 

$

25,099 

Cash flows provided by investing activities during the three months ended March 31, 2016 increased by $25.1 million compared to that reported for the three months ended March 31, 2015.

During the first quarter of 2016, the Company foreclosed upon, and subsequently sold, a multifamily property that secured a nonperforming bond investment.  The Company received net proceeds of $17.4 million in connection with its sale, which is the primary driver behind the $17.8 million increase in proceeds from the sale of real estate and other investments.  Additionally, the Company experienced a $15.5 million increase in principal payments and sales proceeds received on bonds and loans, that was primarily attributable to (i) $6.9 million received to fully redeem a loan to the aforementioned real estate property partnership in which the Company held a 50% limited partner interest, (ii) $5.5 million collected on a defaulted bond sold during the first quarter of 2016 and (iii) $3.7 million of principal payments on two bonds that were a part of total return swap financing agreements during the first quarter of 2015.  

Increases to cash flows from investing activities were partially offset by cash used for originations of loans held for investment during the first quarter of 2016 in the amount of $6.1 million.  The Company also experienced a decrease in restricted cash of $4.1 million for the three months ended March 31, 2016 compared to a decrease of $2.3 million for the three months ended March 31, 2015. 

Financing activities



The following table provides information about cash flows associated with financing activities of MMA:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the three months ended

 

 

 



 

March 31,

 

 

 

(in thousands)

 

2016

 

2015

 

Change

Proceeds from borrowing activity

 

$

 ─

 

$

17,475 

 

$

(17,475)

Repayment of borrowings

 

 

(9,225)

 

 

(12,714)

 

 

3,489 

Purchase of treasury stock

 

 

(1,768)

 

 

(568)

 

 

(1,200)

Payment of debt issuance costs

 

 

 ─

 

 

(87)

 

 

87 

Net cash (used in) provided by financing activities

 

$

(10,993)

 

$

4,106 

 

$

(15,099)

Cash flows used in financing activities during the three months ended March 31, 2016 increased by $15.1 million compared to that reported for the three months ended March 31, 2015.

The increase in cash used in financing activities was primarily due to $17.5 million of proceeds generated from total return swap financing arrangements that were entered into during the first quarter of 2015.  Additionally, cash used by the Company for the purchase of treasury stock increased by $1.2 million for the three months ended March 31, 2016. 

These increases in cash flows used in financing activities were partially offset by a $3.5 million decrease in cash used for the repayment of borrowings.  Such decrease was primarily the result of $8.5 million of cash used to terminate total return swap financing arrangements during the first quarter of 2016 as compared to $11.6 million of cash used to terminate total return swaps during the first quarter of 2015.

Off-Balance Sheet Arrangements

At March  31, 2016, the Company had a $13.0 million subordinated loan receivable from the tax credit asset manager to whom we provided financing in connection with the sale of a portion of our LIHTC business.  This loan is not recognized for financial statement purposes because the related conveyance did not qualify as a sale for financial reporting purposes.  During the second quarter of 2015, the tax credit asset manager repaid $2.9 million of the financing that we provided, which reduced the unpaid principal balance

10


 

(“UPB”) of this off-balance sheet receivable to $13.0 million.  We reported cash collected as a deferred gain that we classified as a component of “Other liabilities” in our Consolidated Balance Sheets. 



Interest collected during the three months ended March 31, 2016 and 2015 on the seller financing was $0.4 million and $0.3 million, respectively, which was recorded as a deferred gain through “Other liabilities” in the Consolidated Balance Sheets.



At March 31, 2016, the cumulative amount of the deferred gain on the seller financing that is recognized in the Consolidated Balance Sheets as a component of “Other liabilities” was $5.6 million (which is comprised of  $2.9 million of principal payments and $2.7 million of interest payments that have been received since the origination of such financing).



Debt



The table that follows below summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at March 31, 2016.  See Notes to Consolidated Financial Statements –  Note 5, “Debt,” for more information.





 

 

 

 

 

 



 

 

 

 

 

 



 

At



 

March 31, 2016



 

 

 

 

Weighted-Average



 

Carrying

 

Effective Interest 

(dollars in thousands)

 

Value

 

Rate

Asset Related Debt (1)

 

 

 

 

 

 

Notes payable and other debt – bond related

 

$

79,211 

 

1.8 

%

Notes payable and other debt – non-bond related debt

 

 

7,408 

 

11.3 

 

Total asset related debt

 

 

86,619 

 

2.6 

 



 

 

 

 

 

 

Other Debt (2)

 

 

 

 

 

 

Subordinated debt

 

 

131,654 

 

3.2 

 

Total other debt

 

 

131,654 

 

3.2 

 



 

 

 

 

 

 

Total asset related debt and other debt

 

 

218,273 

 

3.0 

 



 

 

 

 

 

 

Debt related to CFVs (3)

 

 

9,870 

 

5.1 

 



 

 

 

 

 

 

Total debt

 

$

228,143 

 

3.1 

 



(1)

Asset related debt is debt that finances interest-bearing assets.  The interest expense from this debt is included in “Net interest income” on the Consolidated Statements of Operations. 

(2)

Other debt is debt that does not finance interest-bearing assets.  The interest expense from this debt is included in Interest expense under Operating and other expenses on the Consolidated Statements of Operations.

(3)

See Notes to Consolidated Financial Statements – Note 14, “Consolidated Funds and Ventures,” for more information.



Asset Related Debt

Notes Payable and Other Debt – Bond Related

These debt obligations pertain to bonds that are classified as available-for-sale and that were financed by the Company through total return swaps.  See Notes to Consolidated Financial Statements – Note 5, “Debt,” for more information. 



Notes Payable and Other Debt – Non-Bond Related

At March 31, 2016, this debt obligation relates primarily to amounts recognized by the Company in connection with a conveyance of solar loans to the Solar Joint Venture.  See Notes to Consolidated Financial Statements – Note 5, “Debt,” for more information. 



11


 

Other Debt

Subordinated debt

At March  31, 2016, the Company had subordinated debt with a UPB of $122.6 million and carrying value of $131.7 million.  The weighted average yield of this debt was 3.2%.  The carrying value of this debt includes $11.8 million of net premiums that will amortize into net interest income as a reduction to debt expense over the life of the debtThese impacts will be offset by $2.7 million of unamortized debt issuance costs that will amortize as an increase to interest expense over the remaining life of the debt. 



Debt Related to CFVs



At March 31, 2016, debt related to CFVs includes a $6.7 million debt obligation of one of the Guaranteed Funds that we consolidate for reporting purposes.  At March 31, 2016, the carrying value of this debt, which is due on demand, equals its UPB and its weighted average effective interest rate is 5.5%. 



The remaining $3.2 million of debt related to CFVs relates to two consolidated property partnerships and had a face amount of $2.8 million as of March 31, 2016This debt has a weighted average effective interest rate at March 31, 2016 of 4.3% and has various maturity dates that run through May 1, 2039. 

Covenant Compliance and Debt Maturities

At March 31, 2016, the Company was in compliance with all covenants under its debt arrangements.   

Guarantees

The Company has guaranteed minimum yields on investment to investors in 11 Guaranteed Funds that are consolidated for reporting purposes along with two additional Guaranteed Funds that are not consolidated for reporting purposes.  The Company may have to perform under such guarantees for losses resulting from recapture of tax credits due to foreclosure or difficulties in reaching occupancy milestones with respect to the LTPPs in which the Guaranteed Funds are invested.  Guarantees and indemnifications that relate to the 11 Guaranteed Funds that the Company consolidated for reporting purposes will expire in full by the end of 2027 while the balance of the Company’s indemnifications associated with Guaranteed Funds will expire by December 31, 2017.    



On December 29, 2015, as part of TC Fund I’s acquisition of a portfolio of limited partnership investments, MuniMae TEI Holdings, LLC (“TEI”) agreed to annually make mandatory loans to TC Fund I for distribution to the bank involved in this transaction in the amount of 95% of the excess, if any, of the projected tax credits for years 2016 to 2020 over the tax credits actually allocated to the bank.  In addition, until December 31, 2025, TEI agreed to make mandatory loans to TC Fund I for distribution to the bank in the amount of tax credits previously claimed from 2016 to 2020 that are subsequently recaptured or otherwise reduced or lost, together with associated costs.  Mandatory loans are limited in amount to 70% of projected tax credits in any year ($109.6 million of total maximum exposure) and may be subject to certain other limitations. In addition to these limitations, the bank will absorb 5% of any loss of tax credits.  On this basis, the Company recognized a $4.2 million liability in connection with TEI’s mandatory loan performance obligation.   At March 31, 2016, the Company had $4.1 million of unamortized fees related to the mandatory loan performance obligation.  If the Company were ever required to make a mandatory loan to TC Fund I, the Company would have the right to recover such payment to the extent there were available cash flows from TC Fund I to provide for such reimbursement.



As of March 31, 2016, the Company has not made any payments in connection with any of the aforementioned guarantees.  However, in the first quarter of 2016, the Company, as bondholder, foreclosed upon, and subsequently sold, the property owned by an LTPP in which one of the 11 Guaranteed Funds is an LP investor.  As a result,  the Company anticipates making a  guarantee payment that, as of March 31, 2016, was estimated to be $1.0 million. 







12


 

The following table provides information about the maximum exposure associated with the Company’s guarantee and indemnification agreements that we executed in connection with Guaranteed Funds, TC Fund I and certain LTPPs:





 

 

 

 

 

 



 

 

 

 

 

 



 

At



 

March 31, 2016



 

Maximum

 

Carrying

(in thousands)

 

Exposure (1)

 

Amount

Guaranteed Funds (2)

 

$

490,843 

 

$

385 

TC Fund I

 

 

109,599 

 

 

4,122 

LTPPs

 

 

1,223 

 

 

63 

(1)

The Company’s maximum exposure represents the maximum loss the Company could potentially incur under such agreements, but is not indicative of the likelihood of expected loss under such agreements.

(2)

The maximum exposure includes $482.7 million related to the 11 Guaranteed Funds we consolidated at March 31, 2016.  As further discussed in Notes to Consolidated Financial Statements - Note 9, “Guarantees and Collateral,” and as of March 31, 2016,  the Company had $10.5 million of unamortized fees related to indemnifications associated with the 11 Guaranteed Funds



Company Capital



Common Shares



On December 14, 2015, the Board authorized a 2016 share repurchase program (“2016 Plan”) for up to 0.6 million shares and on December 31, 2015, the Company adopted a further Rule 10b5-1 Plan implementing the Board’s authorization.  During the first quarter of 2016, the Company repurchased 0.1 million shares at an average price of $14.64.  Between April 1, 2016 and May 5, 2016, we repurchased 0.2 million shares at an average price of $16.22.    As of May 5, 2016, the Company had repurchased 0.3 million shares at an average of $15.59 since the 2016 Plan’s inception.  The maximum price at which management is authorized to purchase shares is $18.62 per share. 



Dividend Policy



The Board makes determinations regarding dividends based on management’s recommendation, which is based on an evaluation of a number of factors, including our common shareholders’ equity, business prospects and available cash.  We do not expect to pay a dividend for the foreseeable future.



Tax Benefits Rights Agreement



Effective May 5, 2015, the Company adopted a Rights Plan designed to help preserve the Company’s net operating losses (“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 a period of five years, or until the Board determines the plan is no longer required, whichever comes first.  See Income Taxes section below for more information regarding our NOLs



As of March 31, 2016, there was one shareholder whose ownership interest in the Company exceeded 4.9% (5.5%).  However, the aforementioned provision in which all existing shareholders other than the new holder with ownership greater than 4.9% would be provided the opportunity to acquire new shares for a nominal cost was not triggered because this shareholder’s ownership stake grew to exceed the 4.9% threshold as a result of actions taken by the Company to repurchase its own shares as opposed to actions taken by the shareholder to acquire additional shares.



13


 

Bond Portfolio



The table below provides key metrics related to all bonds in which we have an economic interest, including bonds that are not recognized for financial statement purposes but for which the Company maintains economic risks and rewards through total return swaps that the Company accounts for as derivatives as of March 31, 2016See Notes to Consolidated Financial Statements – Note 6, “Derivative Instruments” for more information about total return swaps that are accounted for as derivative instruments.