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FAIR VALUE (Tables)
 6 Months Ended
Jun. 30, 2019
Fair Value  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

Fair Value Measurements

(in thousands)

    

2019

    

Level 1

    

Level 2

    

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investments in debt securities

 

$

35,236

 

$

 ─

 

$

 ─

 

$

35,236

Derivative instruments

 

 

1,008

 

 

 ─

 

 

1,008

 

 

 ─

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

Fair Value Measurements

(in thousands)

    

2018

    

Level 1

    

Level 2

    

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investments in debt securities

 

$

97,190

 

$

 ─

 

$

 ─

 

$

97,190

Derivative instruments

 

 

5,797

 

 

 ─

 

 

4,667

 

 

1,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

Investments in

 

Derivative

(in thousands)

    

Debt Securities

    

Assets

Balance, April 1, 2019

 

$

81,102

 

$

776

Net losses included in earnings

 

 

 ─

 

 

(42)

Net change in AOCI (1) 

 

 

(21,063)

 

 

 ─

Impact from sales/redemptions

 

 

(24,779)

 

 

 ─

Impact from settlements (2)

 

 

(24)

 

 

(734)

Balance, June 30, 2019

 

$

35,236

 

$

 ─

(1)

This amount includes the reclassification into the Consolidated Statements of Operations of $20.7 million of net fair value gains related to bonds that were sold or redeemed during this reporting period and $0.4 million of net unrealized losses recognized during this reporting period.

(2)

This impact considers the effect of principal payments received and amortization of cost basis adjustments.

The following table provides information about the amount of realized and unrealized gains (losses) that were reported in the Company’s Consolidated Statements of Operations for the three months ended June 30, 2019 related to activity presented in the preceding table:

 

 

 

 

 

 

 

 

 

Net gains on

 

Net gains on

(in thousands)

    

bonds (1)

    

derivatives (2)

Net change in unrealized losses related to assets and liabilities held at April 1, 2019 but settled during the second quarter of 2019

 

$

 ─

 

$

(42)

Additional realized gains recognized

 

 

20,693

 

 

 4

Total net gains (losses) reported in earnings

 

$

20,693

 

$

(38)

(1)

Amounts are classified as “Net gains on bonds” in the Company’s Consolidated Statements of Operations.

(2)

Amounts are classified as “Net (losses) gains on derivatives” in the Company’s Consolidated Statements of Operations.

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the three months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

in Debt

 

Derivative

 

Derivative

(in thousands)

    

Securities

    

Assets

    

Liabilities

Balance, April 1, 2018

 

$

157,824

 

$

2,250

 

$

(48)

Net gains included in earnings

 

 

 ─

 

 

497

 

 

 4

Net change in AOCI (1) 

 

 

4,465

 

 

 ─

 

 

 ─

Impact from settlements (2)

 

 

(28)

 

 

 ─

 

 

 ─

Balance, June 30, 2018

 

$

162,261

 

$

2,747

 

$

(44)

(1)

This amount represents $4.5 million of net unrealized holding gains recognized during the period.

(2)

This impact considers the effect of principal payments received and amortization of cost basis adjustments.

The following table provides information about the amount of realized and unrealized gains that were reported in the Company’s Consolidated Statements of Operations for the three months ended June 30, 2018, related to activity presented in the preceding table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net losses on

 

Net gains on

(in thousands)

    

bonds (1)

    

derivatives (2)

Change in unrealized gains related to assets and liabilities held at June 30, 2018

 

$

 ─

 

$

501

Additional realized gains recognized

 

 

 ─

 

 

591

Total net gains reported in earnings

 

$

 ─

 

$

1,092

(1)

Amounts are classified as “Impairments” in the Company’s Consolidated Statements of Operations.

(2)

Amounts are classified as “Net (losses) gains on derivatives” in the Company’s Consolidated Statements of Operations.

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the six months ended June 30, 2019:

 

 

 

 

 

 

 

 

    

Investments

    

 

 

 

 

in Debt

 

Derivative

(in thousands)

    

Securities

    

Assets

Balance, January 1, 2019

 

$

97,190

 

$

1,130

Net losses included in earnings

 

 

 ─

 

 

(195)

Net change in AOCI (1) 

 

 

(24,228)

 

 

 ─

Impact from sales/redemptions

 

 

(37,369)

 

 

 ─

Impact from settlements (2)

 

 

(357)

 

 

(935)

Balance, June 30, 2019

 

$

35,236

 

$

 ─

(1)

This amount includes the reclassification into the Consolidated Statements of Operations of $24.3 million of net fair value gains related to bonds that were sold or redeemed during this reporting period.

(2)

This impact considers the effect of principal payments received and amortization of cost basis adjustments.  Included in this amount is $0.3 million of cumulative transition adjustment to retained earnings that was recognized in connection with the Company’s adoption of ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-10):  Premium Amortization on Purchased Callable Debt Securities” on January 1, 2019.

The following table provides information about the amount of realized and unrealized gains (losses) that were reported in the Company’s Consolidated Statements of Operations for the six months ended June 30, 2019, related to activity presented in the preceding table:

 

 

 

 

 

 

 

 

    

Net gains on

    

Net losses on

(in thousands)

    

bonds (1)

    

derivatives (2)

Change in unrealized losses related to assets and liabilities held at January 1, 2019, but settled during 2019

 

$

 ─

 

$

(195)

Additional realized gains recognized

 

 

24,264

 

 

152

Total net gains (losses) reported in earnings

 

$

24,264

 

$

(43)

(1)

Amounts are classified as “Net gains on bonds” in the Company’s Consolidated Statements of Operations.

(2)

Amounts are classified as “Net (losses) gains on derivatives” in the Company’s Consolidated Statements of Operations.

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the six months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

    

Investments

    

 

 

    

 

 

 

 

in Debt

 

Derivative

 

Derivative

(in thousands)

    

Securities

    

Assets

    

Liabilities

Balance, January 1, 2018

 

$

143,604

 

$

2,347

 

$

(46)

Net (losses) gains included in earnings

 

 

(6)

 

 

400

 

 

 2

Net change in AOCI (1) 

 

 

983

 

 

 ─

 

 

 ─

Impact from deconsolidation

 

 

17,997

 

 

 ─

 

 

 ─

Impact from settlements (2)

 

 

(317)

 

 

 ─

 

 

 ─

Balance, June 30, 2018

 

$

162,261

 

$

2,747

 

$

(44)

(1)

This amount represents $1.1 million of net unrealized holding gains recognized during the period, as well as the reclassification into the Consolidated Statements of Operations of $0.1 million of realized bond gains related to a bond that was OTTI.

(2)

This impact considers the effect of principal payments received and amortization of cost basis adjustments.

The following table provides information about the amount of realized and unrealized (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the six months ended June 30, 2018, related to activity presented in the preceding table:

 

 

 

 

 

 

 

 

    

 

    

 

 

 

 

Net losses on

 

Net gains on

(in thousands)

    

bonds (1)

    

derivatives (2)

Change in unrealized (losses) gains related to assets and liabilities held at June 30, 2018

 

$

(6)

 

$

402

Additional realized gains recognized

 

 

 ─

 

 

1,236

Total net (losses) gains reported in earnings

 

$

(6)

 

$

1,638

(1)

Amounts are classified as “Impairments” in the Company’s Consolidated Statements of Operations.

(2)

Amounts are classified as “Net (losses) gains on derivatives” in the Company’s Consolidated Statements of Operations.
Fair Value Measurements By Level 3 Valuation Technique

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at June 30, 2019

 

 

 

 

 

Significant

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

 

Weighted

 

(dollars in thousands)

Fair Value

    

Techniques

    

Inputs (1)

 

Range (1)

    

Average (2)

 

Recurring Fair Value Measurements:

 

 

 

 

 

 

 

 

 

 

 

Investments in debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily tax-exempt bonds

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing

$

2,112

 

Discounted cash flow

 

Contract price

 

$

4,100

 

 

N/A

 

Subordinated cash flow

 

8,367

 

Discounted cash flow

 

Market yield

 

 

7.4

%

 

N/A

 

 

 

 

 

 

 

Capitalization rate

 

 

6.5

 

 

N/A

 

 

 

 

 

 

 

NOI annual growth rates

 

 

0.6-0.9

 

 

0.8

 

Infrastructure Bond

 

24,757

 

Discounted cash flow

 

Market yield

 

 

7.3

 

 

N/A

 

(1)

Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset.

(2)

Weighted-averages are calculated using outstanding UPB for cash instruments, such as loans and securities, and notional amounts for derivative instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at December 31, 2018

 

 

 

 

 

Significant

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

 

Weighted

 

(dollars in thousands)

Fair Value

    

Techniques

    

Inputs (1)

 

Range (1)

    

Average (2)

 

Recurring Fair Value Measurements:

 

 

 

 

 

 

 

 

 

 

 

Investments in debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily tax-exempt bonds

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

48,221

 

Discounted cash flow

 

Market yield

 

 

4.4 - 6.8

%

 

4.8

%

Non-performing

 

12,882

 

Discounted cash flow

 

Market yield

 

 

8.2

 

 

N/A

 

 

 

 

 

 

 

Capitalization rate

 

 

7.0

 

 

N/A

 

 

 

 

 

 

 

Valuation technique
weighting factors:

 

 

 

 

 

 

 

 

 

 

 

 

 

•  NOI annual growth
rate (10% weighting
factor)

 

 

0.5

 

 

N/A

 

 

 

 

 

 

 

•  Contract price
(90% weighting
factor)

 

$

13,500

 

 

N/A

 

Subordinated cash flow

 

11,114

 

Discounted cash flow

 

Market yield

 

 

7.4 - 7.6

%

 

7.5

 

 

 

 

 

 

 

Capitalization rate

 

 

6.2 - 6.5

 

 

6.4

 

 

 

 

 

 

 

NOI annual growth rates

 

 

0.6 - 0.7

 

 

0.7

 

Infrastructure Bond

 

24,973

 

Discounted cash flow

 

Market yield

 

 

7.2

 

 

N/A

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return swaps

 

1,130

 

Discounted cash flow

 

Market yield

 

 

4.7 - 4.8

 

 

4.8

 

(1)

Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset.

(2)

Weighted-averages are calculated using outstanding UPB for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
Fair Value, by Balance Sheet Grouping

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

June 30, 2019

 

 

Carrying

 

Fair Value

(in thousands)

    

Amount

    

Level 1

    

Level 2

    

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,590

 

$

10,590

 

$

 ─

 

$

 ─

Restricted cash

 

 

2,503

 

 

2,503

 

 

 ─

 

 

 ─

Loans held for investment

 

 

80,878

 

 

 ─

 

 

 ─

 

 

81,824

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and other debt - non-bond related

 

 

11,264

 

 

 ─

 

 

 ─

 

 

10,754

Subordinated debt issued by MFH 

 

 

96,604

 

 

 ─

 

 

 ─

 

 

48,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

December 31, 2018

 

 

Carrying

 

Fair Value

(in thousands)

    

Amount

    

Level 1

    

Level 2

    

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,243

 

$

28,243

 

$

 ─

 

$

 ─

Restricted cash

 

 

5,635

 

 

5,635

 

 

 ─

 

 

 ─

Loans held for investment

 

 

67,299

 

 

 ─

 

 

 ─

 

 

66,339

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and other debt - bond related

 

 

39,255

 

 

 ─

 

 

 ─

 

 

39,289

Notes payable and other debt - non-bond related

 

 

12,210

 

 

 ─

 

 

 ─

 

 

11,479

Subordinated debt issued by MFH 

 

 

97,722

 

 

 ─

 

 

 ─

 

 

46,778