FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis


	At
	March 31,		Fair Value Measurements
(in thousands)	2020		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	29,645	$	─	$	─	$	29,645
Loans held for investment		1,271		─		─		1,271
Derivative instruments		924		─		924		─

Liabilities:
Derivative instruments	$	2,312	$	─	$	2,312	$	─


	At
	December 31,		Fair Value Measurements
(in thousands)	2019		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	31,365	$	─	$	─	$	31,365
Loans held for investment		500		─		─		500
Derivative instruments		597		─		597		─

Liabilities:
Derivative instruments	$	117	$	─	$	117	$	─

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 March 31, 2020:


	Investments
	in Debt		Loans Held for
(in thousands)	Securities		Investment
Balance, January 1, 2020	$	31,365	$	500
Net losses included in earnings (1)		─		(9)
Net change in AOCI (2)		(1,763)		─
Impact from loan originations / advances		─		780
Impact from settlements (3)		43		─
Balance, March 31, 2020	$	29,645	$	1,271

⁽¹⁾

This amount represents $9 thousand of unrealized losses recognized during this reporting period in connection with the Company’s loan investment held at March 31, 2020. This amount is classified as “net losses on loans and extinguishment of liabilities” in the Company’s Consolidated Statement of Operations.

⁽²⁾

This amount represents $1.8 million of net unrealized losses recognized during this reporting period in connection with the Company’s bond investments.

⁽³⁾

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


	Investments
	in Debt		Derivative
(in thousands)	Securities		Assets
Balance, January 1, 2019	$	97,190	$	1,130
Net losses included in earnings		─		(152)
Net change in AOCI (1)		(3,165)		─
Impact from sales or redemptions		(12,590)		─
Impact from settlements (2)		(333)		(202)
Balance, March 31, 2019	$	81,102	$	776

⁽¹⁾

This amount represents the reclassification into the Consolidated Statements of Operations of $3.6 million of net fair value gains related to bonds that were sold or redeemed during this reporting period. This decline was partially offset by $0.4 million of net unrealized holding gains recognized during the period in connection with the Company’s bond investments.

⁽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 (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the three months ended March 31, 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 March 31, 2019	$	─	$	(72)
Change in unrealized losses related to assets and liabilities held at January 1, 2019, but settled during 2019		─		(80)
Additional realized gains recognized		3,571		148
Total net gains (losses) reported in earnings	$	3,571	$	(4)

⁽¹⁾

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

⁽²⁾

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

Fair Value Measurements By Level 3 Valuation Technique

Fair Value Measurement at March 31, 2020

Significant

Valuation

Unobservable

Weighted

(dollars in thousands)

Fair Value

Techniques

Inputs (1)

Range (1)

Average

Recurring Fair Value Measurements:

Investments in debt securities:

Infrastructure Bond

23,531

Discounted cash flow

Market yield

7.8

N/A

Multifamily tax-exempt bonds

Subordinated cash flow

6,114

Discounted cash flow

Market yield

7.2

N/A

Capitalization rate

6.2

N/A

Loans held for investment

1,271

Discounted cash flow

Market yield

8.4

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.

Fair Value Measurement at December 31, 2019

Significant

Valuation

Unobservable

Weighted

(dollars in thousands)

Fair Value

Techniques

Inputs (1)

Range (1)

Average (2)

Recurring Fair Value Measurements:

Investments in debt securities:

Infrastructure Bond

25,339

Discounted cash flow

Market yield

7.0

N/A

Multifamily tax-exempt bonds

Subordinated cash flow

6,026

Discounted cash flow

Market yield

7.3

N/A

Capitalization rate

6.2

N/A

Valuation technique weighting factors:

• NOI annual growth rate (50% weighting factor)

0.7

N/A

• Bid price (50% weighting factor)

16,611

N/A

Loans held for investment

500

Discounted cash flow

Market yield

8.0

⁽¹⁾

⁽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

March 31, 2020

Carrying

Fair Value

(in thousands)

Amount

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

23,164

─

Restricted cash

7,009

─

Liabilities:

Notes payable and other debt - non-bond related

8,730

─

7,304

Revolving credit facility obligations

120,000

─

120,000

Subordinated debt issued by MFH

94,923

─

30,773

December 31, 2019

Carrying

Fair Value

(in thousands)

Amount

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

8,555

─

Restricted cash

4,250

─

Loans held for investment

53,600

─

54,276

Liabilities:

Notes payable and other debt - non-bond related

11,828

─

10,888

Revolving credit facility obligations

94,500

─

94,500

Subordinated debt issued by MFH

95,488

─

46,934