10-Q 1 tfi10-q9302015.htm 10-Q 10-Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly period ended September 30, 2015
OR
o
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: 001-33549
Tiptree Financial Inc.
(Exact name of Registrant as Specified in Its Charter)
Maryland
 
38-3754322
(State or Other Jurisdiction of
 
(IRS Employer
Incorporation of Organization)
 
Identification No.)
 
 
 
 
 
 
780 Third Avenue, 21st Floor, New York, New York
 
10017
(Address of Principal Executive Offices)
 
(Zip Code)
(212) 446-1400
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 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   x     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   x     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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                    Accelerated filer ¨
Non-accelerated filer ¨                    Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

As of November 11, 2015, there were 34,978,128 shares, par value $0.001, of the registrant’s Class A common stock outstanding and 8,049,029 shares, par value $0.001, of the registrant’s Class B common stock outstanding.







Tiptree Financial Inc.
Quarterly Report on Form 10-Q
September 30, 2015
Table of Contents

ITEM
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION


Item 1. Financial Statements (Unaudited)




TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except shares and per share data)

 
As of

September 30, 2015
 
December 31, 2014
Assets
(Unaudited)
 
As adjusted
Cash and cash equivalents – unrestricted
$
98,737

 
$
52,987

Cash and cash equivalents – restricted
34,004

 
28,045

Trading assets, at fair value
33,817

 
30,235

Investments in available for sale securities, at fair value (amortized cost: $192,088 at September 30, 2015 and $171,679 at December 31, 2014)
192,387

 
171,128

Mortgage loans held for sale, at fair value (pledged as collateral: $103,139 at September 30, 2015 and $28,049 at December 31, 2014)
108,969

 
28,661

Investments in loans, at fair value
248,924

 
2,601

Loans owned, at amortized cost – net of allowance
57,395

 
36,095

Notes receivable, net
23,020

 
21,916

Accounts and premiums receivable, net
61,374

 
39,666

Reinsurance receivables
332,349

 
264,776

Investments in partially-owned entities
99

 
2,451

Real estate
207,393

 
131,308

Intangible assets
97,785

 
120,394

Other receivables
53,574

 
36,068

Goodwill
93,207

 
92,118

Other assets
89,717

 
36,875

Assets of consolidated CLOs
1,766,036

 
1,978,094

Assets held for sale

 
5,129,745

Total assets
$
3,498,787

 
$
8,203,163

Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Trading liabilities, at fair value
$
24,602

 
$
22,645

Debt
625,491

 
363,199

Unearned premiums
368,827

 
299,826

Policy liabilities
75,170

 
63,365

Deferred revenue
66,153

 
45,393

Deferred tax liabilities
22,219

 
45,925

Commissions payable
8,823

 
12,983

Other liabilities and accrued expenses
174,742

 
63,928

Liabilities of consolidated CLOs
1,725,241

 
1,877,377

Liabilities held for sale and discontinued operations
751

 
5,006,901

Total liabilities
$
3,092,019

 
$
7,801,542

Commitments and contingencies (Note 16)

 

 
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding
$

 
$

Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 35,039,001 and 31,830,174 shares issued and outstanding respectively
35

 
32

Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 8,055,364 and 9,770,367 shares issued and outstanding respectively
8

 
10

Additional paid-in capital
298,589

 
271,090

Accumulated other comprehensive income
594

 
(49
)
Retained earnings
20,367

 
13,379

Total stockholders’ equity to Tiptree Financial Inc.
319,593

 
284,462

Non-controlling interests (including $71,952 and $90,144 attributable to Tiptree Financial Partners, L.P., respectively)
87,175

 
117,159

Total stockholders’ equity
406,768

 
401,621

Total liabilities and stockholders’ equity
$
3,498,787

 
$
8,203,163

See accompanying notes to consolidated financial statements.

Page F-2

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(in thousands, except shares and per share data)



Three Months Ended September 30,
 
Nine Months Ended September 30,

2015
 
2014
 
2015

2014
Revenues:
 
 
As adjusted
 
 
 
As adjusted
Net realized and unrealized gains (losses) on investments
$
(2,342
)
 
$
9,274

 
$
(2,427
)
 
$
10,034

Net realized and unrealized gains on mortgage pipeline and associated hedging instruments
(707
)
 
(273
)
 
245

 
(34
)
Interest income
5,791

 
3,343

 
11,979

 
10,519

Net credit derivative losses
(166
)
 
(786
)
 
(700
)
 
(2,307
)
Service and administrative fees
29,565

 

 
77,037

 

Ceding commissions
11,515

 

 
31,600

 

Earned premiums, net
43,884

 

 
120,944

 

Gain on sale of loans held for sale, net
14,859

 
2,425

 
21,531

 
5,225

Loan fee income
2,844

 
1,476

 
6,125

 
2,885

Rental revenue
11,165

 
4,469

 
31,725

 
13,308

Other income
2,681

 
398

 
8,219

 
1,202

Total revenues
119,089

 
20,326

 
306,278

 
40,832

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Interest expense
6,329

 
3,056

 
17,652

 
8,513

Payroll and employee commissions
30,156

 
7,670

 
73,926

 
20,682

Commission expense
30,891

 

 
71,346

 

Member benefit claims
7,955

 

 
23,774

 

Net losses and loss adjustment expenses
14,948

 

 
40,324

 

Professional fees
5,521

 
3,001

 
13,820

 
5,991

Depreciation and amortization expenses
10,034

 
1,733

 
36,857

 
5,063

Acquisition costs

 

 
1,349

 

Other expenses
15,391

 
2,731

 
39,464

 
7,746

Total expenses
121,225

 
18,191

 
318,512

 
47,995

 
 
 
 
 
 
 
 
Results of consolidated CLOs:
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
15,576

 
14,476

 
50,272

 
47,174

Expenses attributable to consolidated CLOs
16,999

 
11,740

 
49,037

 
32,724

Net (loss) income attributable to consolidated CLOs
(1,423
)
 
2,736

 
1,235

 
14,450

(Loss) income before taxes from continuing operations
(3,559
)
 
4,871

 
(10,999
)
 
7,287

Less: provision (benefit) for income taxes
2,829

 
(1,365
)
 
962

 
(3,097
)
 (Loss) income from continuing operations
(6,388
)
 
6,236

 
(11,961
)
 
10,384

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations, net

 
1,807

 
6,999

 
5,283

Gain on sale of discontinued operations, net

 

 
16,349

 

Discontinued operations, net

 
1,807

 
23,348

 
5,283

Net (loss) income before non-controlling interests
(6,388
)
 
8,043

 
11,387

 
15,667

Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
(1,661
)
 
3,908

 
2,214

 
8,459

Less: net (loss) attributable to noncontrolling interests - Other
(174
)
 
(150
)
 
(257
)
 
(742
)
Net (loss) income available to common stockholders
$
(4,553
)
 
$
4,285

 
$
9,430

 
$
7,950

 
 
 
 
 
 
 
 
Net (loss) income per Class A common share:
 
 
 
 
 
 
 
Basic, continuing operations, net
$
(0.13
)
 
$
0.19

 
$
(0.25
)
 
$
0.48

Basic, discontinued operations, net

 
0.05

 
0.54

 
0.13

Basic earnings per share
(0.13
)
 
0.24

 
0.29

 
0.61

 
 
 
 
 
 
 
 
Diluted, continuing operations, net
(0.13
)
 
0.19

 
(0.25
)
 
0.48

Diluted, discontinued operations, net

 
0.05

 
0.54

 
0.13

Diluted earnings per share
$
(0.13
)
 
$
0.24

 
$
0.29

 
$
0.61

 
 
 
 
 
 
 
 
Weighted average number of Class A common shares:
 
 
 
 
 
 
 
Basic
33,848,463

 
17,449,974

 
32,597,774

 
12,909,949

Diluted
33,848,463

 
17,449,974

 
32,597,774

 
12,909,949

See accompanying notes to consolidated financial statements.

Page F-3


TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)



 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
As adjusted
 
 
 
As adjusted
Net (loss) income before non-controlling interests
$
(6,388
)
 
$
8,043

 
$
11,387

 
$
15,667

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
1,153

 
(117
)
 
508

 
83

Related tax (expense) benefit
(405
)
 
41

 
(182
)
 
(29
)
Reclassification of losses included in net income
56

 
17

 
97

 
31

Related tax (benefit)
(20
)
 
(6
)
 
(34
)
 
(11
)
Unrealized gains (losses) on available-for-sale securities, net of tax
784

 
(65
)
 
389

 
74

 
 
 
 
 
 
 
 
Interest rate swap:
 
 
 
 
 
 
 
Unrealized (losses) on interest rate swap
(167
)
 

 
(456
)
 

Related tax benefit
57

 

 
158

 

Reclassification of losses included in net income
284

 

 
848

 

Related tax (benefit)
(99
)
 

 
(296
)
 

Unrealized gain on interest rate swap, net of tax
75

 

 
254

 

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
859

 
(65
)
 
643

 
74

Comprehensive (loss) income
(5,529
)
 
7,978

 
12,030

 
15,741

Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
(1,661
)
 
3,908

 
2,214

 
8,459

Less: net (loss) attributable to noncontrolling interests - Other
(174
)
 
(150
)
 
(257
)
 
(742
)
Total comprehensive (loss) income available to common stockholders
$
(3,694
)
 
$
4,220

 
$
10,073

 
$
8,024























See accompanying notes to consolidated financial statements.

Page F-4


TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)


 
Number of Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
Class A
 
Class B
 
Additional paid in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Non-controlling
interests - Tiptree Financial Partners, L.P.
 
Non-controlling
interests - Other
 
Total
 
 
 
 
 
 
 
 
 
As adjusted
 
 
 
As adjusted
 
 
 
As adjusted
 
As adjusted
Balance at December 31, 2014
31,830,174

 
9,770,367

 
$
32

 
$
10

 
$
271,090

 
$
(49
)
 
$
13,379

 
$
90,144

 
$
27,015

 
$
401,621

Stock-based compensation to directors, employees and other persons for services rendered
289,264

 

 

 

 
2,300

 

 

 

 

 
2,300

Class A shares issued and Class B shares redeemed due to TFP unit redemptions
1,715,003

 
(1,715,003
)
 
2

 
(2
)
 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 
497

 

 
146

 

 
643

Non-controlling interest contributions to Care subsidiary

 

 

 

 

 

 

 

 
2,244

 
2,244

Non-controlling interest distributions from Care subsidiary

 

 

 

 

 

 

 

 
(611
)
 
(611
)
Purchase of majority ownership of subsidiary
1,625,000

 

 
1

 

 
11,959

 

 

 

 

 
11,960

Shares purchased under stock purchase plan
(420,440
)
 

 

 

 
(2,914
)
 

 

 

 

 
(2,914
)
Reduction in non-controlling interest due to PFG Disposition

 

 

 

 

 

 

 

 
(7,771
)
 
(7,771
)
Net changes in non-controlling interest

 

 

 

 
16,154

 
146

 

 
(16,579
)
 
(5,397
)
 
(5,676
)
Dividends declared

 

 

 

 

 

 
(2,442
)
 
(3,973
)
 

 
(6,415
)
Net income (loss)

 

 

 

 

 

 
9,430

 
2,214

 
(257
)
 
11,387

Balance at September 30, 2015
35,039,001

 
8,055,364

 
$
35

 
$
8

 
$
298,589

 
$
594

 
$
20,367

 
$
71,952

 
$
15,223

 
$
406,768








See accompanying notes to consolidated financial statements.

Page F-5

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)



 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
As adjusted
Cash flows from operating activities:
 
 
 
Net income available to common stockholders
$
9,430

 
$
7,950

Net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
2,214

 
8,459

Net (loss) attributable to noncontrolling interests - Other
(257
)
 
(742
)
Net income
11,387

 
15,667

Discontinued operations, net
(23,348
)
 
(5,283
)
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
 
 
 
Net realized and unrealized (gain) loss
(19,319
)
 
(10,563
)
Non cash compensation expense
2,014

 
467

Increase in non cash interest from investments in loans, at fair value

 
358

Amortization/accretion of premiums and discounts
1,921

 
(1,187
)
Depreciation and amortization expense
36,857

 
5,063

Provision for loan losses
(144
)
 

Amortization and write off of deferred financing costs
664

 
221

Increase in unearned premiums from acquisitions
69,001

 

Increase in other liabilities and accrued expenses
68,397

 
18,232

Loss/(income) from investments in partially-owned entities, net
77

 
(2,884
)
Mortgage loans originated for sale
(792,512
)
 
(325,826
)
Proceeds from sale of mortgage loans
794,013

 
320,427

Increase in reinsurance receivables
(67,573
)
 

Deferred tax expense
(24,056
)
 
(5,367
)
(Increase) decrease in other assets
(74,376
)
 
2,519

Increase in unpaid claims
13,472

 

(Decrease) in policy holder accounts
(1,667
)
 

Operating activities from CLOs
23,705

 
4,426

Net cash provided by operating activities - continuing operations
18,513

 
16,270

Net cash provided by (used in) operating activities - discontinued operations
(6,198
)
 
37,047

Net cash (used in) provided by operating activities
12,315

 
53,317

Cash flows from investing activities from continuing operations:
 
 
 
Purchases of trading securities and loans carried at fair value
(248,622
)
 
(315,434
)
Proceeds from sales of trading securities and loans carried at fair value
3,248

 
251,659

Purchases of available for sale securities
(61,697
)
 

Proceeds from maturities, calls, and prepayments of available for sale securities
28,592

 

Proceeds from sales of available for sale securities
10,838

 

Purchases of derivatives

 
(7,221
)
Purchases of real estate
(83,993
)
 
(418
)
Purchases of fixed assets
(2,790
)
 
(125
)
Net proceeds from the sale of subsidiaries
113,807

 

Proceeds from loan repayments/disposal of loans
5,312

 
33,713

(Decrease) increase in restricted cash
(5,040
)
 
2,609

Acquisitions, net cash
1,617

 
7,213

Change in noncontrolling interest
1,634

 

Proceeds from paydowns of trading securities
250

 

Proceeds from distributions paid by partially owned entities
2,275

 
7,058

Change due to consolidation of trusts

 
(34
)
Investing activities from CLOs
119,443

 
(212,878
)
Net cash used in investing activities - continuing operations
(115,126
)
 
(233,858
)
Net cash provided by investing activities from discontinued operations
11,866

 
3,936

Net cash used in investing activities
(103,260
)
 
(229,922
)

Page F-6

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)



 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
As adjusted
Cash flows from financing activities from continuing operations:
 
 
 
Dividends paid
(6,415
)
 

Payment of debt issuance costs
(1,839
)
 
(264
)
Proceeds from borrowings and mortgage notes payable
1,040,172

 
495,267

Principal paydowns of borrowings and mortgage notes payable
(832,369
)
 
(447,274
)
Repurchase of common stock
(2,914
)
 

Financing activities from CLOs
(83,301
)
 
193,378

Net cash provided by financing activities - continuing operations
113,334

 
241,107

Net cash (used in) financing activities - discontinued operations
(5,000
)
 
(5,167
)
Net cash provided by financing activities
108,334

 
235,940

Net increase in cash
17,389

 
59,335

Cash and cash equivalents – unrestricted – beginning of period - continuing operations
52,987

 
97,645

Cash and cash equivalents - unrestricted - beginning of period - discontinued operations
28,361

 
22,912

Cash and cash equivalents – unrestricted – end of period
98,737

 
179,892

Less: Reclassification of cash to assets held for sale

 
58,728

Cash and cash equivalents of continuing operations – unrestricted – end of period
$
98,737

 
$
121,164

 
 
 
 
Noncash investing and financing activities:
 
 
 
     Net assets related to acquisitions
$
10,980

 
$
(3,275
)



























See accompanying notes to consolidated financial statements.

Page F-7

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)


Basis of Presentation
The accompanying unaudited consolidated financial statements of Tiptree Financial Inc. (Tiptree and, together with its consolidated subsidiaries, collectively, the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2014. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income and cash flows for each of the interim periods presented. See “Item 4. Controls and Procedures” for actions the Company is taking to remediate a material weakness at March 31, 2015, and to enhance its control infrastructure as a result. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2015.

(1) Organization

Tiptree is a Maryland Corporation that was incorporated on March 19, 2007. Until July 1, 2013, Tiptree operated under the name Care Investment Trust Inc. (which, for the period prior to July 1, 2013, we refer to as Care Inc.). Tiptree is a diversified holding company which conducts its operations through Tiptree Operating Company, LLC (the Operating Company). Tiptree’s primary focus is on five reporting segments: insurance and insurance services, specialty finance, real estate, asset management, and corporate and other.

As of September 30, 2015, Tiptree owns, directly or indirectly, approximately 81% of the assets of Operating Company with the remaining 19% held by non-controlling shareholders through their interests in Tiptree Financial Partners, L.P. (TFP). The limited partners of TFP (other than Tiptree itself) have the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit. The percentage of TFP (and therefore Operating Company) owned by Tiptree may increase in the future to the extent TFP’s limited partners choose to exchange their limited partnership units of TFP for Class A common stock of Tiptree.
Tiptree’s Class A Common Stock is traded on the NASDAQ Capital Market under the symbol “TIPT”.

2015 Transactions

On January 1, 2015, Fortegra exercised an option to purchase the remaining 37.6% ownership interest in ProtectCELL it did not own and now owns 100% of ProtectCELL. Fortegra made an initial payment of $3,000 to exercise the option, with the remaining amount payable upon final determination of the option purchase price.

On January 26, 2015, Tiptree entered into a first amendment to its existing credit agreement with Fortress Credit Corp. (Fortress) (the Amendment), providing for additional term loans in an aggregate principal amount of $25,000 to Tiptree. Tiptree repaid $25,000 of all aggregate outstanding loans under the Fortress credit agreement upon the closing of the sale of Philadelphia Financial Group Inc. (PFG) on June 30, 2015.

On February 9, 2015, affiliates of Care entered into a joint venture to own and operate five seniors housing communities with affiliates of Royal Senior Care Management LLC (Royal). The joint venture acquired the communities for $30,052. Affiliates of Care own an 80% interest in the joint venture, while affiliates of Royal own the remaining 20% interest and provide management services to the communities under management contracts. In connection with the acquisition, Care and Royal secured a $22,500 five year loan (subject to a holdback), which includes 36 months of interest only payments and an additional $2,000 commitment that will be available between February 9, 2016 and February 9, 2019, subject to certain conditions.

On March 30, 2015, affiliates of Care acquired six seniors housing communities for $54,788. The properties are leased to affiliates of Greenfield Holdings, LLC (Greenfield) that will operate the properties. In connection with the acquisition, Care secured a $39,500 10 year loan (subject to a holdback), which includes 18 months of interest only payments. As of September 30, 2015, the loan had an aggregate balance of $38,700.

On May 5, 2015, Tiptree invested $25,000 in Telos Credit Opportunities Fund, L.P., a leveraged loan fund managed by Tiptree’s Telos Asset Management LLC subsidiary.

Page F-8

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)


On May 5, 2015, Tiptree, through a Delaware statutory trust, invested approximately $9,726 in a pool of non-performing residential real estate mortgage loans (NPLs) and entered into an agreement with an asset management firm to service the portfolio. The Company invested an additional $20,877 in pools of NPLs in the third quarter of 2015. As of September 30, 2015, the Company’s investments included $817 of foreclosed residential real estate property and $30,221 of loans collateralized by real estate in the process of foreclosure, of which the unpaid balance was $1,575 and $53,384, respectively. The difference between the fair value of the NPLs and their unpaid principle balance as $23,163.

On June 30, 2015, Tiptree completed the sale of all of the issued and outstanding capital stock of PFG Holdings Acquisition Corp. (PHAC) and Philadelphia Financial Group, Inc. (PFG) to PFG Acquisition Corp. (Buyer), an entity affiliated with The Blackstone Group L.P. Tiptree received cash consideration of $142,837 for its equity interests in PHAC and PFG. Under the Purchase Agreement, Buyer will pay to Tiptree an additional amount of approximately $7,341, one-third of which will be made on the first anniversary of the closing and two-thirds of which will be made on the second anniversary of the closing.

On July 1, 2015, Tiptree acquired all of the outstanding equity interests of Reliance First Capital, LLC (Reliance) for an aggregate consideration equal to $7,500 in cash and 1,625,000 shares of Class A common stock of Tiptree, subject to a working capital adjustment. In addition, Tiptree will pay up to 2,000,000 additional shares of Class A common stock of Tiptree, annually over three years, if Reliance achieves specified performance metrics after closing and in certain other circumstances. In connection with the acquisition of Reliance, a subsidiary of Tiptree entered into a warehouse credit facility with Reliance pursuant to which Tiptree may provide up to $20,000 to Reliance for the purpose of originating mortgage loans. As of the date of this report, no amounts are outstanding under this warehouse credit facility. On July 20, 2015, Reliance granted membership incentive awards equal to 12.0% of the equity interests of Reliance to employees of Reliance. Of these incentive awards, 9.0% vest upon achievement of specified financial targets and the remaining 3.0% vest in four equal installments annually, in each case subject to continued employment.

During the third quarter of 2015, we contributed an aggregate of $40,000 to Telos 2015-7, Ltd. (Telos 7), which entered into a warehouse credit facility in anticipation of launching a new collateralized loan obligation (CLO).

2014 Transactions
In December 2014, the Company completed the acquisition of Fortegra Financial Corporation (Fortegra), and paid $211,740 for 100% ownership. Fortegra is consolidated within the Company’s insurance and insurance services segment. The assets acquired were valued at $771,559, which includes $115,000 of intangible assets and $90,213 of goodwill.

In December 2014, affiliates of Care entered into a joint venture to own and operate an additional seniors housing community with affiliates of Heritage. Affiliates of Care own an 80% interest in the joint venture, while affiliates of Heritage own the remaining 20% interest and continue to provide management services to the communities under a management contract.

In October 2014, affiliates of Care entered into a joint venture to own and operate three seniors housing communities with affiliates of Greenfield. Care owns an 80% interest in the joint venture, while affiliates of Greenfield own the remaining 20% interest and provide management services to the communities under a management contract.

The Company completed the acquisition of 67.5% of Luxury Mortgage Corp. (Luxury) in January 2014. Luxury is consolidated within the Company’s financial statements and is reported within Tiptree’s specialty finance segment.

(2) Summary of Significant Accounting Policies

Basis of Presentation
The unaudited interim consolidated financial statements of the Company have been prepared using the accounting policies set forth in Note 2 of the Notes to Consolidated Financial Statements included in the Company’s 2014 Annual Report on Form 10-K.

Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.

Principles of Consolidation
The consolidated financial statements reflect the consolidated accounts of Tiptree and (i) its wholly-owned subsidiaries, (ii) subsidiaries in which it has a controlling interest, and (iii) certain other entities known as variable interest entities (VIEs) in

Page F-9

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

which Tiptree, through its subsidiaries, is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. This consolidation, particularly with respect to the VIEs, significantly impacts these consolidated financial statements.

Certain changes to the consolidated balance sheet amounts for December 31, 2014 have been made in accordance with accounting for business combinations, to reflect the retrospective adjustments made during the measurement period, to the preliminary amounts recorded for the estimated fair value of acquired net assets. Please see Note 4—Business Acquisitions, for more information on the measurement period adjustments.

Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. The estimates and assumptions most susceptible to change are the valuation of securities, loans, derivative positions, deferred income taxes and acquired assets and liabilities. Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.

Fair Value Option
The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our Consolidated Balance Sheets from those instruments using another accounting method. We have elected the fair value option for NPL purchases as we have concluded that NPLs accounted for at fair value timely reflect the results of our investment performance.

Investments

Investments in loans, at fair value

Investments in loans, at fair value is substantially comprised of our middle market leveraged loans carried at estimated fair value and held by the Company’s warehouse credit facility for Telos 7 or by the Telos Credit Opportunities Fund, L.P. It also includes the Company’s NPLs, as further described below. See Note 17 — Fair value of Financial Instruments for further discussion of these investments.

Non-Performing Loans

We have purchased portfolios of NPLs which were valued on an individual basis and which we seek to (1) convert into real estate through the foreclosure or other resolution process that can then be sold, or (2) modify and resell at higher prices if circumstances warrant. Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible.

We have elected the fair value option for NPL purchases as we have concluded that NPLs accounted for at fair value timely reflect the results of our investment performance. Upon the acquisition of NPLs, we record the assets at fair value, which is the purchase price we paid for the loans on the acquisition date. NPLs are subsequently accounted for at fair value under the fair value option election with unrealized gains and losses recorded in current-period earnings.

We determine the purchase price for NPLs at the time of acquisition by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to real estate owned property (“REO”). Observable inputs to the model include loan amounts, payment history, and property types. Unobservable inputs to the model are discussed in Note 17— Fair Value of Financial Instruments.

As a loan approaches resolution (i.e., modification or conversion to REO), the resolution timeline for that loan decreases and costs embedded in the discounted cash flow model for loan servicing, foreclosure costs, and property insurance are incurred and removed from future expenses. The shorter resolution timelines and reduced future expenses, both of which typically increased the fair value of the loan. The increase in the value of the loan is recognized within Net realized and unrealized gains (losses)

Page F-10

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

on investments in our Consolidated Statements of Operations. For further discussion on the fair value of NPLs, see Note 17 — Fair Value of Financial Instruments.

As substantially all of our loans were non-performing when acquired, we generally look to the estimated fair value of the underlying property collateral to assess the recoverability of our investments. We primarily utilize the local broker price opinion (“BPO”) but also consider any other comparable home sales or other market data, as considered necessary, in estimating a property’s fair value.

When we convert loans into real estate through foreclosure or other resolution process (e.g., through a deed-in-lieu of foreclosure transaction), the property is initially recorded at fair value as its cost basis, and subsequently the property is measured at fair value less estimated costs to sell. The transfer to REO occurs when we have obtained title to the property through completion of the foreclosure process. The fair value of these assets at the time of transfer to REO is estimated using BPOs. BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales. Our results could be materially and adversely affected if the judgments used by a broker prove to be incorrect or inaccurate. REOs were included within Other Assets as of September 30, 2015.

Discontinued Operations
As a result of recent accounting guidance (see ASU 2014-08 below), for periods beginning on or after December 15, 2014, the results of operations of a business of the Company that have either been disposed of or are classified as held-for-sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. For such businesses that have been disposed of prior to December 15, 2014, the Company presents the operations of the business as discontinued operations, and retrospectively reclassifies operating results for all prior periods presented. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceased recording depreciation on assets transferred.

Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other items of comprehensive income (loss). These other items are generally comprised of unrealized gains and losses on investment securities classified as available-for-sale and unrealized gains and losses on interest rate swaps, net of the related tax effects.

Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. This amendment clarifies when an in substance repossession or foreclosure has occurred. Additionally, this amendment requires disclosure of the amount of foreclosed residential real estate property held and the recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure. The adoption of ASU 2014-04 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. These amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information. ASU 2014-08 is effective for the first quarter of 2015 for the Company. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations. The adoption of ASU 2014-08 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. This pronouncement is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. ASU 2014-13 provides for a measurement alternative

Page F-11

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

whereby a company can measure both the financial assets and financial liabilities of its CLOs using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The Company elected to early adopt ASU 2014-13 for the year ended December 31, 2014 as it pertains to the CLOs it consolidates and elected to apply it retrospectively to all relevant prior periods. The application of this new guidance resulted in adjustments to certain balances in the previously issued consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows for the year ended December 31, 2014, as well as for the interim periods ending March 31, 2014, June 30, 2014, and September 30, 2014. Please see Note 3—Out of Period Adjustments, Changes in Accounting Principles and Reclassifications, for more information on the ASU 2014-13 adoption.

In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115  (SEC Update). ASU 2015-08 removes references to the SEC’s SAB Topic 5.J on pushdown accounting from ASC 805-50. The Commission’s Staff Accounting Bulletin, "SAB" 115 had superseded the guidance in SAB Topic 5.J in connection with the FASB’s November 2014 release of ASU 2014-17. The amendments in ASU 2015-08 therefore conform to the FASB’s guidance on pushdown accounting with the SEC’s. The amendments are effective upon issuance (May 12, 2015). The adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard was originally effective for the Company on January 1, 2017. On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently reviewing ASU 2014-09 and is assessing the potential effects on its consolidated financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12 Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period shall be treated as a performance condition. ASU 2014-12 will be effective for the Company on January 1, 2016. The Company is currently evaluating the effect upon its financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The pronouncement eliminates the concept of extraordinary items from GAAP. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 will be effective for the annual and interim periods beginning after December 15, 2015 with early adoption permitted. The Company is currently evaluating the effect upon its financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which amends the consolidation requirements in the FASB Accounting Standards Codification 810, Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance for VIEs, which could change consolidation conclusions. ASU 2015-02 will be effective for the Company on January 1, 2016 and early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effective for the Company on January 1, 2016 and early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which eliminates the requirement for entities to categorize within the fair value hierarchy

Page F-12

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

investments for which fair values are measured at net asset value (NAV) per share (FASB ASC Subtopic 820-10).  ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient, instead limiting disclosures to investments for which the entity has elected the expedient.  ASU 2015-07 is effective for the Company on January 1, 2016 and early adoption is permitted and retrospective adoption is required.  The Company is currently evaluating the effect upon its financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts, which expands the disclosure requirements for insurance companies that issue short-duration contracts (typically one year or less) to provide users with additional disclosures about the liability for unpaid claims and claim adjustment expenses and to increase the transparency of the significant estimates management makes in measuring those liabilities. In addition, the disclosures will serve to increase insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims as well as provide users of the financial statements a better understanding of the amount and uncertainty of cash flows arising from insurance liabilities, the nature and extent of risks on short-duration contracts and the timing of cash flows arising from insurance liabilities. ASU 2015-09 will be effective for the Company for the annual period beginning after December 15, 2015, and for interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements, which covers a wide range of Topics in the Codification. The amendments in ASU 2015-10 represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. Amendments with transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments are effective upon the ASU’s issuance (June 12, 2015). The Company is currently evaluating the effect upon its financial statements.

In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company is currently evaluating the effect upon its financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805):Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. ASU 2015-16 requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior period impact of the adjustment should be either presented separately on the face of the income statement or disclosed in the notes. ASU 2015-16 becomes effective for fiscal years and interim reporting periods beginning after December 15, 2015, with early adoption permitted for financial statements that have not been issued. The Company is currently evaluating the effect upon its financial statements.

(3) Out of Period Adjustments, Changes in Accounting Principles and Reclassifications

Management is presenting these tables to provide a clear understanding of out of period adjustments, the adoption of accounting principles and reclassifications to the Company’s historical results for the three and nine months ended September 30, 2014.

As it relates to the Consolidated Statements of Operations for the three months ended September 30, 2014, the Company has revised its prior year financial statements for an immaterial uncorrected misstatement. The revision, related to the Company’s real estate segment, increased depreciation and amortization expense by $852, and decreased net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P. by $396 and decreased net (loss) income attributable to noncontrolling interests - Other by $170.
As it relates to the Consolidated Statements of Operations for the nine months ended September 30, 2014, the Company has revised its prior year financial statements for an immaterial uncorrected misstatement. The revision, related to the Company’s real estate segment, increased depreciation and amortization expense by $2,556, and decreased net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P. by $1,412 and decreased net (loss) income attributable to noncontrolling interests - Other by $510. The effects of these adjustments are presented below.

Page F-13

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)


As it relates to the Statements of Cash Flows, the Company has revised its prior year presentation for an immaterial uncorrected misstatement. This revision, related to the presentation of its activities from CLOs, reduced operating activities from CLOs by $12,959 and increased investing activities from CLOs by $12,959.
As mentioned in Note 2, in the Annual Report on Form 10-K for 2014, the Company elected to early adopt ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The effects of these adjustments are presented below.

The sale of PFG is a transaction that qualifies to be treated as discontinued operations. This reclassification is reflected below (see Note 5—Dispositions, Assets Held for Sale and Discontinued Operations).

Certain prior period amounts have been reclassified to conform to the current year presentation. These amounts are identified under the reclassification heading in the tables below.
For the Three Months Ended September 30, 2014
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications(1)
 
As adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Net realized (loss) gain on investments
$
7,909

 
$

 
$

 
$
(31
)
 
$
(7,878
)
 
$

Change in unrealized appreciation on investments
(1,819
)
 

 

 
14

 
1,805

 

Income from investments in partially owned entities
2,204

 

 

 

 
(2,204
)
 

Net realized and unrealized gains
8,294

 

 

 
(17
)
 
(8,277
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Net realized and unrealized gains from investments

 

 

 

 
9,274

 
9,274

Net realized and unrealized gains on mortgage pipeline and associated hedging instruments

 

 

 

 
(273
)
 
(273
)
Interest income
7,363

 

 

 
(1,131
)
 
(2,889
)
 
3,343

Gain on sale of loans held for sale, net
2,383

 

 

 

 
42

 
2,425

Net Credit derivative losses

 

 

 

 
(786
)
 
(786
)
Separate account fees
5,931

 

 

 
(5,931
)
 

 

Administrative service fees
12,845

 

 

 
(12,845
)
 

 

Loan fee income

 

 

 

 
1,476

 
1,476

Rental revenue
4,469

 

 

 

 

 
4,469

Other income
1,537

 

 

 
(1
)
 
(1,138
)
 
398

Total revenues
42,822






(19,925
)

(2,571
)

20,326

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
8,500

 

 

 
(2,873
)
 
(2,571
)
 
3,056

Payroll expense
12,559

 

 

 
(4,889
)
 

 
7,670

Professional fees
3,420

 

 

 
(419
)
 

 
3,001

Change in future policy benefits
1,063

 

 

 
(1,063
)
 

 

Mortality expenses
2,667

 

 

 
(2,667
)
 

 

Commission expense
679

 

 

 
(679
)
 

 

Depreciation and amortization expenses
2,290

 
852

 

 
(1,409
)
 

 
1,733

Other expenses
5,505

 

 

 
(2,774
)
 

 
2,731

Total expenses
36,683

 
852

 

 
(16,773
)
 
(2,571
)
 
18,191

Results of consolidated CLOs:
 
 
 
 
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
(4,093
)
 

 
18,569

 

 

 
14,476

Expenses attributable to consolidated CLOs
15,552

 

 
(3,812
)
 

 

 
11,740

Net (loss) income attributable to consolidated CLOs
(19,645
)
 

 
22,381

 

 

 
2,736

(Loss) income before taxes from continuing operations
(13,506
)
 
(852
)
 
22,381

 
(3,152
)
 

 
4,871

Provision (benefit) for income taxes
(20
)
 

 

 
(1,345
)
 

 
(1,365
)

Page F-14

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

For the Three Months Ended September 30, 2014
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications(1)
 
As adjusted
(Loss) income from continuing operations
(13,486
)
 
(852
)
 
22,381

 
(1,807
)
 

 
6,236

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net

 

 

 
1,807

 

 
1,807

Discontinued operations, net

 

 

 
1,807

 

 
1,807

Net (loss) income before noncontrolling interest
(13,486
)
 
(852
)
 
22,381

 

 

 
8,043

Less: net (loss) income attributable to noncontrolling interests
(1,904
)
 

 

 

 
1,904

 

Less net (loss) income attributable to VIE subordinated noteholders
(11,854
)
 

 
11,854

 

 

 

Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.

 
(396
)
 
5,957

 

 
(1,653
)
 
3,908

Less: net (loss) income attributable to noncontrolling interests - Other

 
(170
)
 
271

 

 
(251
)
 
(150
)
Net income available to common stockholders
$
272

 
$
(286
)
 
$
4,299

 
$

 
$

 
$
4,285

 
 
 


 
 
 
 
 
 
 
 
Basic, continuing operations, net
$
0.02

 
$
(0.03
)
 
$
0.25

 
$
(0.05
)
 
$

 
$
0.19

Basic, discontinued operations, net

 

 

 
0.05

 

 
0.05

Basic earnings per share
$
0.02

 
$
(0.03
)
 
$
0.25

 
$

 
$

 
$
0.24

 
 
 
 
 
 
 
 
 
 
 
 
Diluted, continuing operations, net
$
0.02

 
$
(0.03
)
 
$
0.25

 
$
(0.05
)
 
$

 
$
0.19

Diluted, discontinued operations, net

 

 

 
0.05

 

 
0.05

Diluted earnings per share
$
0.02

 
$
(0.03
)
 
$
0.25

 
$

 
$

 
$
0.24


For the Nine Months Ended September 30, 2014
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications (1)
 
As adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Net realized (loss) gain on investments
$
7,007

 
$

 
$

 
$
(31
)
 
$
(6,976
)
 
$

Change in unrealized appreciation on investments
(1,530
)
 

 

 

 
1,530

 

Income from investments in partially owned entities
2,884

 

 

 

 
(2,884
)
 

Net realized and unrealized gains
8,361

 

 

 
(31
)
 
(8,330
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Net realized and unrealized gains from investments

 

 

 

 
10,034

 
10,034

Net realized and unrealized gains on mortgage pipeline and associated hedging instruments

 

 

 

 
(34
)
 
(34
)
Interest income
17,664

 

 

 
(3,464
)
 
(3,681
)
 
10,519

Gain on sale of loans held for sale, net
5,117

 

 

 

 
108

 
5,225

Net Credit derivative losses

 

 

 

 
(2,307
)
 
(2,307
)
Separate account fees
16,943

 

 

 
(16,943
)
 

 

Administrative service fees
37,786

 

 

 
(37,786
)
 

 

Loan fee income

 

 

 

 
2,885

 
2,885

Rental revenue
13,308

 

 

 

 

 
13,308

Other income
3,404

 

 

 
(2
)
 
(2,200
)
 
1,202

Total revenues
102,583






(58,226
)

(3,525
)

40,832

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
20,721

 

 

 
(8,683
)
 
(3,525
)
 
8,513

Payroll expense
35,642

 

 

 
(14,960
)
 

 
20,682

Professional fees
7,334

 

 

 
(1,343
)
 

 
5,991


Page F-15

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2015
(in thousands, except shares and per share data)

For the Nine Months Ended September 30, 2014
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications (1)
 
As adjusted
Change in future policy benefits
3,260

 

 

 
(3,260
)
 

 

Mortality expenses
7,892

 

 

 
(7,892
)
 

 

Commission expense
1,837

 

 

 
(1,837
)
 

 

Depreciation and amortization expenses
5,656

 
2,556

 

 
(3,149
)
 

 
5,063

Other expenses
15,562

 

 

 
(7,816
)
 

 
7,746

Total expenses
97,904

 
2,556

 

 
(48,940
)
 
(3,525
)
 
47,995

Net (loss) before taxes and income attributable to consolidated CLOs from continuing operations
4,679


(2,556
)



(9,286
)



(7,163
)
Results of consolidated CLOs:
 
 
 
 
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
20,742

 

 
26,432

 

 

 
47,174

Expenses attributable to consolidated CLOs
44,541

 

 
(11,817
)
 

 

 
32,724

Net (loss) income attributable to consolidated CLOs
(23,799
)
 

 
38,249

 

 

 
14,450

(Loss) income before taxes from continuing operations
(19,120
)

(2,556
)

38,249


(9,286
)



7,287

Provision (benefit) for income taxes
906

 

 

 
(4,003
)
 

 
(3,097
)
(Loss) income from continuing operations
(20,026
)
 
(2,556
)
 
38,249

 
(5,283
)
 

 
10,384

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss)on sale of discontinued operations, net

 

 

 


 

 

Income from discontinued operations, net

 

 

 
5,283

 

 
5,283

Discontinued operations, net

 

 

 
5,283

 

 
5,283

Net (loss) income before noncontrolling interest
(20,026
)
 
(2,556
)
 
38,249



 

 
15,667

Less: net (loss) income attributable to noncontrolling interests
(2,353
)
 


 

 

 

 
(2,353
)
Less net (loss) income attributable to VIE subordinated noteholders
(20,041
)
 

 
20,041

 

 
2,353

 
2,353

Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.

 
(1,412
)
 
11,536

 

 
(1,665
)
 
8,459

Less: net (loss) income attributable to noncontrolling interests - Other

 
(510
)
 
456

 

 
(688
)
 
(742
)
Net income available to common stockholders
$
2,368


$
(634
)

$
6,216


$


$


$
7,950

 
 
 
 
 
 
 
 
 
 
 
 
Basic, continuing operations, net
$
0.18

 
$
(0.05
)
 
$
0.48

 
$
(0.13
)
 
$

 
$
0.48

Basic, discontinued operations, net

 

 

 
0.13

 

 
0.13

Basic earnings per share
$
0.18

 
$
(0.05
)
 
$
0.48

 
$

 
$

 
$
0.61

 
 
 
 
 
 
 
 
 
 
 
 
Diluted, continuing operations, net
$
0.18

 
$
(0.05
)
 
$
0.48

 
$
(0.13
)
 
$

 
$
0.48

Diluted, discontinued operations, net

 

 

 
0.13

 

 
0.13

Diluted earnings per share
$
0.18

 
$
(0.05
)
 
$
0.48

 
$

 
$

 
$
0.61


Notes:
(1)    Prior period information reclassified to conform to the current year presentation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(4) Business Acquisitions

In accordance with ASC Topic 805, Business Combinations, the Company accounts for acquisitions by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition.


Page F-16

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)