10-Q 1 tfi2019q1-10q.htm 10-Q Document

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 March 31, 2019
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 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.)
 
 
 
 
 
 
299 Park Avenue, 13th Floor, New York, New York
 
10171
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (212) 446-1400
 
Former Address: 780 Third Avenue, 21st Floor, New York, New York, 10017
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
TIPT
Nasdaq Capital Market
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                    Accelerated filer x
Non-accelerated filer ¨                    Smaller reporting company ¨
Emerging growth company ¨
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x
As of May 2, 2019, there were 34,526,028 shares, par value $0.001, of the registrant’s Common Stock outstanding.



Tiptree Inc.
Quarterly Report on Form 10-Q
March 31, 2019

Table of Contents
ITEM
 
Page Number
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
(5) Investments
 
 
 
 
 
 
 
 
 
(14) Other Assets and Other Liabilities and Accrued Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION
Forward-Looking Statements

Except for the historical information included and incorporated by reference in this Quarterly Report on Form 10-Q, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements.

Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in our other public filings with the SEC.
 
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements.  Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements.

Market and Industry Data

Certain market data and industry data included in this Quarterly Report on Form 10-Q were obtained from reports of governmental agencies and industry publications and surveys. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data and as such, make no guarantees as to its accuracy, completeness or timeliness.

Note to Reader

In reading this Quarterly Report on Form 10-Q, references to:
“A.M. Best” means A.M. Best Company, Inc.
“Care” means Care Investment Trust LLC.
“CLOs” means collateralized loan obligations.
“Common Stock” means Class A common stock $0.001 par value for periods prior to June 7, 2018 and thereafter the common stock $0.001 par value.
“Corvid Peak” means collectively, Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP Holdings, LLC and Corvid Peak Holdings GP, LLC., formerly known as “Tricadia”.
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.
“Fortegra” means Fortegra Financial Corporation.
“GAAP” means U.S. generally accepted accounting principles.
“Invesque” means Invesque Inc.
“Luxury” means Luxury Mortgage Corp.
“NAIC” means the National Association of Insurance Commissioners.
“NPL” means nonperforming residential real estate mortgage loans.
“Operating Company” means Tiptree Operating Company, LLC.
“Reliance” means Reliance First Capital, LLC.
“REO” means real estate owned.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.

F- 1


“Tax Act” means Public Law no. 115-97, commonly referred to as the Tax Cuts and Jobs Act.
“TFP” means Tiptree Financial Partners, L.P.
“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Tiptree Inc. and its consolidated subsidiaries.
“Transition Services Agreement” means the Amended and Restated Transition Services Agreement between Corvid Peak and Tiptree Inc., effective as of January 1, 2019.
“Tricadia” means, collectively, Tricadia Holdings, L.P., Tricadia Capital Management, LLC, Tricadia Holdings GP, LLC, Tricadia Holdings and Tricadia GP Holdings LLC.


F- 2

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)

Item 1. Financial Statements (Unaudited)
 
As of
 
March 31, 2019
 
December 31, 2018
Assets:
 
 
 
Investments:
 
 
 
Available for sale securities, at fair value
$
283,929

 
$
283,563

Loans, at fair value
125,145

 
215,383

Equity securities
122,592

 
122,979

Other investments
76,741

 
75,002

Total investments
608,407

 
696,927

Cash and cash equivalents
88,079

 
86,003

Restricted cash
13,062

 
10,521

Notes and accounts receivable, net
231,990

 
223,105

Reinsurance receivables
420,996

 
420,351

Deferred acquisition costs
170,727

 
170,063

Goodwill
91,562

 
91,562

Intangible assets, net
50,098

 
52,121

Other assets
70,465

 
46,034

Assets held for sale
69,454

 
68,231

Total assets
$
1,814,840

 
$
1,864,918


 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Debt, net
$
282,798

 
$
354,083

Unearned premiums
589,074

 
599,444

Policy liabilities and unpaid claims
130,585

 
131,611

Deferred revenue
75,276

 
75,754

Reinsurance payable
115,029

 
117,597

Other liabilities and accrued expenses
163,224

 
124,190

Liabilities held for sale
64,199

 
62,980

Total liabilities
$
1,420,185

 
$
1,465,659


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

 
$

Common Stock: $0.001 par value, 200,000,000 shares authorized, 34,505,781 and 35,870,348 shares issued and outstanding, respectively
35

 
36

Additional paid-in capital
323,334

 
331,892

Accumulated other comprehensive income (loss), net of tax
251

 
(2,058
)
Retained earnings
60,015

 
57,231

Total Tiptree Inc. stockholders’ equity
383,635

 
387,101

Non-controlling interests - Other
11,020

 
12,158

Total stockholders’ equity
394,655

 
399,259

Total liabilities and stockholders’ equity
$
1,814,840

 
$
1,864,918













See accompanying notes to condensed consolidated financial statements.

F- 3

TIPTREE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data)


 
Three Months Ended 
 March 31,
 
2019
 
2018
Revenues:
 
 
 
Earned premiums, net
$
118,973

 
$
101,645

Service and administrative fees
25,895

 
24,576

Ceding commissions
2,504

 
2,283

Net investment income
4,301

 
4,205

Net realized and unrealized gains (losses)
20,151

 
7,384

Other revenue
12,079

 
7,979

Total revenues
183,903

 
148,072

Expenses:
 
 
 
Policy and contract benefits
40,841

 
36,626

Commission expense
74,903

 
62,633

Employee compensation and benefits
29,153

 
27,788

Interest expense
6,920

 
5,946

Depreciation and amortization
3,094

 
2,957

Other expenses
23,837

 
19,165

Total expenses
178,748

 
155,115

Income (loss) before taxes from continuing operations
5,155

 
(7,043
)
Less: provision (benefit) for income taxes
854

 
(1,568
)
Net income (loss) from continuing operations
4,301

 
(5,475
)
Discontinued operations:
 
 
 
Income (loss) before taxes from discontinued operations

 
624

Gain on sale of discontinued operations

 
46,184

Less: Provision (benefit) for income taxes

 
12,327

Net income (loss) from discontinued operations

 
34,481

Net income (loss) before non-controlling interests
4,301

 
29,006

Less: net income (loss) attributable to non-controlling interests - TFP

 
5,392

Less: net income (loss) attributable to non-controlling interests - Other
376

 
54

Net income (loss) attributable to Common Stockholders
$
3,925

 
$
23,560

 
 
 
 
Net income (loss) per Common Share:
 
 
 
Basic, continuing operations, net
$
0.11

 
$
(0.15
)
Basic, discontinued operations, net

 
0.94

Basic earnings per share
$
0.11

 
$
0.79

 
 
 
 
Diluted, continuing operations, net
0.11

 
(0.15
)
Diluted, discontinued operations, net

 
0.94

Diluted earnings per share
$
0.11

 
$
0.79

 
 
 
 
Weighted average number of Common Shares:
 
 
 
Basic
34,673,054

 
29,861,496

Diluted
34,673,054

 
29,861,496

 
 
 
 
Dividends declared per Common Share
$
0.040

 
$
0.035










See accompanying notes to condensed consolidated financial statements.

F- 4

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



 
Three Months Ended 
 March 31,
 
2019
 
2018
Net income (loss) before non-controlling interests
$
4,301

 
$
29,006

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
Unrealized holding gains (losses) arising during the period
3,128

 
(2,293
)
Related tax (expense) benefit
(713
)
 
504

Reclassification of (gains) losses included in net income
5

 
527

Related tax expense (benefit)
(1
)
 
(112
)
Unrealized gains (losses) on available-for-sale securities, net of tax
2,419

 
(1,374
)
 
 
 
 
Interest rate swaps (cash flow hedges):
 
 
 
Unrealized gains (losses) on interest rate swaps

 
1,111

Related tax (expense) benefit

 
(276
)
Reclassification of (gains) losses included in net income (1)

 
(3,845
)
Related tax expense (benefit)

 
936

Unrealized (losses) gains on interest rate swaps from cash flow hedges, net of tax

 
(2,074
)
 
 
 
 
Other comprehensive income (loss), net of tax
2,419

 
(3,448
)
Comprehensive income (loss)
6,720

 
25,558

Less: Comprehensive income (loss) attributable to non-controlling interests - TFP

 
4,829

Less: Comprehensive income (loss) attributable to non-controlling interests - Other
387

 
(382
)
Comprehensive income (loss) attributable to Common Stockholders
$
6,333

 
$
21,111


(1) 
Deconsolidated as part of the sale of Care. See Note (3) Dispositions, Assets Held for Sale & Discontinued Operations.



























See accompanying notes to condensed consolidated financial statements.

F- 5

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



 
Number of Shares
 
Par Value
 
Additional paid in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Shares held by subsidiaries
 
Total stockholders’ equity to Tiptree Inc.
 
Non-controlling
interests - TFP
 
Non-controlling
interests - Other
 
Total stockholders' equity
 
Common Stock
 
Class B
 
Common Stock
 
Class B
 
 
 
 
Common Stock
 
Common Stock Amount
 
Class B Shares
 
Class B Amount
 
 
 
 
Balance at December 31, 2017
35,003,004

 
8,049,029

 
$
35

 
$
8

 
$
295,582

 
$
966

 
$
38,079

 
(5,197,551
)
 
$
(34,585
)
 
(8,049,029
)
 
$
(8
)
 
$
300,077

 
$
77,494

 
$
19,203

 
$
396,774

Amortization of share based incentive compensation

 

 

 

 
585

 

 

 

 

 

 

 
585

 

 
648

 
1,233

Vesting of share-based incentive compensation

 

 

 

 
(1,003
)
 

 

 
145,973

 
949

 

 

 
(54
)
 

 

 
(54
)
Other comprehensive income, net of tax

 

 

 

 

 
(2,449
)
 

 

 

 

 

 
(2,449
)
 
(563
)
 
(436
)
 
(3,448
)
Non-controlling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 
(241
)
 

 
(241
)
Shares purchased under stock purchase plan

 

 

 

 

 

 

 
(29,365
)
 
(187
)
 

 

 
(187
)
 

 

 
(187
)
Net changes in non-controlling interest

 

 

 

 
(486
)
 

 

 

 

 

 

 
(486
)
 

 
(14,039
)
 
(14,525
)
Dividends declared

 

 

 

 

 

 
(898
)
 

 

 

 

 
(898
)
 

 

 
(898
)
Net income

 

 

 

 

 

 
23,560

 

 

 

 

 
23,560

 
5,392

 
54

 
29,006

Balance at March 31, 2018
35,003,004

 
8,049,029

 
$
35

 
$
8

 
$
294,678

 
$
(1,483
)
 
$
60,741

 
(5,080,943
)
 
$
(33,823
)
 
(8,049,029
)
 
$
(8
)
 
$
320,148

 
$
82,082

 
$
5,430

 
$
407,660





















See accompanying notes to condensed consolidated financial statements.

F- 6

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares
 
Par value
 
Additional paid in capital
 
Accumulated other comprehensive income (loss)
 
Retained earnings
 
Total stockholders’ equity to Tiptree Inc.
 
Non-controlling interests - Other
 
Total stockholders' equity
Balance at December 31, 2018
35,870,348

 
$
36

 
$
331,892

 
$
(2,058
)
 
$
57,231

 
$
387,101

 
$
12,158

 
$
399,259

Adoption of accounting standard (1)

 

 

 
(99
)
 
99

 

 

 

Amortization of share-based incentive compensation

 

 
670

 

 

 
670

 
661

 
1,331

Vesting of share-based incentive compensation
108,163

 

 
(144
)
 

 

 
(144
)
 
(2,236
)
 
(2,380
)
Shares purchased under stock purchase plan
(1,472,730
)
 
(1
)
 
(9,084
)
 

 

 
(9,085
)
 

 
(9,085
)
Non-controlling interest contributions

 

 

 

 

 

 
50

 
50

Dividends declared

 

 

 

 
(1,240
)
 
(1,240
)
 

 
(1,240
)
Other comprehensive income, net of tax

 

 

 
2,408

 

 
2,408

 
11

 
2,419

Net income

 

 

 

 
3,925

 
3,925

 
376

 
4,301

Balance at March 31, 2019
34,505,781

 
$
35

 
$
323,334

 
$
251

 
$
60,015

 
$
383,635

 
$
11,020

 
$
394,655


(1) 
Amounts reclassified due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






























See accompanying notes to condensed consolidated financial statements.

F- 7

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


 
Three Months Ended 
 March 31,
 
2019
 
2018
Operating Activities:
 
 
 
Net income (loss) attributable to Common Stockholders
$
3,925

 
$
23,560

Net income (loss) attributable to non-controlling interests - TFP

 
5,392

Net income (loss) attributable to non-controlling interests - Other
376

 
54

Net income (loss)
4,301

 
29,006

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Net realized and unrealized (gains) losses
(20,151
)
 
(7,384
)
Net (gain) on sale of subsidiary

 
(46,184
)
Non cash compensation expense
1,408

 
1,233

Amortization/accretion of premiums and discounts
308

 
169

Depreciation and amortization expense
3,094

 
2,958

Bad debt expense
80

 
64

Amortization of deferred financing costs
240

 
329

Loss on extinguishment of debt
1,241

 
428

Deferred tax expense (benefit)
727

 
10,759

Changes in operating assets and liabilities:
 
 
 
Mortgage loans originated for sale
(350,220
)
 
(360,542
)
Proceeds from the sale of mortgage loans originated for sale
366,121

 
390,747

(Increase) decrease in notes and accounts receivable
(5,020
)
 
(15,234
)
(Increase) decrease in reinsurance receivables
(645
)
 
(9,444
)
(Increase) decrease in deferred acquisition costs
(664
)
 
4,016

(Increase) decrease in other assets
2,201

 
(18,361
)
Increase (decrease) in unearned premiums
(10,370
)
 
17,639

Increase (decrease) in policy liabilities and unpaid claims
(1,026
)
 
5,737

Increase (decrease) in deferred revenue
(478
)
 
1,604

Increase (decrease) in reinsurance payable
(2,568
)
 
5,624

Increase (decrease) in other liabilities and accrued expenses
3,261

 
(9,713
)
Net cash provided by (used in) operating activities
(8,160
)
 
3,451

 
 
 
 
Investing Activities:
 
 
 
Purchases of investments
(30,725
)
 
(104,449
)
Proceeds from sales and maturities of investments
120,309

 
76,291

Proceeds from the sale of real estate
2,555

 
4,200

Purchases of fixed assets
(3,231
)
 
(614
)
Proceeds from the sale of subsidiaries
9,676

 
3,561

Proceeds from notes receivable
7,711

 
7,803

Issuance of notes receivable
(11,629
)
 
(7,778
)
Net cash provided by (used in) investing activities
94,666

 
(20,986
)
 
 
 
 
Financing Activities:
 
 
 
Non-controlling interest contributions
50

 

Non-controlling interest distributions

 
(241
)
Payment of debt issuance costs
(37
)
 
(346
)
Proceeds from borrowings and mortgage notes payable
382,506

 
363,590

Principal paydowns of borrowings and mortgage notes payable
(455,414
)
 
(395,625
)
Repurchases of Common Stock
(9,085
)
 
(187
)
Net cash provided by (used in) financing activities
(81,980
)
 
(32,809
)
Net increase (decrease) in cash, cash equivalents and restricted cash
4,526

 
(50,344
)
Cash, cash equivalents and restricted cash – beginning of period
96,524

 
142,237

Cash, cash equivalents and restricted cash – beginning of period - held for sale
2,860

 
10,533

Cash, cash equivalents and restricted cash – end of period (1)
103,910

 
102,426

Less: Reclassification of cash to assets held for sale
2,769

 
1,871

Cash, cash equivalents and restricted cash– end of period
$
101,141

 
$
100,555

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities:
 
 
 
Right-of-use asset obtained in exchange for lease liability
$
33,558

 
$

Acquired real estate properties through, or in lieu of, foreclosure of the related loan
$
1,958

 
$
3,435

Equity securities acquired through the sale of a subsidiary and asset sales
$

 
$
134,083

 
 
 
 
 
As of
Reconciliation of cash, cash equivalents and restricted cash shown in the statement of cash flows
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
88,079

 
$
86,003

Restricted cash
13,062

 
10,521

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
101,141

 
96,524


(1) 
Includes cash in assets held for sale
See accompanying notes to condensed consolidated financial statements.

F- 8

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)



(1) Organization

Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s Common Stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into one reportable segment: Specialty Insurance. We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable segments and other business activities, as Tiptree Capital.

In this report “Common Stock” means Class A common stock $0.001 par value for periods prior to June 7, 2018 and thereafter the common stock $0.001 par value.

(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Tiptree have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries. The condensed consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited condensed consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018. 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. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2019.

As a result of changes in presentation made in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications had no effect on the reported results of operations.

Tiptree consolidates those entities in which it has an investment of 50% or more of voting rights or has control over significant operating, financial and investing decisions of the entity as well as variable interest entities (VIEs) in which Tiptree is determined to be the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.

Non-controlling interests on the condensed consolidated balance sheets represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated.

As a result of the adoption of ASU 2016-02, the Company’s operating leases are now recognized on the condensed consolidated balance sheets as of January 1, 2019. See Note (14) Other Assets and Other Liabilities and Accrued Expenses for additional information.


F- 9

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of the following significant items:

Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives;
Value of acquired assets and liabilities;
Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives;
Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims;
Valuation of contingent share issuances for compensation and purchase consideration, including estimates of number of shares and vesting schedules;
Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service, administration fees, and loan origination fees; and
Other matters that affect the reported amounts and disclosure of contingencies in the condensed consolidated financial statements.

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 Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at level 2 are valued based on one or more of the following:

a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in nonactive markets;
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;
d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability.

Fair Value Option

In addition to the financial instruments the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize 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 Net realized and unrealized gains (losses) within the condensed consolidated statements of operations. 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 reported separately in our condensed consolidated balance sheets from those instruments using another accounting method.


F- 10

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company adopted the standard in the first quarter of 2019 under the modified retrospective approach without restating prior comparative periods. The adoption of the updated guidance resulted in the Company recognizing a right of use asset of $32,052 as part of other assets and a lease liability of $33,558 as part of other liabilities and accrued expenses in the condensed consolidated balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance, for its operating lease agreements at January 1, 2019. We have elected the practical expedient to not separate lease components and non-lease components, and leases with an initial term of 12 months or less are not recorded on the balance sheet. The cumulative effect adjustment to the opening balance of retained earnings was zero.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2017. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The guidance shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the guidance on hedge accounting. The amendment will make more financial and nonfinancial hedging strategies eligible for hedge accounting and amend the presentation and disclosure requirements. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 can be adopted immediately in any interim or annual period. The mandatory effective date for calendar year-end public companies is January 1, 2019. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which permits companies to reclassify stranded tax effects caused by Public Law no. 115-97, commonly referred to as the Tax Cuts and Jobs Act (Tax Act), from accumulated other comprehensive income (AOCI) to retained earnings. Deferred tax assets (DTA) related to available for sale (AFS) securities unrealized gains and losses that were revalued as of December 31, 2017 created stranded tax effects in accumulated other comprehensive income (AOCI) due to the enactment of the Tax Act, due to the nature of existing GAAP requiring recognition of tax rate change effects on the DTA revaluation related to AFS securities as an adjustment to provision for income taxes. Specifically, ASU 2018-02 permits a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. Additionally, the ASU requires new disclosures by all companies, whether they opt to do the reclassification or not. The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company has adopted the standard effective January 1, 2019, and reclassified the stranded tax effects caused by the Tax Act from AOCI to retained earnings. The standard is applied in the period of adoption, and the impact to the Company’s condensed consolidated financial statements in the period of adoption is not material. The Company’s accounting policy for the release of stranded tax effects in AOCI is the aggregate portfolio approach.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses

F- 11

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 does not change the qualitative assessment; however, it removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Therefore, as the FASB notes in the ASU’s Basis for Conclusions, the goodwill of reporting units with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit indicate that goodwill is impaired. Entities will, however, be required to disclose any reporting units with zero or negative carrying amounts and the respective amounts of goodwill allocated to those reporting units. The amendments in ASU 2017-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effect on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The modifications include the removal of certain requirements, modifications to exiting requirements and additional requirements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect on its condensed consolidated financial statements.

(3) Dispositions, Assets Held for Sale and Discontinued Operations

Dispositions

The Company completed the sale of Care, as well as two senior living properties held in our specialty insurance business to Invesque Inc. (Invesque), on February 1, 2018. The pre-tax comprehensive income on the sale for the three months ended March 31, 2018 was approximately $44.2 million, which consists of $46.2 million gain on sale of a subsidiary, $1.8 million of realized gain on the sale of the specialty insurance properties, offset by the reclassification of the interest rate swap from AOCI of $3.8 million. In December 2018 an additional gain on sale of a subsidiary of $10.7 million of earnout consideration was recognized as a result of a portfolio disposition by Invesque.

Total consideration received for the sale of Care was $150.7 million, including approximately 16.6 million shares of Invesque, resulting in an ownership of approximately 34% of the acquiring company at the time of sale. The Company has elected to apply the fair value option to the investment in Invesque. As such, these shares are held at fair value within equity securities.

When the Company entered into a purchase agreement on November 16, 2017 to sell Care, the Company concluded that the sale met the requirements to be classified as a discontinued operation. As a result, the Company reclassified the income and expenses attributable to Care to net income (loss) from discontinued operations through the completion of the sale.

The Company has entered into a definitive agreement to sell Luxury, which is pending a regulatory review, and is classified as held for sale at March 31, 2019 and December 31, 2018. The agreement did not meet the requirements to be classified as a discontinued operation.

As of March 31, 2019 and December 31, 2018, the Company did not record any impairments with respect to assets held for sale.

F- 12

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)



Assets Held for Sale

The following table represents detail of assets and liabilities held for sale in the condensed consolidated balance sheets for the following periods:
 
As of
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Investments:
 
 
 
Loans, at fair value
$
63,372

 
$
63,340

Other investments
1,283

 
798

Total Investments
64,655

 
64,138

Cash and cash equivalents
2,769

 
2,860

Notes and accounts receivable, net
203

 
230

Other assets (1)
1,827

 
1,003

Assets held for sale
$
69,454

 
$
68,231

 
 
 
 
Liabilities
 
 
 
Debt, net
$
61,602

 
$
61,381

Other liabilities and accrued expenses (2)
2,597

 
1,599

Liabilities held for sale
$
64,199

 
$
62,980


(1) 
Includes $582 and $0 of a right of use asset as of March 31, 2019 and December 31, 2018, respectively.
(2) 
Includes $601 and $0 of a lease liability as of March 31, 2019 and December 31, 2018, respectively.

Discontinued Operations

The following table represents detail of revenues and expenses of discontinued operations in the condensed consolidated statements of operations for the following periods:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Revenues:

 

Rental and related revenue
$

 
$
6,476

Other revenue

 
149

Total revenues

 
6,625

Expenses:
 
 
 
Employee compensation and benefits

 
2,788

Interest expense

 
1,252

Other expenses

 
1,961

Total expenses

 
6,001

Net income (loss) before taxes from discontinued operations

 
624

Gain on sale of discontinued operations

 
46,184

Less: provision (benefit) for income taxes

 
12,327

Net income (loss) from discontinued operations
$

 
$
34,481


F- 13

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


The following table represents a summary of cash flows related to discontinued operation included in the condensed consolidated statements of cash flows for the following periods:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net cash provided by (used in):
 
 
 
Operating activities
$

 
$
(2,095
)
Investing activities

 
(592
)
Financing activities

 
(123
)
Net cash flows provided by discontinued operations
$

 
$
(2,810
)


(4) Operating Segment Data

Tiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into one reportable segment – Specialty Insurance. We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable operating segments and other business activities, as Tiptree Capital. Corporate activities include holding company interest expense, employee compensation and benefits, and other expenses.

Our reportable segment’s income or loss is reported before income taxes, discontinued operations and non-controlling interests. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired. As of December 31, 2018, Mortgage and Asset Management, which previously were reportable segments, no longer met the quantitative threshold for disclosure. Those are now reported in Other, which we refer to as Tiptree Capital. Prior periods have been conformed to the current year presentation. Intercompany transactions are eliminated.

A description of our reportable segment and of Tiptree Capital are as follows:

Specialty Insurance operations are conducted through Fortegra Financial Corporation (Fortegra), an insurance holding company. Fortegra underwrites and provides specialty insurance products, primarily in the United States, and is a leading provider of credit insurance and asset protection products. Fortegra’s range of products and services include credit protection insurance, warranty and service contract products, and other specialty insurance programs which underwrite niche personal and commercial lines of insurance. We also offer various other insurance related products and services throughout the U.S. through our non-regulated subsidiaries.

Tiptree Capital includes our asset management, mortgage and shipping operations, and other investments (including our Invesque shares).

The tables below present the components of revenue, expense, pre-tax income (loss), and assets for our reportable segment as well as Tiptree Capital for the following periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 March 31, 2019
 
Three Months Ended 
 March 31, 2018
 
Specialty Insurance
 
Tiptree Capital
 
Total
 
Specialty Insurance
 
Tiptree Capital
 
Total
Total revenue
$
154,628

 
$
29,275

 
$
183,903

 
$
129,998

 
$
18,074

 
$
148,072

Total expense
(146,490
)
 
(23,357
)
 
(169,847
)
 
(128,655
)
 
(19,746
)
 
(148,401
)
Corporate expense

 

 
(8,901
)
 

 

 
(6,714
)
Net income (loss) before taxes from continuing operations
$
8,138

 
$
5,918

 
$
5,155

 
$
1,343

 
$
(1,672
)
 
$
(7,043
)
Less: provision (benefit) for income taxes
 
 
 
 
854

 
 
 
 
 
(1,568
)
Net income (loss) from discontinued operations
 
 
 
 

 
 
 
 
 
34,481

Net income (loss) before non-controlling interests
 
 
 
 
$
4,301

 
 
 
 
 
$
29,006

Less: net income (loss) attributable to non-controlling interests
 
 
 
 
376

 
 
 
 
 
5,446

Net income (loss) attributable to Common Stockholders
 
 
 
 
$
3,925

 
 
 
 
 
$
23,560

 
 
 
 
 
 

F- 14

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


 
 
 
 
 
 
The following table summarizes sources of revenue from Tiptree Capital:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net realized and unrealized gains (losses) (1)
$
18,037

 
$
10,791

Other investment income (2)
9,881

 
5,108

Management fee income
1,267

 
1,577

Other
90

 
598

Total Revenue
$
29,275

 
$
18,074


(1) 
See Note (5) Investments for the components of Net realized and unrealized gains (losses) related to Tiptree Capital.
(2) 
See Note (5) Investments for the components of Other investment income.

The following table presents the reportable segment and Tiptree Capital assets for the following periods:
 
As of March 31, 2019
 
As of December 31, 2018
 
Specialty Insurance
 
Tiptree Capital
 
Corporate
 
Total
 
Specialty Insurance
 
Tiptree Capital
 
Corporate
 
Total
Total assets
$
1,450,765

 
$
320,320

 
$
43,755

 
$
1,814,840

 
$
1,514,084

 
$
318,420

 
$
32,414

 
$
1,864,918


(5) Investments

The following table presents the Company's investments related to insurance operations (Specialty Insurance) and investments from other Tiptree investing activities (Tiptree Capital), measured at fair value as of the following periods:
 
As of March 31, 2019
 
As of December 31, 2018
 
Specialty Insurance
 
Tiptree Capital
 
Total
 
Specialty Insurance
 
Tiptree Capital
 
Total
Available for sale securities, at fair value
$
283,929

 
$

 
$
283,929

 
$
283,563

 
$

 
$
283,563

Loans, at fair value
71,633

 
53,512

 
125,145

 
158,466

 
56,917

 
215,383

Equity securities
26,977

 
95,615

 
122,592

 
29,425

 
93,554

 
122,979

Other investments
18,751

 
57,990

 
76,741

 
18,526

 
56,476

 
75,002

Total investments
$
401,290

 
$
207,117

 
$
608,407

 
$
489,980

 
$
206,947

 
$
696,927



F- 15

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


Available for Sale Securities, at fair value

All of the Company’s investments in available for sale securities (AFS) as of March 31, 2019 and December 31, 2018 are held by subsidiaries in the specialty insurance business. The following tables present the Company's investments in available for sale securities:
 
As of March 31, 2019
 
Amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
78,903

 
$
595

 
$
(213
)
 
$
79,285

Obligations of state and political subdivisions
63,234

 
745

 
(197
)
 
63,782

Corporate securities
93,144

 
798

 
(260
)
 
93,682

Asset backed securities
42,356

 
38

 
(1,203
)
 
41,191

Certificates of deposit
1,096

 

 

 
1,096

Obligations of foreign governments
4,865

 
29

 
(1
)
 
4,893

Total
$
283,598

 
$
2,205

 
$
(1,874
)
 
$
283,929

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
71,945

 
$
266

 
$
(463
)
 
$
71,748

Obligations of state and political subdivisions
67,624

 
280

 
(458
)
 
67,446

Corporate securities
96,888

 
78

 
(1,241
)
 
95,725

Asset backed securities
41,912

 
14

 
(1,274
)
 
40,652

Certificates of deposit
1,241

 

 

 
1,241

Obligations of foreign governments
6,750

 
12

 
(11
)
 
6,751

Total
$
286,360

 
$
650

 
$
(3,447
)
 
$
283,563


The amortized cost and fair values of investments in debt securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
As of
 
March 31, 2019
 
December 31, 2018
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$
32,144

 
$
32,107

 
$
30,920

 
$
30,836

Due after one year through five years
166,245

 
167,544

 
167,201

 
166,366

Due after five years through ten years
30,208

 
30,291

 
32,805

 
32,185

Due after ten years
12,645

 
12,796

 
13,522

 
13,524

Asset-backed securities
42,356

 
41,191

 
41,912

 
40,652

Total
$
283,598

 
$
283,929

 
$
286,360

 
$
283,563



F- 16

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


The following tables summarize the gross unrealized losses on available for sale securities in an unrealized loss position:
 
As of March 31, 2019
 
Less Than or Equal to One Year
 
More Than One Year
 
Fair value
 
Gross
unrealized losses
 
# of Securities
 
Fair value
 
Gross unrealized losses
 
# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
2,058

 
$
(3
)
 
15

 
$
21,591

 
$
(210
)
 
127

Obligations of state and political subdivisions
5,555

 
(3
)
 
13

 
15,093

 
(194
)
 
89

Corporate securities
4,292

 
(31
)
 
32

 
23,033

 
(229
)
 
271

Asset-backed securities
33,316

 
(272
)
 
12

 
2,665

 
(931
)
 
10

Obligations of foreign governments

 

 

 
942

 
(1
)
 
4

Total
$
45,221

 
$
(309
)
 
72

 
$
63,324

 
$
(1,565
)
 
501

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Less Than or Equal to One Year
 
More Than One Year
 
Fair value
 
Gross
unrealized losses
 
# of Securities
 
Fair value
 
Gross unrealized losses
 
# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
14,844

 
$
(70
)
 
51

 
$
19,495

 
$
(393
)
 
128

Obligations of state and political subdivisions
15,830

 
(30
)
 
41

 
21,594

 
(428
)
 
115

Corporate securities
47,976

 
(393
)
 
352

 
28,517

 
(848
)
 
404

Asset-backed securities
37,613

 
(1,262
)
 
35

 
614

 
(12
)
 
5

Obligations of foreign governments
2,313

 
(6
)
 
15

 
1,301

 
(5
)
 
8

Total
$
118,576

 
$
(1,761
)
 
494

 
$
71,521

 
$
(1,686
)
 
660

The Company does not intend to sell the investments that were in an unrealized loss position as of March 31, 2019, and management believes that it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of March 31, 2019 and December 31, 2018, based on the Company's review, none of the fixed maturity securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery.

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company cannot remove invested assets from these accounts without prior approval of the contractual party or regulatory authority, as applicable. The following table presents the Company's restricted investments included in the Company's available for sale securities:
 
As of
 
March 31, 2019
 
December 31, 2018
Fair value of restricted investments for special deposits required by state insurance departments
$
6,317

 
$
9,398

Fair value of restricted investments in trust pursuant to reinsurance agreements
26,086

 
24,931

Total fair value of restricted investments
$
32,403

 
$
34,329



F- 17

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


The following table presents additional information on the Company’s available for sale securities:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Purchases of available for sale securities
$
29,861

 
$
75,570

 
 
 
 
Proceeds from maturities, calls and prepayments of available for sale securities
$
11,144

 
$
10,018

 
 
 
 
Gains (losses) realized on maturities, calls and prepayments of available for sale securities
$

 
$
(27
)
 
 
 
 
Gross proceeds from sales of available for sale securities
$
21,168

 
$
32,032

 
 
 
 
Gains (losses) realized on sales of available for sale securities
$
(5
)
 
$
(500
)

Loans, at fair value

The following tables present the Company’s investments in loans measured at fair value and the Company’s investments in loans, measured at fair value pledged as collateral:
 
As of March 31, 2019
 
As of December 31, 2018
 
Fair value
 
Unpaid principal balance (UPB)
 
Fair value exceeds / (below) UPB
 
Pledged as Collateral
 
Fair value
 
Unpaid principal balance (UPB)
 
Fair value exceeds / (below) UPB
 
Pledged as Collateral
Specialty Insurance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate loans (1)
$
47,094

 
$
51,454

 
$
(4,360
)
 
$

 
$
130,910

 
$
136,475

 
$
(5,565
)
 
$
120,202

Non-performing loans (2)
24,539

 
30,545

 
(6,006
)
 

 
27,556

 
33,887

 
(6,331
)
 

Tiptree Capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans held for sale (3)
53,512

 
51,239

 
2,273

 
53,028

 
56,917

 
54,679

 
2,238

 
56,441

Total loans, at fair value
$
125,145

 
$
133,238

 
$
(8,093
)
 
$
53,028

 
$
215,383

 
$
225,041

 
$
(9,658
)
 
$
176,643


(1) 
The UPB of these loans approximates cost basis.
(2) 
The cost basis of NPLs was approximately $19,033 and $21,555 at March 31, 2019 and December 31, 2018, respectively.
(3) 
As of March 31, 2019 there was one mortgage loan held for sale with a fair value of $123 that was 90 days or more past due. As of December 31, 2018 there were no mortgage loans held for sale 90 days or more past due.

Equity securities

Equity securities represents the carrying amount of the Company's basis in equity investments. Included within the equity securities balance are 16.6 million shares of Invesque for which the Company has elected to apply the fair value option. The following table contains information regarding the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods:
 
As of March 31, 2019
 
As of December 31, 2018
 
Specialty Insurance
 
Tiptree Capital
 
Total
 
Specialty Insurance
 
Tiptree Capital
 
Total
Invesque Inc.
$
20,015

 
$
95,615

 
$
115,630

 
$
19,584

 
$
93,554

 
$
113,138

Other equity securities
6,962

 

 
6,962

 
9,841

 

 
9,841

Total equity securities
$
26,977

 
$
95,615

 
$
122,592

 
$
29,425

 
$
93,554

 
$
122,979



F- 18

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


Other Investments

The following table contains information regarding the Company’s other investments as of the following periods:
 
As of March 31, 2019
 
As of December 31, 2018
 
Specialty Insurance
 
Tiptree Capital
 
Total
 
Specialty Insurance
 
Tiptree Capital
 
Total
Vessels, net (1)
$

 
$
49,547

 
$
49,547

 
$

 
$
50,125

 
$
50,125

Real estate
9,863

 

 
9,863

 
10,019

 

 
10,019

Other
8,888

 
8,443

 
17,331

 
8,507

 
6,351

 
14,858

Total other investments
$
18,751

 
$
57,990

 
$
76,741

 
$
18,526

 
$
56,476

 
$
75,002


(1) 
Net of accumulated depreciation of $1,490 and $898, respectively.

Net Investment Income - Specialty Insurance

Net investment income represents investment income and expense from investments related to insurance operations as disclosed within net investment income on the condensed consolidated statements of operations. The following tables present the components of net investment income by source of income:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Interest:
 
 
 
Available for sale securities, at fair value
$
2,127

 
$
1,219

Loans, at fair value
1,831

 
2,472

Other investments
104

 
342

Dividends from equity securities
574

 
390

Other

 
97

Subtotal
4,636

 
4,520

Less: investment expenses
335

 
315

Net investment income
$
4,301

 
$
4,205


Other Investment Income - Tiptree Capital

Other investment income represents other income from other Tiptree non-insurance activities as disclosed within other revenue on the condensed consolidated statements of operations, see Note (15) Other Revenue, Other Expenses and Other Income. The following tables present the components of other investment income by type:

 
Three Months Ended 
 March 31,
 
2019
 
2018
Interest income:
 
 
 
Loans, at fair value
$
1,360

 
$
873

Other
130

 
254

Dividends from equity securities
2,533

 
1,663

Loan fee income:
 
 
 
Loans, at fair value
2,239

 
2,318

Charter revenue from vessels
3,619

 

Other investment income
$
9,881

 
$
5,108


Net realized and unrealized gains (losses)

The following table presents the components of net realized and unrealized gains (losses) recorded on the condensed consolidated statements of operations. Net unrealized gains (losses) on available for sale securities are included within other comprehensive income, and as such, are not included in this table:

F- 19

TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2019
(in thousands, except share data)


 
Three Months Ended 
 March 31,
 
2019
 
2018
Net realized gains (losses)
 
 
 
Specialty Insurance:
 
 
 
 Reclass of unrealized gains (losses) on AFS from OCI
$
(5
)
 
$
(527
)
 Net gains (losses) on loans
(278
)
 
1,247

 Net gains (losses) on equity securities
482

 
2,574

 Other

 
1,845

Tiptree Capital:
 
 
 
 Net gains (losses) on loans
13,587

 
15,796

Total net realized gains (losses)
13,786

 
20,935

 
 
 
 
Net unrealized gains (losses)
 
 
 
Specialty Insurance:
 
 
 
 Net change in unrealized gains (losses) on loans
224