Discontinued Operations

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued operations

OMHHF historically has been engaged in the business of originating and servicing FHA-insured multifamily and healthcare facility loans and securitizing these loans into GNMA mortgage backed securities. OMHHF offered mortgage services to developers of commercial properties including apartments, elderly housing and nursing homes that satisfy FHA criteria. OMHHF maintained a mortgage servicing portfolio for which it provided a full array of services, including the collection of mortgage payments from mortgagors which were passed on to the mortgage holders, construction loan management and asset management.

The Company owns an 83.68% controlling interest in OMHHF. The 16.32% noncontrolling interest belongs to one related party who is the President and Chief Executive Officer of OMHHF.

On June 2, 2016, OMHHF entered into a definitive agreement to sell OMHHF's entire portfolio of permanent mortgage loans (consisting of over 480 permanent loans insured by the U.S. Department of Housing and Urban Development), including the associated mortgage servicing rights, to Walker & Dunlop, LLC. On June 20, 2016, OMHHF completed the transaction for cash consideration of approximately $45.0 million. An amount equal to $1.4 million was withheld from the purchase price until such time as one loan in the mortgage loan portfolio becomes current or is modified. The Company recorded a net gain of $14.9 million related to this transaction which is included in discontinued operations on the condensed consolidated statement of operations during the three month period ended June 30, 2016. During the second quarter of 2016, the Company also sold its business pipeline of mortgage loans for approximately $1.5 million.

During the three month period ended September 30, 2016, the Company recognized the $1.4 million that was withheld from the purchase price of the permanent mortgage loans as a result of the loan being modified. Also, the Company sold its construction loan portfolio and the associated mortgage servicing rights for approximately $3.8 million.

The Company made a dividend distribution to the noncontrolling interest in the amount of $5.7 million during the three month period ended September 30, 2016.

The Company determined that the sale of the assets of OMHHF met the criteria to be classified within discontinued operations, and the results of OMHHF are reported as discontinued operations in the condensed consolidated statements of operations. Prior-period amounts have been recast for discontinued operations.

The following is a summary of the assets and liabilities of OMHHF as of September 30, 2016 and December 31, 2015:

(Expressed in thousands)
	September 30, 2016		December 31, 2015
ASSETS
Securities owned	$	563	$	562
Loans held for sale	—		60,234
Mortgage servicing rights	268		28,168
Other assets	10,917		10,917
Total assets	$	11,748	$	99,881
LIABILITIES
Accounts payable and other liabilities	$	20,605	$	64,124
Deferred tax liability	—		10,556
Total liabilities	$	20,605	$	74,680

The following is a summary of revenue and expenses of OMHHF for the three and nine months ended September 30, 2016 and 2015:

(Expressed in thousands)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
REVENUE
Interest	$	112		$	625		$	921		$	1,674
Principal transactions, net	(2,380		)	(5,648		)	(9,008		)	2,579
Gain on sale of assets	—			—			14,916			—
Other	4,073			11,081			16,631			21,160
Total revenue	1,805			6,058			23,460			25,413
EXPENSES
Compensation and related expenses	573			3,432			4,225			10,108
Communications and technology	40			79			201			275
Occupancy and equipment costs	37			75			399			225
Interest	28			313			408			853
Other	239			1,113			2,630			5,138
Total expenses	917			5,012			7,863			16,599
Income before income taxes	$	888		$	1,046		$	15,597		$	8,814
Income attributable to noncontrolling interest before income taxes	$	145		$	171		$	2,545		$	1,438

The following is a summary of cash flows of OMHHF for the nine months ended September 30, 2016 and 2015:

(Expressed in thousands)
	For the Nine Months Ended September 30,
	2016			2015
Cash (used in) provided by operating activities	$	(4,143	)	$	8,005
Cash provided by investing activities	47,562			—
Cash used in financing activities (1)	(35,358		)	(187		)
Net increase in cash and cash equivalents	$	8,061		$	7,818

(1)    Includes cash dividends paid to the Parent and noncontrolling interest of $29.4 million and $5.7 million, respectively.

Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which the Company has a year-to-date loss before income taxes from continuing operations and income before income taxes in other categories of earnings, such as discontinued operations, the Company must allocate the tax provision to the other categories of earnings, and then record a related tax benefit in continuing operations. During the three and nine months ended September 30, 2016, the Company recognized net income from discontinued operations, and, as a result, recorded income tax expense of $475,000 and $6.2 million, respectively, which is included in net income from discontinued operations in the condensed consolidated statement of operations and statement of comprehensive income (loss). Accordingly, the Company recognized a related income tax benefit of $751,000 and $7.2 million from continuing operations in the condensed consolidated statement of operations and statement of comprehensive income (loss) for the three and nine months ended September 30, 2016, respectively.