Notes to Consolidated Financial Statements
June 30, 2016
(Unaudited)
1
.
Organization and basis of presentation
We were incorporated in the United States Virgin Islands on March 15, 2012 (our “inception”). Subsequent to our separation from Altisource Portfolio Solutions S.A. (“ASPS”) on December 21, 2012, we immediately commenced operations. Our primary business is to provide asset management and certain corporate governance services to institutional investors. In October 2013, we applied for and were granted registration by the SEC as a registered investment adviser under section 203(c) of the Investment Advisers Act of 1940.
Our primary client currently is Altisource Residential Corporation (“Residential”), a public real estate investment trust (“REIT”) that is focused on acquiring and managing quality, affordable single-family rental properties for working class families throughout the United States. Substantially all of our standalone revenue since inception was generated through our asset management agreement with Residential.
Residential focuses on acquiring, owning and managing single-family rental properties throughout the United States and conducts substantially all of its activities through its wholly owned subsidiary Altisource Residential, L.P. (“ARLP”) and its subsidiaries. Initially, Residential acquired its rental properties primarily through the acquisition of sub-performing and non-performing mortgage loan portfolios; however, commencing in the second quarter of 2015, it refocused its acquisition strategy to opportunistically acquire portfolios of single-family rental properties, both individually and in pools, as an avenue to more quickly achieve scale in its rental portfolio.
Residential has a long-term service agreements with ASPS, a leading provider of real estate and mortgage portfolio management, asset recovery and customer relationship management services. Residential also has servicing agreements with
three
separate servicers. Residential’s ability to execute its business strategy is reliant, in large part, on the performance of these service providers. ASPS and
one
of the
three
servicers, Ocwen Financial Corporation (“Ocwen”), were related parties through January 16, 2015. We also are party to certain services agreements with ASPS relating to certain support services and technology/network administration.
We initially provided services to Residential pursuant to a
15
-year asset management agreement beginning December 21, 2012 (the “Original AMA”). On March 31, 2015, we entered into a new asset management agreement with Residential (the “New AMA”) under which we will continue to be the exclusive asset manager for Residential for an initial term of
15
years from April 1, 2015, with
two
potential
five
-year extensions. The Original AMA had a different incentive fee structure that gave us a share of Residential’s cash flow available for distribution to its stockholders as well as reimbursement for certain overhead and operating expenses. The New AMA provides for a new fee structure in which we are entitled to a base management fee, an incentive management fee and a conversion fee for loans and real estate owned (“REO”) properties that become rental properties during each quarter. Accordingly, our operating results continue to be highly dependent on Residential's operating results. See Note 7 for additional details of the New AMA.
Additionally, we provide management services to NewSource Reinsurance Company Ltd. (“NewSource”), a title insurance and reinsurance company in Bermuda. In October 2013, we invested
$2.0 million
in
100%
of the common stock of NewSource, and in September 2015, we contributed an additional
$5.0 million
to NewSource. On December 2, 2013, NewSource became registered as a licensed reinsurer with the Bermuda Monetary Authority (“BMA”). NewSource commenced reinsurance activities during the second quarter of 2014. In December 2014, NewSource determined that the economics of the initial business did not warrant the continuation of its initial reinsurance quota share agreement with an unrelated third party. NewSource therefore transferred all of the risk of claims and future losses underwritten to an unrelated third party.
Correction of net loss per common share
Subsequent to the issuance of our Form 10-Q for the quarterly period ended June 30, 2016, we determined that there was an error in the reported amount of the loss per basic and diluted share of common stock. We originally reported loss per share of common stock, both basic and diluted, for the three and six months ended June 30, 2016 of
$0.23
and
$0.74
, respectively. Upon correcting this error, our loss per share of common stock, both basic and diluted, for the three and six months ended June 30, 2016 was
$0.74
and
$1.22
, respectively. All other financial information, including the net loss attributable to stockholders and
weighted average common stock outstanding for all such periods, remains correct and unchanged; therefore, no other changes were made to our unaudited consolidated financial statements.
Basis of presentation and use of estimates
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in our opinion, contain all adjustments that are of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. The interim results are not necessarily indicative of results for a full year. We have omitted certain notes and other information from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q as permitted by the Securities and Exchange Commission (“SEC”) rules and regulations. These consolidated financial statements should be read in conjunction with our annual consolidated financial statements included within our 2015 Annual Report on Form 10-K, which was filed with the SEC on February 29, 2016.
Effective January 1, 2016, the accompanying consolidated financial statements include the accounts of AAMC and its consolidated subsidiaries, which are comprised of voting interest entities in which we are determined to have a controlling financial interest under Accounting Standards Codification (“ASC”) 810, as amended by Accounting Standards Update ASU (“ASU”) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis (“ASU 2015-02”). Our voting interest entities consist entirely of our wholly owned subsidiaries. We also consider variable interest entities (“VIEs”) for consolidation where we are the primary beneficiary as described below. With the adoption of the ASU 2015-02 effective January 1, 2016, we no longer consolidate Residential as a VIE, and we currently do not have any other potential VIEs.
For legal entities evaluated for consolidation, we must determine whether the interests that we hold and fees paid to us qualify as a variable interest in the entity. This includes an evaluation of fees paid to us where we act as a decision maker or service provider to the entity being evaluated. Fees received by us are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) our other economic interests in the VIE held directly and indirectly through our related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits.
For those entities in which we have a variable interest, we perform an analysis to first determine whether the entity is a VIE. This determination includes considering whether the entity’s equity investment at risk is sufficient, whether the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity's activities either involve or are conducted on behalf of that investor and its related parties and whether the entity’s at-risk equity holders have the characteristics of a controlling financial interest. A VIE must be consolidated by its primary beneficiary. Performance of such analysis requires the exercise of judgment.
The primary beneficiary of a VIE is generally defined as the party who has a controlling financial interest in the VIE. We are generally deemed to have a controlling financial interest in a VIE if we have (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to us are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. We also evaluate our economic interests in the VIE held directly by us and indirectly through our related parties, as well as economic interests held by related parties under common control, where applicable. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These analyses require judgment. Changes in the economic interests (either by us, our related parties or third parties) or amendments to the governing documents of the VIE could affect an entity's status as a VIE or the determination of the primary beneficiary. The primary beneficiary evaluation is updated periodically.
For voting interest entities, we shall consolidate the entity if we have a controlling financial interest. We have a controlling financial interest in a voting interest entity if (i) for legal entities other than limited partnerships, we own a majority voting interest in the entity or, for limited partnerships and similar entities, we own a majority of the entity’s kick-out rights through voting limited partnership interests and (ii) non-controlling shareholders or partners do not hold substantive participating rights and no other conditions exist that would indicate that we do not control the entity.
Prior to our deconsolidation of Residential as described below, our consolidated financial statements also include those VIEs that were included within Residential consolidated financial statements. Residential had
three
securitization trusts, ARLP Securitization Trust, Series 2014-1 (“ARLP 2014-1”), ARLP Securitization Trust, Series 2014-2 (“ARLP 2014-2”) and ARLP Securitization Trust, Series 2015-1 (“ARLP 2015-1”), which were classified as VIEs. Because Residential is the primary beneficiary, these entities were included in the consolidated financial statements of Residential but are no longer included in our consolidated financial statements since the deconsolidation. See Note 5 for more information regarding these securitization trusts.
Deconsolidation of Residential
Effective January 1, 2016, we adopted the provisions of ASU 2015-02, and we performed an analysis of our relationship with Residential pursuant to the amended guidance. We determined that the compensation we receive in return for our services to Residential is commensurate with the level of effort required to perform such services and the arrangement includes customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length; therefore, Residential is no longer a VIE under the amended guidance. As a result, effective January 1, 2016, we no longer consolidate the accounts of Residential. We have applied ASU 2015-02 using the modified retrospective approach, which has resulted in a cumulative-effect adjustment to equity on January 1, 2016. As a result, periods ending prior to the adoption were not impacted. The adoption effectively removed those balances previously disclosed that related to Residential from our consolidated financial statements and eliminated the amounts previously reported as noncontrolling interests in Residential as a consolidated affiliate. Subsequent to adoption, our consolidated revenues consist primarily of management fees received from Residential under the New AMA and interest and dividend income, and our consolidated expenses consist primarily of salaries and employee benefits, equity-based compensation, legal and professional fees and general and administrative expenses.
As a result of our deconsolidation of Residential, we have also reclassified certain prior period amounts for consistency with the current period presentation, including accrued salaries and benefits within the consolidated balance sheet and salaries and benefits, equity-based compensation and legal and professional fees within the consolidated statement of operations. These reclassifications had no effect on the reported results of operations.
Available-for-sale securities
The securities we hold consist solely of the common stock of Residential. These securities are classified as available for sale and are reported at fair value. We adjust our investment in Residential common stock to fair value based on unadjusted quoted market prices in active markets. Changes in the fair value are recorded in accumulated other comprehensive income (loss) as changes in unrealized gain (loss) on available-for-sale securities. Our ability to sell these securities, or the price ultimately realized for these securities, depends upon the demand in the market and potential restrictions on the timing at which we may be able to sell the Residential common stock when desired.
Deferred debt issuance costs
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs are presented on the balance sheet as a deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures include the face amount of the debt liability and the effective interest rate. 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. ASU 2015-15 provides additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. ASU 2015-15 noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement.
Residential's application of ASU 2015-03 represents a change in accounting principle and has been applied retrospectively, which resulted in i) a reclassification of the deferred debt issuance cost component of Residential's deferred leasing and
financing costs to repurchase agreements and other secured borrowings and ii) a reclassification of deferred leasing cost component of Residential's deferred leasing and financing costs to prepaid expenses and other assets in our consolidated balance sheets.
The following table represents the effect of change on the prior periods that were reclassified as a result this adoption ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
As Previously Reported
|
|
Adjustments
|
|
Current Presentation
|
Assets:
|
|
|
|
|
|
|
Deferred leasing and financing costs (1)
|
|
$
|
7,886
|
|
|
$
|
(7,886
|
)
|
|
$
|
—
|
|
Prepaid expenses and other assets (1)
|
|
2,458
|
|
|
711
|
|
|
3,169
|
|
Liabilities:
|
|
|
|
|
|
|
Repurchase agreements
|
|
767,513
|
|
|
(4,144
|
)
|
|
763,369
|
|
Other secured borrowings
|
|
505,630
|
|
|
(3,031
|
)
|
|
502,599
|
|
____________
|
|
(1)
|
Upon adoption of ASU 2015-03, Residential reclassified its deferred leasing costs to prepaid expenses and other assets.
|
Recently issued accounting standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. This update standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. This update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10). ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the impact of adopting this standard to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which effectively delayed the adoption date of ASU 2014-09 by one year. ASU 2014-09 is therefore effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016. We do not expect this amendment to have a significant effect on our consolidated financial statements.
2
.
Real estate assets, net
As of
June 30, 2016
, we had
no
real estate assets. The following describes Residential's real estate assets that were included in our consolidated financial statements as of
December 31, 2015
. These real estate assets are no longer included in our consolidated financial statements effective from January 1, 2016.
Real estate held for use
As of December 31, 2015, Residential had
4,933
REO properties held for use. Of these properties,
2,118
had been leased,
264
were being listed and ready for rent and
350
were in varying stages of renovation and unit turn status. With respect to the remaining
2,201
REO properties, we were in the process of determining whether these properties would meet Residential's rental profile.
Real estate held for sale
As of December 31, 2015, Residential classified
1,583
properties having an aggregate carrying value of
$250.6 million
as real estate held for sale. Management determined to divest of these properties because they did not meet its residential rental property investment criteria.
3
.
Mortgage loans
As of
June 30, 2016
, we had
no
mortgage loans due to the deconsolidation of Residential. The following describes Residential's mortgage loans that were included in our consolidated financial statements as of
December 31, 2015
as well as certain related activity recognized in our consolidated financial statements for the
three and six months ended June 30, 2015
.
The following table sets forth the fair value of Residential's mortgage loans, the related unpaid principal balance and market value of underlying properties by delinquency status as of December 31, 2015 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans
|
|
Carrying Value
|
|
Unpaid Principal Balance
|
|
Market Value of Underlying Properties
|
December 31, 2015
|
|
|
|
|
|
|
|
Current
|
730
|
|
|
$
|
124,595
|
|
|
$
|
165,645
|
|
|
$
|
177,348
|
|
30
|
80
|
|
|
12,003
|
|
|
18,142
|
|
|
21,858
|
|
60
|
38
|
|
|
5,688
|
|
|
8,088
|
|
|
8,766
|
|
90
|
984
|
|
|
130,784
|
|
|
216,717
|
|
|
196,963
|
|
Foreclosure
|
3,907
|
|
|
687,464
|
|
|
946,962
|
|
|
917,671
|
|
Mortgage loans at fair value
|
5,739
|
|
|
$
|
960,534
|
|
|
$
|
1,355,554
|
|
|
$
|
1,322,606
|
|
The following table sets forth the carrying value of Residential's mortgage loans held for sale, the related unpaid principal balance and market value of underlying properties by delinquency status as of December 31, 2015 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans
|
|
Carrying Value
|
|
Unpaid Principal Balance
|
|
Market Value of Underlying Properties
|
December 31, 2015
|
|
|
|
|
|
|
|
Current
|
58
|
|
|
$
|
10,864
|
|
|
$
|
13,466
|
|
|
$
|
17,776
|
|
30
|
26
|
|
|
7,616
|
|
|
10,013
|
|
|
12,200
|
|
60
|
6
|
|
|
668
|
|
|
775
|
|
|
1,063
|
|
90
|
328
|
|
|
73,164
|
|
|
101,121
|
|
|
103,395
|
|
Foreclosure
|
879
|
|
|
225,024
|
|
|
314,991
|
|
|
330,573
|
|
Mortgage loans held for sale
|
1,297
|
|
|
$
|
317,336
|
|
|
$
|
440,366
|
|
|
$
|
465,007
|
|
Re-performing residential mortgage loans
For the
three and six months ended June 30, 2015
, Residential recognized no provision for loan loss and no adjustments to the amount of the accretable yield. For the
three and six months ended June 30, 2015
, Residential accreted
$0.2 million
and
$0.5 million
, respectively, into interest income with respect to these re-performing loans. As of December 31, 2015, these re-performing loans, having a UPB of
$6.0 million
and a carrying value of
$4.0 million
, were included in mortgage loans held for sale. Due to the deconsolidation of Residential, no re-performing residential mortgage loans were included in our consolidated financial statements effective from January 1, 2016.
The following table presents changes in the balance of the accretable yield for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Accretable Yield
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2015
|
Balance at the beginning of the period
|
|
$
|
7,207
|
|
|
$
|
7,640
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
Payments and other reductions, net
|
|
(3,084
|
)
|
|
(3,285
|
)
|
Accretion
|
|
(237
|
)
|
|
(469
|
)
|
Balance at the end of the period
|
|
$
|
3,886
|
|
|
$
|
3,886
|
|
4
.
Fair value of financial instruments
The following table sets forth the fair value of financial assets by level within the fair value hierarchy as of
June 30, 2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Quoted Prices in Active Markets
|
|
Observable Inputs other than Level 1 Prices
|
|
Unobservable Inputs
|
June 30, 2016
|
|
|
|
|
|
Recurring basis (assets)
|
|
|
|
|
|
Available-for-sale securities: Residential common stock
|
$
|
14,929
|
|
|
$
|
—
|
|
|
$
|
—
|
|
We did not transfer any assets from one level to another level during the
six months ended June 30, 2016
or during the year ended
December 31, 2015
.
The carrying values of our cash and cash equivalents, related party receivables, accrued salaries and employee benefits, accounts payable and other accrued liabilities and related party payables are equal to or approximate fair value. The fair value of our available-for-sale securities is based on unadjusted quoted market prices from active markets.
As of
June 30, 2016
, we held
1,624,465
shares of Residential's common stock, representing approximately
2.98%
of Residential's then-outstanding common stock, which is included as available-for-sale securities in our consolidated balance sheet as of
June 30, 2016
. At December 31, 2015, we held
324,465
shares of Residential's common stock, representing approximately
0.58%
of Residential's then-outstanding common stock. All of our shares of Residential's common stock were acquired in open market transactions. As of December 31, 2015, we eliminated our investment in Residential common stock upon consolidation (see Note 1).
The following table presents the amortized cost and fair value of our available-for-sale securities as of
June 30, 2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Residential common stock
|
$
|
20,596
|
|
|
$
|
—
|
|
|
$
|
5,667
|
|
|
$
|
14,929
|
|
Total available-for-sale securities
|
$
|
20,596
|
|
|
$
|
—
|
|
|
$
|
5,667
|
|
|
$
|
14,929
|
|
We have recognized no other-than-temporary impairment related to our investment in Residential's common stock. Management believes that the declines in the fair value driven by temporary market fluctuations.
During the
six months ended June 30, 2016
, we acquired
1,300,000
shares of Residential's common stock in open market transactions at an average purchase price of
$11.97
per share. We did
not
acquire any of Residential's common stock during the
six months ended June 30, 2015
.
Due to the deconsolidation of Residential effective January 1, 2016, we did not have any level 3 assets in our consolidated financial statements for the
six months ended June 30, 2016
.
The following describes Residential's financial assets and liabilities that were included in our consolidated financial statements as of
December 31, 2015
as well as certain related activity recognized in our consolidated financial statements for the
three and six months ended June 30, 2015
.
The following table sets forth the fair value of Residential's financial assets and liabilities by level within the fair value hierarchy as of
December 31, 2015
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Quoted Prices in Active Markets
|
|
Observable Inputs other than Level 1 Prices
|
|
Unobservable Inputs
|
December 31, 2015
|
|
|
|
|
|
Recurring basis (assets)
|
|
|
|
|
|
Mortgage loans at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
960,534
|
|
Nonrecurring basis (assets)
|
|
|
|
|
|
Real estate assets held for sale
|
—
|
|
|
—
|
|
|
250,557
|
|
Not recognized on consolidated balance sheets at fair value (assets)
|
|
|
|
|
|
Mortgage loans held for sale
|
—
|
|
|
—
|
|
|
317,336
|
|
Not recognized on consolidated balance sheets at fair value (liabilities)
|
|
|
|
|
|
Repurchase agreements at fair value
|
—
|
|
|
767,513
|
|
|
—
|
|
Other secured borrowings
|
—
|
|
|
502,268
|
|
|
—
|
|
Residential did not transfer any assets from one level to another level during the year ended
December 31, 2015
.
The carrying values of Residential's cash and cash equivalents, restricted cash, related party receivables, accrued salaries and employee benefits, accounts payable and other accrued liabilities, and related party payables are equal to or approximate fair value. The fair values of Residential's mortgage loans at fair value and non-performing mortgage loans held for sale are estimated using our proprietary pricing model. The fair value of Residential's real estate assets held for sale is estimated using BPOs, estimated sales prices from pending contracts and discounted cash flow models. The fair value of Residential's re-performing mortgage loans held for sale is estimated using the present value of the future estimated principal and interest payments of the loan, with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The fair value of Residential's repurchase agreements is estimated using the income approach based on credit spreads available currently in the market for similar floating rate debt. The fair value of Residential's other secured borrowings is estimated using observable market data.
The following table sets forth the changes in Residential's level 3 assets that are measured at fair value on a recurring basis for the
three and six months ended June 30, 2015
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2015
|
Mortgage loans at fair value
|
|
|
|
|
Beginning balance
|
|
$
|
1,853,495
|
|
|
$
|
1,959,044
|
|
Net unrealized gain on mortgage loans
|
|
42,209
|
|
|
103,343
|
|
Net realized gain on mortgage loans
|
|
19,272
|
|
|
34,654
|
|
Mortgage loan resolutions and payments
|
|
(82,070
|
)
|
|
(147,238
|
)
|
Real estate tax advances to borrowers
|
|
4,264
|
|
|
11,391
|
|
Reclassification of realized gains on real estate sold from unrealized gains
|
|
13,175
|
|
|
23,977
|
|
Transfer of mortgage loans to real estate owned, net
|
|
(133,856
|
)
|
|
(268,682
|
)
|
Ending balance
|
|
$
|
1,716,489
|
|
|
$
|
1,716,489
|
|
|
|
|
|
|
Net unrealized gain on mortgage loans held at the end of the period
|
|
$
|
29,784
|
|
|
$
|
80,852
|
|
The significant unobservable inputs used in the fair value measurement of Residential's mortgage loans are discount rates, forecasts of future home prices, alternate loan resolution probabilities, resolution timelines and the value of underlying properties. Significant changes in any of these inputs in isolation could result in a significant change to the fair value measurement. A decline in the discount rate in isolation would increase the fair value. A decrease in the housing pricing index in isolation would decrease the fair value. Individual loan characteristics such as location and value of underlying collateral affect the loan resolution probabilities and timelines. An increase in the loan resolution timeline in isolation would decrease the fair value. A decrease in the value of underlying properties in isolation would decrease the fair value. The following table sets forth quantitative information about the significant unobservable inputs used to measure the fair value of Residential's mortgage loans as of December 31, 2015:
|
|
|
|
Input
|
|
December 31, 2015
|
Equity discount rate
|
|
15.0%
|
Debt to asset ratio
|
|
65.0%
|
Cost of funds
|
|
3.5% over 1 month LIBOR
|
Annual change in home pricing index
|
|
0.0% to 10.2%
|
Loan resolution probabilities — modification
|
|
0% to 44.7%
|
Loan resolution probabilities — rental
|
|
0% to 100.0%
|
Loan resolution probabilities — liquidation
|
|
0% to 100.0%
|
Loan resolution timelines (in years)
|
|
0.1 to 5.6
|
Value of underlying properties
|
|
$3,000 - $4,500,000
|
5
.
Borrowings
As of
June 30, 2016
, we had
no
outstanding debt due to the deconsolidation of Residential. The following describes Residential's repurchase and loan agreements and its other secured borrowings that were included in our consolidated financial statements as of
December 31, 2015
.
Repurchase and loan agreements
The following table sets forth data with respect to Residential's repurchase agreements and loan agreement as of
December 31, 2015
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Borrowing Capacity
|
|
Book Value of Collateral
|
|
Amount Outstanding
|
|
Amount of Available Funding
|
December 31, 2015
|
|
|
|
|
|
|
|
Repurchase agreement due April 18, 2016
|
$
|
275,000
|
|
|
$
|
335,184
|
|
|
$
|
194,346
|
|
|
$
|
80,654
|
|
Repurchase agreement due September 27, 2017
|
750,000
|
|
|
708,275
|
|
|
371,130
|
|
|
378,870
|
|
Repurchase agreement due March 11, 2016
|
54,944
|
|
|
130,863
|
|
|
54,944
|
|
|
—
|
|
Loan agreement due April 8, 2016
|
200,000
|
|
|
204,578
|
|
|
147,093
|
|
|
52,907
|
|
Less: deferred debt issuance costs
|
—
|
|
|
—
|
|
|
(4,144
|
)
|
|
—
|
|
|
$
|
1,279,944
|
|
|
$
|
1,378,900
|
|
|
$
|
763,369
|
|
|
$
|
512,431
|
|
Other secured debt
As of December 31, 2015, Residential's consolidated financial statements included
three
securitization trusts (ARLP 2015-1, ARLP 2014-2 and ARLP 2014-1), which were VIEs of which Residential was the primary beneficiary. Each trust was a Delaware statutory trust that was wholly-owned by Residential's operating partnership with a federally-chartered bank as its trustee.
As of December 31, 2015, the book value of the underlying securitized assets held by ARLP 2015-1 was
$282.1 million
, the book value of the underlying securitized assets held by ARLP 2014-2 was
$322.5 million
, and the book value of the underlying securitized assets held by ARLP 2014-1 was
$202.3 million
.
The following table sets forth data with respect to these notes as of
December 31, 2015
($ in thousands):
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
Amount Outstanding
|
December 31, 2015
|
|
|
|
ARLP Securitization Trust, Series 2015-1
|
|
|
|
ARLP 2015-1 Class A Notes due May 25, 2055 (1)
|
4.01
|
%
|
|
$
|
203,429
|
|
ARLP 2015-1 Class M Notes due May 25, 2044
|
—
|
%
|
|
60,000
|
|
ARLP Securitization Trust, Series 2014-2
|
|
|
|
ARLP 2014-2 Class A Notes due January 26, 2054 (2)
|
3.63
|
%
|
|
244,935
|
|
ARLP 2014-2 Class M Notes due January 26, 2054
|
—
|
%
|
|
234,010
|
|
ARLP Securitization Trust, Series 2014-1
|
|
|
|
ARLP 2014-1 Class A Notes due September 25, 2044 (3)
|
3.47
|
%
|
|
136,404
|
|
ARLP 2014-1 Class M Notes due September 25, 2044 (4)
|
4.25
|
%
|
|
32,000
|
|
Intercompany eliminations
|
|
|
|
Elimination of ARLP 2015-1 Class A Notes due to ARNS, Inc.
|
|
|
(34,000
|
)
|
Elimination of ARLP 2015-1 Class M Notes due to ARLP
|
|
|
(60,000
|
)
|
Elimination of ARLP 2014-2 Class A Notes due to ARNS, Inc.
|
|
|
(45,138
|
)
|
Elimination of ARLP 2014-2 Class M Notes due to ARLP
|
|
|
(234,010
|
)
|
Elimination of ARLP 2014-1 Class M Notes due to ARNS, Inc.
|
|
|
(32,000
|
)
|
Less: deferred debt issuance costs
|
|
|
(3,031
|
)
|
|
|
|
$
|
502,599
|
|
_____________
|
|
(1)
|
The expected redemption date for the Class A Notes ranged from June 25, 2018 to June 25, 2019.
|
|
|
(2)
|
The expected redemption date for the Class A Notes ranged from November 27, 2017 to November 27, 2018.
|
|
|
(3)
|
The expected redemption date for the Class A Notes ranged from September 25, 2017 to September 25, 2018.
|
|
|
(4)
|
The expected redemption date for the Class M Notes was September 2
5
, 2018.
|
6
.
Commitments and Contingencies
Litigation, claims and assessments
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Set forth below is a summary of legal proceedings to which we are a party as of
June 30, 2016
:
City of Cambridge Retirement System v. Altisource Asset Management Corp., et al.
On January 16, 2015, a putative shareholder class action complaint was filed in the United States District Court of the Virgin Islands by a purported shareholder of AAMC under the caption
City of Cambridge Retirement System
v.
Altisource Asset Management Corp., et al.
, 15-cv-00004. The action names as defendants AAMC, Mr. Erbey and certain officers of AAMC and alleges that the defendants violated federal securities laws by failing to disclose material information to AAMC shareholders concerning alleged conflicts of interest held by Mr. Erbey with respect to AAMC’s relationship and transactions with Residential, Altisource, Home Loan Servicing Solutions, Ltd., Southwest Business Corporation, NewSource Reinsurance Company and Ocwen, including allegations that the defendants failed to disclose (i) the nature of relationships between Mr. Erbey, AAMC and those entities; and (ii) that the transactions were the result of an allegedly unfair process from which Mr. Erbey failed to recuse himself. The action seeks, among other things, an award of monetary damages to the putative class in an unspecified amount and an award of attorney’s and other fees and expenses. AAMC and Mr. Erbey are the only defendants who have been served with the complaint.
On May 12, 2015, the court entered an order granting the motion of Denver Employees Retirement Plan to be lead plaintiff. On May 15, 2015, the court entered a scheduling order requiring plaintiff to file an amended complaint on or before June 19, 2015, and setting a briefing schedule for any motion to dismiss. Plaintiff filed an amended complaint on June 19, 2015. On July 20, 2015, AAMC and Mr. Erbey filed a motion to dismiss the amended complaint. Briefing on the motion to dismiss was completed on September 3, 2015, and we are awaiting a decision from the court on the motion.
We believe the amended complaint is without merit. At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.
Kanga v. Altisource Asset Management Corporation, et al.
On March 12, 2015, a shareholder derivative action was filed in the Superior Court of the Virgin Islands, Division of St. Croix, by a purported shareholder of AAMC under the caption
Nanzeen Kanga
v.
William Erbey, et al.
, SX-15-CV-105. The action names as defendants William C. Erbey and each of the current and former members of AAMC's Board of Directors and alleges that Mr. Erbey and AAMC’s directors breached fiduciary duties in connection with the disclosures that are the subject of the
City of Cambridge Retirement System
case described above and certain other matters involving the relationship of Residential and AAMC.
On May 15, 2015, the plaintiff and the defendants filed an agreed motion to stay the action until the earliest of any of the following events: (i) the
City of Cambridge Retirement System
action is dismissed with prejudice; (ii) any of the defendants in the
City of Cambridge Retirement System
action file an answer in that action; and (iii) defendants do not move to stay any later-filed derivative action purportedly brought on behalf of us arising from similar facts as the Kanga action and relating to the same time frame or such motion to stay is denied.
At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.
Sokolowski v. Erbey, et al.
On December 24, 2014, a shareholder derivative action was filed in the United States District Court for the Southern District of Florida by a purported shareholder of Ocwen. The action named the directors of Ocwen as defendants and alleged, among other things, various breaches of fiduciary duties by the directors of Ocwen.
On February 11, 2015, plaintiff filed an amended complaint naming the directors of Ocwen as defendants and also naming Residential, AAMC, Altisource and Home Loan Servicing Solutions, Ltd. as alleged aiders and abettors of the purported breaches of fiduciary duties. The amended complaint alleges that the directors of Ocwen breached their fiduciary duties by, among other things, allegedly failing to exercise oversight over Ocwen’s compliance with applicable laws, rules and regulations; failing to exercise oversight responsibilities with respect to the accounting and financial reporting processes of Ocwen; failing to prevent conflicts of interest and allegedly improper related party transactions; failing to adhere to Ocwen’s code of conduct and corporate governance guidelines; selling personal holdings of Ocwen stock on the basis of material adverse inside information; and disseminating allegedly false and misleading statements regarding Ocwen’s compliance with regulatory obligations and allegedly self-dealing transactions with related companies. Plaintiff claims that as a result of the alleged breaches of fiduciary duties, Ocwen has suffered damages, including settlements with regulatory agencies in excess of
$2 billion
, injury to its reputation and corporate goodwill and exposure to governmental investigations and securities and consumer class action lawsuits. In addition to the derivative claims, the plaintiff also alleges an individual claim that Ocwen’s 2014 proxy statement allegedly contained untrue statements of material fact and failed to disclose material information in violation of federal securities laws. The plaintiff seeks, among other things, an order requiring the defendants to repay to Ocwen unspecified amounts by which Ocwen has been damaged or will be damaged, an award of an unspecified amount of exemplary damages, changes to Ocwen's corporate governance and an award of attorneys’ and other fees and expenses.
On April 13, 2015, nominal defendant Ocwen and defendants Mr. Erbey and Mr. Faris filed a motion to stay the action.
On July 16, 2015, we filed a motion to dismiss all claims against us in the action, based upon, among other arguments, lack of personal jurisdiction and failure to state a claim. Co-defendant Residential filed a similar motion to dismiss the complaint as to all claims asserted against it.
On December 8, 2015, the court granted Residential's and our motions to dismiss for lack of personal jurisdiction with leave to amend the jurisdiction allegations no later than January 4, 2016.
On December 15, 2015,
Hutt v. Erbey, et al.
, Case No. 15-cv-81709-WPD, was transferred to the Southern District of Florida from the Northern District of Georgia. That same day, a third related derivative action,
Lowinger v. Erbey, et al.
, Case No. 15-cv-62628-WPD, was also filed in the Southern District of Florida. The court then requested that the parties file a response stating their positions as to whether the actions should be consolidated. On December 29, 2015, we filed a response stating that we took no position on the issue of consolidation, so long as our defenses were fully reserved should plaintiff Sokolowski seek to file an amended complaint. Neither plaintiff Sokolowski nor plaintiff Hutt opposed consolidation in their responses. On December 30, 2015, the court issued an order that, among other things, extended the deadline for plaintiff Sokolowski to file its amended complaint to cure the jurisdictional defects as to Residential and us until January 13, 2016. On January 8, 2016, the court issued an order consolidating the
three
related actions.
On February 2, 2016, Plaintiffs Sokolowski and Lowinger filed competing motions for appointment of lead counsel in the consolidated action. These motions were fully briefed on February 5, 2016. Subsequently, on February 17, 2016, the court issued an order appointing Sokolowski’s counsel as lead counsel with Lowinger’s and Hutt’s counsel serving on the executive committee of the plaintiffs. It also ordered that a consolidated complaint in the matter shall be filed no later than March 8, 2016.
On March 8, 2016, the plaintiffs filed a consolidated certified shareholder derivative complaint (the “Consolidated Complaint”) in the action. On March 11, the Special Litigation Committee of Ocwen sought additional time beyond the March 31, 2016 originally anticipated completion date to analyze the Consolidated Complaint. On March 22, 2016, the parties filed a joint consent motion for entry of an order amending the briefing schedule regarding the Consolidated Complaint. On March 23, 2016, the court entered a scheduling order requiring defendants to file their motions to dismiss on or before May 13, 2016, plaintiffs to file a response to any such motion on or before June 17, 2016 and defendants to file any reply briefs on or before July 15, 2016.
On May 13, 2016, we filed a motion to dismiss the
Sokolowski
action as to us. Subsequently, plaintiffs sought and received an extension to file their opposition to the defendants' motions to dismiss to August 19, 2016.
We believe the complaint against us is without merit. At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.
Management does not believe that we have incurred an estimable, probable or material loss by reason of any of the above actions.
7
.
Related party transactions
New Asset Management Agreement with Residential
On March 31, 2015, we entered into the New AMA with Residential. The New AMA, which became effective on April 1, 2015, provides for a new management fee structure which replaces the incentive fee structure under the Original AMA as follows:
|
|
•
|
Base Management Fee
. We are entitled to a quarterly Base Management Fee equal to
1.5%
of the product of (i) Residential’s average invested equity capital for the quarter
multiplied by
(ii)
0.25
while Residential has fewer than
2,500
single family rental properties actually rented (“Rental Properties”). The Base Management Fee percentage increases to
1.75%
of invested equity capital while Residential has between
2,500
and
4,499
rental properties and increases to
2.0%
of invested equity capital while Residential has
4,500
or more rental properties;
|
|
|
•
|
Incentive Management Fee
. We are entitled to a quarterly Incentive Management Fee equal to
20%
of the amount by which Residential's return on invested equity capital (based on AFFO, defined as net income attributable to holders of common stock calculated in accordance with GAAP
plus
real estate depreciation expense
minus
recurring capital expenditures on all real estate assets owned by Residential) exceeds an annual hurdle return rate of between
7.0%
and
8.25%
(depending on the
10
-year treasury rate). The Incentive Management Fee increases to
22.5%
while Residential has between
2,500
and
4,499
Rental Properties and increases to
25%
while Residential has
4,500
or more Rental Properties; and
|
|
|
•
|
Conversion Fee
. We are entitled to a quarterly Conversion Fee equal to
1.5%
of the market value of the single-family homes leased by Residential for the first time during the quarter.
|
Residential has the flexibility to pay up to
25%
of the incentive management fee to us in shares of Residential common stock.
Under the New AMA, we will continue to be the exclusive asset manager for Residential for an initial term of
15
years from April 1, 2015, with
two
potential
five
-year extensions, subject to Residential achieving an average annual return on invested equity capital of at least
7.0%
. Under the New AMA, Residential will not be required to reimburse us for the allocable compensation and routine overhead expenses of our employees and staff, all of which will now be covered by the base management fee described above. Only the compensation and benefits of the general counsel dedicated to Residential is reimbursed by Residential.
Neither party is entitled to terminate the New AMA prior to the end of the initial term, or each renewal term, other than termination by (a) Residential and/or us “for cause” for certain events such as a material breach of the New AMA and failure to
cure such breach, (b) Residential for certain other reasons such as Residential’s failure to achieve a return on invested equity capital of at least
7.0%
for
two
consecutive fiscal years after the third anniversary of the New AMA, and (c) Residential in connection with certain change of control events.
Summary of Related Party Transactions
The following table presents our significant transactions with Residential, which is a related party ($ in thousands). Prior to our adoption of ASU 2015-02 on January 1, 2016, our transactions with Residential were eliminated upon consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2016
|
|
Six months ended June 30, 2015
|
Base management fees
|
$
|
4,506
|
|
|
$
|
4,752
|
|
|
$
|
8,630
|
|
|
$
|
4,752
|
|
Conversion fees
|
544
|
|
|
399
|
|
|
946
|
|
|
399
|
|
Management incentive fees (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
14,900
|
|
Expense reimbursements
|
357
|
|
|
—
|
|
|
357
|
|
|
750
|
|
Professional fee sharing for negotiation of New AMA
|
—
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
______________
|
|
(1)
|
Pursuant to the terms of the New AMA, the management incentive fees for the first quarter of 2015 were recalculated during the fourth quarter of 2015, and it was determined that
$6.9 million
was reimbursable by us to Residential.
|
No
Incentive Management Fee was due from Residential for the
second quarter
of 2016 because Residential's return on invested equity capital (as defined in the New AMA) for the
five
quarters covered by the New AMA was below the required hurdle rate. Under the New AMA, to the extent Residential has an aggregate shortfall in its return rate over the previous
seven
quarters, that aggregate return rate shortfall gets added to the normal quarterly
1.75%
return hurdle for the next quarter before we are entitled to an Incentive Management Fee. As of
June 30, 2016
, Residential's aggregate return shortfall from the prior
five
quarters under the New AMA was approximately
26.89%
of invested equity capital. Therefore, Residential must achieve a
28.64%
return on invested equity capital in the third quarter of 2016 before any Incentive Management Fee will be due from Residential. In future quarters, return on invested equity capital must exceed the required hurdle for the current quarter plus any carried-forward cumulative additional hurdle shortfall from the prior
seven
quarters before any Incentive Management Fee will be due from Residential.
As of
June 30, 2016
, we held
1,624,465
shares of Residential's common stock, representing approximately
2.98%
of Residential's then-outstanding common stock. At December 31, 2015, we held
324,465
shares of Residential's common stock, representing approximately
0.58%
of Residential's then-outstanding common stock. All of our shares of Residential's common stock were acquired in open market transactions.
8
.
Share-based payments
During the
six months ended June 30, 2016
, we granted
no
share-based payments to members of management. During the
three months ended June 30, 2015
, we granted
44,132
shares of market-based restricted stock to certain members of executive management under our 2012 Equity Incentive Plan with a weighted average grant date fair value per share of
$181.02
.
Our directors each received annual grants of restricted stock equal to
$60 thousand
based on the market value of our common stock at the time of the annual stockholders meeting. These shares of restricted stock vest and are issued after a
one
-year service period subject to each director attending at least
75%
of the Board and committee meetings. No dividends are paid on the shares until the award is issued. During the
six months ended June 30, 2016
and
2015
, we granted
10,200
and
1,122
shares of restricted stock, respectively, to our directors with a weighted average grant date fair value per share of
$18.08
and
$162.66
, respectively.
We recorded
$2.4 million
and
$4.8 million
of compensation expense related to these grants for the
three and six months ended June 30, 2016
, respectively, and we recorded
$2.1 million
and
$2.9 million
for the
three and six months ended June 30, 2015
, respectively. As of
June 30, 2016
and December 31,
2015
, we had an aggregate
$14.2 million
and
$18.7 million
, respectively, of total unrecognized share-based compensation cost to be recognized over a weighted average remaining estimated term of
1.8 years
and
2.9 years
, respectively.
9
.
Income taxes
We are domiciled in the United States Virgin Islands (“USVI”) and under current USVI law are obligated to pay taxes in the United States Virgin Islands on income and/or capital gains. We applied for tax benefits from the United States Virgin Islands Economic Development Commission and received our certificate of benefits, effective as of February 1, 2013. Under the certificate of benefits, so long as we comply with the provisions of the certificate, we will receive a
90%
exemption on our USVI-sourced income taxes until 2043. NewSource is considered a controlled foreign corporation (“CFC”) to AAMC. Subpart F income generated by a CFC is taxed currently in the USVI and is not eligible for the reduced tax rate under the certificate of benefits.
As of
June 30, 2016
and December 31,
2015
, we accrued
no
interest or penalties associated with any unrecognized tax benefits, nor did we recognize any interest expense or penalty during the
six months ended June 30, 2016
and
2015
. As of December 31,
2015
, Residential accrued
no
interest or penalties associated with any unrecognized tax benefits, nor did Residential recognize any interest expense or penalty during the
six months ended June 30, 2015
. Residential recorded nominal state and local tax expense on income and property for the
three and six months ended June 30, 2015
. Our subsidiaries and we remain subject to tax examination for the period from inception to
December 31, 2015
.
Management assesses the available evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets. Based on this assessment as of
June 30, 2016
, we recorded a valuation allowance for the deferred tax assets that we believe are more likely than not to not be realized. This valuation allowance resulted in the recognition of
$0.9 million
of income tax expense for the three and
six months ended June 30, 2016
. If, in future periods, we determine that positive evidence exists that these deferred tax assets are more likely than not to be realized, the related valuation allowance would be reversed to the extent that the deferred tax asset is more likely than not to be realized.
10
.
Earnings per share
The following table sets forth the components of diluted earnings per share (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2016
|
|
Six months ended June 30, 2015
|
Numerator
|
|
|
|
|
|
|
|
Net (loss) income attributable to stockholders
|
$
|
(1,261
|
)
|
|
$
|
743
|
|
|
$
|
(2,201
|
)
|
|
7,631
|
|
Amortization of preferred stock issuance costs
|
52
|
|
|
50
|
|
|
104
|
|
|
103
|
|
Numerator for basic EPS – (loss) income available to common stockholders
|
(1,313
|
)
|
|
693
|
|
|
(2,305
|
)
|
|
7,528
|
|
Add back amortization of preferred stock issuance costs
|
—
|
|
|
50
|
|
|
—
|
|
|
103
|
|
Numerator for diluted EPS – (loss) income available to common stockholders after assumed conversions
|
$
|
(1,313
|
)
|
|
$
|
743
|
|
|
$
|
(2,305
|
)
|
|
$
|
7,631
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
Weighted average common stock outstanding – basic
|
1,776,831
|
|
|
2,218,533
|
|
|
1,883,322
|
|
|
2,211,357
|
|
Stock options using treasury method
|
—
|
|
|
230,243
|
|
|
—
|
|
|
231,478
|
|
Restricted stock
|
—
|
|
|
98,179
|
|
|
—
|
|
|
109,487
|
|
Preferred stock if converted
|
—
|
|
|
200,000
|
|
|
—
|
|
|
200,000
|
|
Weighted average common stock outstanding – diluted
|
1,776,831
|
|
|
2,746,955
|
|
|
1,883,322
|
|
|
2,752,322
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per basic share
|
$
|
(0.74
|
)
|
|
$
|
0.31
|
|
|
$
|
(1.22
|
)
|
|
$
|
3.40
|
|
(Loss) earnings per diluted share
|
$
|
(0.74
|
)
|
|
$
|
0.27
|
|
|
$
|
(1.22
|
)
|
|
$
|
2.77
|
|
We excluded the items presented below from the calculation of diluted earnings per share as they were antidilutive for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2016
|
|
Six months ended June 30, 2015
|
Numerator ($ in thousands)
|
|
|
|
|
|
|
|
Amortization of preferred stock issuance costs
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
104
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Denominator (in weighted-average shares)
|
|
|
|
|
|
|
|
Stock options
|
167,720
|
|
|
—
|
|
|
168,659
|
|
|
—
|
|
Restricted stock
|
39,170
|
|
|
—
|
|
|
45,646
|
|
|
—
|
|
Preferred stock if converted
|
200,000
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
11
.
Segment information
Our primary business is to provide asset management and certain corporate governance services to institutional investors. Because substantially all of our revenue is derived from the services we provide to Residential under the New AMA, we operate as a single segment focused on providing asset management and corporate governance services.
12
.
Subsequent events
Management has evaluated the impact of all subsequent events through the issuance of these consolidated interim financial statements and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.